Main navigation

Cardano Founder on UST Collapse: Markets Are Defined Best Under Stress

News
Tