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‘Built to Fail’? Why TerraUSD’s Growth Is Giving Finance Experts Nightmares
‘Built to Fail’? Why TerraUSD’s Growth Is Giving Finance Experts Nightmares
"UST, by contrast, began life as what’s known as an “algorithmic” stablecoin. These could also be referred to as “decentralized” stablecoins because decentralization is their primary reason for existing. A collateralized stablecoin like USDT or USDC is reliant on banks and traditional markets. That makes them in turn subject to regulation, enforcement and ultimately, censorship of transactions. Circle and Tether are run by centralized corporate entities with the ability to blacklist users and even seize their funds. Both systems have done this, sometimes at government behest."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·coindesk.com·
‘Built to Fail’? Why TerraUSD’s Growth Is Giving Finance Experts Nightmares
Abaku Capital
Abaku Capital
The primary function of Abaku Capital is the maintenance and promotion of a family of tokens aimed at facilitating commerce. The flagship token is designed for monetary stability, and as a hedge against foreign-exchange risk, whereas the rest of the family comprises tethers to various currencies of interest. This token is, in essence, a cryptonisation of the International Monetary Fund’s proprietary currency, the SDR (special drawing rights). The SDR, and therefore its Abaku counterpart, is an asset-backed currency based on a basket of national currencies managed by the IMF.
#Fintech#CryptoAssets#Stablecoins#SDR#DFC
·abaku.capital·
Abaku Capital
UST Stablecoin Briefly Loses Peg, Luna Drops 10%
UST Stablecoin Briefly Loses Peg, Luna Drops 10%
TerraUSD (UST), the the third largest stablecoin by market capitalization and the largest algorithmic stablecoin, briefly lost its dollar peg on May 7, 2022, falling to .987 before bouncing back the next day. This wasn't UST's first depeg, nor its largest, but it marks the first time it has lost its peg since it started building out Bitcoin and Avalanche reserves. The depeg did not cause Terra to tap into its Bitcoin reserves, as the deployment of hundreds of millions of dollars of rescue capital appeared enough to buoy the token back to around $1.
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·coindesk.com·
UST Stablecoin Briefly Loses Peg, Luna Drops 10%
UST Stablecoin Falls Below Dollar Peg for Second Time in 48 Hours
UST Stablecoin Falls Below Dollar Peg for Second Time in 48 Hours
TerraUSD (UST), the the third largest stablecoin by market capitalization and the largest algorithmic stablecoin, has lost its dollar peg. The first depeg took place on May 7 (Saturday) and after recovering the next day, the peg broke again today (Monday, May 9). This isn't UST's first depeg, nor its largest, but it marks the first time it has lost its peg since it started building out Bitcoin and Avalanche reserves. Today’s depeg comes after the Luna Foundation Guard announced Sunday night that $1.5 billion of its massive bitcoin reserves would be “loaned” out to professional market makers to proactively defend UST’s dollar peg.
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·coindesk.com·
UST Stablecoin Falls Below Dollar Peg for Second Time in 48 Hours
Unstable Stablecoin: How Crypto’s Crash Broke The Buck For TerraUSD
Unstable Stablecoin: How Crypto’s Crash Broke The Buck For TerraUSD
"TerraUSD (UST), a digital token with a $16 billion market capitalization that is designed to maintain a 1:1 peg with the dollar, known as a stablecoin, nosedived over the past 24 hours. Its price fell below $.65, before somewhat recovering to $0.93 as of this writing. In other words, UST failed spectacularly at the one thing that it was supposed to do - maintain parity with the dollar."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·forbes.com·
Unstable Stablecoin: How Crypto’s Crash Broke The Buck For TerraUSD
Another Algorithmic Stablecoin Isn’t
Another Algorithmic Stablecoin Isn’t
"The basic thing that makes Terra valuable is confidence in it. The essential source of this confidence is ... just sort of recursive social belief? If you think that everyone else will treat Terra as worth a dollar, then you will treat it as worth a dollar, and you won’t sell it for $0.90 in a panic, which means that it won’t go down to $0.90, etc. But if you think that everyone else will treat Terra as worth zero, then you will dump it as fast as you can at whatever price you can get, which means that it will go down below $0.90, etc."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·bloomberg.com·
Another Algorithmic Stablecoin Isn’t
What's Happening to UST?
What's Happening to UST?
"For now, MakerDAO remains the premier decentralized stablecoin with over-collateralized crypto reserves backing the DAI stablecoin. The race to develop the first under-collateralized stablecoins remains to be won as projects like USDN on the Near Protocol or Frax Share on Ethereum gain popularity."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·grayscale.com·
What's Happening to UST?
Joe Weisenthal on the TerraUSD (UST) debacle
Joe Weisenthal on the TerraUSD (UST) debacle
To some extent, it's really important for an algorithmic stablecoin to exist, in order for crypto or defi to reach its full potential. Backed stablecoins (like Tether or USDC) are at risk of censorship and seizures. As long as there's money in a regulated bank account somewhere bolstering the value of the coin, that's something that law enforcement or regulators can go after, seize, or set constraining rules around its use. That risk is inconsistent with the crypto ethos, hence the desire for something that's cash-like, but doesn't actually touch regulated financial entities, and can't be seized etc. Here's the thing though, just because it may be a crucial component of the future DeFi vision doesn't mean it's necessarily going to be possible. The question remains how can you just create an asset and set the price unless you have an infinite amount of money, or some other persistent source of cash flow, to back it?
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·twitter.com·
Joe Weisenthal on the TerraUSD (UST) debacle
Terra founder Do Kwon shares plan to save the UST stablecoin peg
Terra founder Do Kwon shares plan to save the UST stablecoin peg
"In a nutshell, the “decentralized” stablecoin protocol UST has come up with a preliminary solution to its disastrous situation where its peg to the U.S. dollar has broken. The process should reinforce the burning of UST, which so far, has been ineffective in achieving dollar parity for the stablecoin."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·cointelegraph.com·
Terra founder Do Kwon shares plan to save the UST stablecoin peg
Terra’s stablecoin does its own 2008 crisis — UST crashes and takes Bitcoin with it
Terra’s stablecoin does its own 2008 crisis — UST crashes and takes Bitcoin with it
David Gerard has provided some excellent analysis of the continuing crash of the TerraUSD (UST) algorithmic stablecoin and the resulting fallout on broader crypto-asset markets. TerraUSD tumbled to as low as $0.30 on May 11, on fears of a "death spiral" in an asset that is supposed to be pegged to the U.S. dollar. Luna, the crypto-asset intimately tied to TerraUSD, was down almost 90% on the day as confidence in the network collapsed, and Bitcoin and Avalanche (AVAX) are also paying the price for being collateral assets that maintain TerraUSD's peg.
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·davidgerard.co.uk·
Terra’s stablecoin does its own 2008 crisis — UST crashes and takes Bitcoin with it
Terra Flops
Terra Flops
"An “algorithmic stablecoin” sounds complicated, and there are a lot of people with incentives to pretend that it is complicated, but it is not. Here is how an algorithmic stablecoin works"
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·bloomberg.com·
Terra Flops
Terra Proposes Token Burn and Increase in Pool Size to Stop UST Dilution
Terra Proposes Token Burn and Increase in Pool Size to Stop UST Dilution
"In a proposal put forward to token holders, Terra said that it wants to burn the nearly 1 billion UST (roughly $690 million) in the community pool while increasing the Base Pool of LUNA available to 100 million which in turn increases minting capacity to over $1 billion. This will help expedite the outflows of UST from the system, and thus pushing it back closer to its peg, while pushing down the price of Luna. “Currently, the burning of UST is too slow to keep pace with the demand for excess UST to exit the system, which is hindered by the BasePool size,” reads the proposal. “Eliminating a significant chunk of the excess UST supply at once will alleviate much of the peg pressure on UST.”"
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·coindesk.com·
Terra Proposes Token Burn and Increase in Pool Size to Stop UST Dilution
Terra Blockchain Halted To 'Prevent Attacks' After Luna Token Crashes Nearly 100% Overnight
Terra Blockchain Halted To 'Prevent Attacks' After Luna Token Crashes Nearly 100% Overnight
Terraform Labs announced that the blockchain's miners had decided to halt the Terra blockchain in order to "prevent governance attacks" following "severe [luna] inflation." Later, Terra said validators are working to restart the network "in a few minutes.
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·forbes.com·
Terra Blockchain Halted To 'Prevent Attacks' After Luna Token Crashes Nearly 100% Overnight
How stablecoins are destabilising crypto
How stablecoins are destabilising crypto
Price discovery for bitcoin takes place in derivatives trades where tether serves as the margin and settlement currency. What trading of the dollar against the euro is to currencies, trading of bitcoin against tether is to crypto. On the Binance exchange, the pricing of reassuringly named perpetual swap contracts involving bitcoin and tether drives bitcoin prices in US dollars and more broadly influences prices across crypto... Without tether, or at least without stablecoins, it is not clear how the crypto complex functions. Problems with the vehicle currency would impair the liquidity of the whole crypto complex, just as the “dollar shortage” of late 2008 impaired the liquidity of the whole foreign exchange market. Less liquid assets are worth less. And if a prominent stablecoin becomes essentially a worthless entry on nobody’s spreadsheet, it would suggest other crypto could go to zero.
#Fintech#CryptoAssets#Stablecoins#Terra#Tether#DFC
·ft.com·
How stablecoins are destabilising crypto
Why financial engineering has gone full circle with Terra
Why financial engineering has gone full circle with Terra
The crypto market was always going to be vulnerable to the return of a positive yielding fiat environment. This is because its gains were always likely the function of an excessively cheap debt financing world. If that’s true, it’s entirely possible that the last 10 years or so of sky-rocketing crypto gains were largely a transfer of “cheap money” financial profiteering, which — were not for the post GFC regulatory environment — would otherwise have been captured by the banking industry in the form of sky-high bank equity valuations.
#Fintech#CryptoAssets#Stablecoins#Terra#Tether#DFC
·the-blindspot.com·
Why financial engineering has gone full circle with Terra
Built to Fail: The Inherent Fragility of Algorithmic Stablecoins
Built to Fail: The Inherent Fragility of Algorithmic Stablecoins
"This Article argues that algorithmic stablecoins are fundamentally flawed because they rely on three factors which history has shown to be impossible to control. First, they require a support level of demand for operational stability. Second, they rely on independent actors with market incentives to perform price-stabilizing arbitrage. Finally, they require reliable price information at all times. None of these factors are certain, and all of them have proven to be historically tenuous in the context of financial crises or periods of extreme volatility. "
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·papers.ssrn.com·
Built to Fail: The Inherent Fragility of Algorithmic Stablecoins
Algorithmic stablecoins and devaluation risk
Algorithmic stablecoins and devaluation risk
"On 10 May 2022, the price of TerraUSD, an algorithmic stablecoin operating on the Terra blockchain, fell and it lost its peg to one US dollar. Using the devaluation of the TerraUSD peg as a case study, this column shows how algorithmic stablecoins are vulnerable to speculative attacks when the system is under-collateralised. The authors point to solutions – stable collateral and over-collateralisation – to stabilise the peg."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·voxeu.org·
Algorithmic stablecoins and devaluation risk
Decentralized Stablecoins and Collateral Risk
Decentralized Stablecoins and Collateral Risk
"In this paper, we study the mechanisms that govern price stability of MakerDAO's DAI token, the first decentralized stablecoin. DAI works through a set of autonomous smart contracts, in which users deposit cryptocurrency collateral, typically Ethereum, and borrow a fraction of their positions as DAI tokens. Using data on the universe of collateralized debt positions, we show that DAI price covaries negatively with returns to risky collateral. The peg-price volatility is related to collateral risk, while the stability rate has little ability to stabilize the coin. The introduction of safe collateral types has led to an increase in peg stability."
#Fintech#CryptoAssets#Stablecoins#DAI#DFC
·papers.ssrn.com·
Decentralized Stablecoins and Collateral Risk
Beanstalk cryptocurrency loses $182m of reserves in flash ‘attack’
Beanstalk cryptocurrency loses $182m of reserves in flash ‘attack’
"The Beanstalk cryptocurrency has been stripped of reserves valued at more than $180m (£138m) in seconds, after an attacker used borrowed money to snap up enough voting rights to transfer the money away. Describing itself as a “decentralised credit based stablecoin protocol”, Beanstalk offers a cryptocurrency, called beans, intended to have a stable value of $1 a coin. It effectively operated as a bank, letting savers (“bean farmers”) make deposits (of “beans” into a “field”), and using their savings to ensure that the value of a single bean stayed as close to $1 as possible." https://medium.com/beanstalkfarms/introducing-beanstalk-557c45cb8d80
#Fintech#CryptoAssets#Stablecoins#Beanstalk#DFC
·theguardian.com·
Beanstalk cryptocurrency loses $182m of reserves in flash ‘attack’
How Terra's UST and LUNA Imploded - Decrypt
How Terra's UST and LUNA Imploded - Decrypt
"Amid the craziest week in crypto ever, the collapse of Terra's UST stablecoin and governance token LUNA emerged as the biggest story. Amid the crash, LUNA, formerly a top 10 coin by market cap, fell 100% to fraction of a fraction of a cent, and UST, designed to stay pegged at $1, bottomed out at 13 cents."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·decrypt.co·
How Terra's UST and LUNA Imploded - Decrypt
Stablecoin supplies and cash reserves in question amid crypto exodus
Stablecoin supplies and cash reserves in question amid crypto exodus
Cryptocurrency investors and traders have been cashing out of the stablecoin Tether (USDT) in the wake of the TerraUSD (UST) debacle. There has also been a flight to large centralized US-domiciled stablecoins like Binance USD (BUSD) and USD Coin (USDC), with monthly attestations and 100% treasury bill backing, and a flight away from Tether (USDT) with less-frequent attestations and riskier backing, and DAI and other decentralized stablecoins.
#Fintech#CryptoAssets#Stablecoins#Terra#Tether#USDC#DFC
·cointelegraph.com·
Stablecoin supplies and cash reserves in question amid crypto exodus
Surveying Stablecoins in the Wake of the LUNA/UST Collapse
Surveying Stablecoins in the Wake of the LUNA/UST Collapse
The market reactions over the past week are a reminder that stablecoins are far from homogenous and carry different reserve profiles with varying risk, not unlike banks in traditional finance. The crypto markets are still assessing the aftermath of the UST collapse but one immediate effect has been a drawdown in stablecoin liquidity within DeFi. The amount of USDC held in smart contracts on Ethereum has fallen by about $5B since its peak in March. Similarly, the supply of DAI (an over-collateralized, crypto-backed stablecoin) in smart contracts has also fallen about $2B. Most of this decline can be attributed to weakening demand for DAI on decentralized exchanges, cross-blockchain bridges, and lending protocols. Estimates of total value locked (TVL) have also come down, but these measures are often exaggerated due to rehypothecation of assets.
#Fintech#CryptoAssets#Stablecoins#Terra#Tether#USDC#DFC
·coinmetrics.substack.com·
Surveying Stablecoins in the Wake of the LUNA/UST Collapse
Tether Reassure Users with “Assurance Opinion”
Tether Reassure Users with “Assurance Opinion”
Tether published its March 31, 2022 quarterly assurance opinion showing that assets exceed its USTD liabilities ($82.4 billion versus $82.2 billion) and revealing a 17% decrease in commercial paper holdings (to $20.1 billion). Also, the average rating of commercial paper and certificates of deposits has gone up from A-2 to A-1, and investments in U.S. treasury bills have gone up 14% to $39.2 billion. However, 14% of assets ($11.8 billion) are comprised of secured loans, corporate bonds, funds, precious metals and "other investments (including digital tokens).
#Fintech#CryptoAssets#Stablecoins#Tether#DFC
·tether.to·
Tether Reassure Users with “Assurance Opinion”
Do you have the right to redeem your stablecoin?
Do you have the right to redeem your stablecoin?
Stablecoins are often discussed with regard to their “stability.” It is usually questioned whether a stablecoin is sufficiently backed with money or other assets. Undoubtedly, it is a very important aspect of stablecoin value. But, does it make sense if the legal terms of a stablecoin do not give you, the stablecoin holder, the legal right to redeem that digital record on blockchain for fiat currency? This article aims to look into the legal terms of the two largest stablecoins — Tether (USDT) by Tether and USD Coin (USDC) by Centre Consortium, established by Coinbase and Circle — to answer the question: Do they owe you anything? The short answer is no.
#Fintech#CryptoAssets#Stablecoins#Tether#Circle#DFC
·cointelegraph.com·
Do you have the right to redeem your stablecoin?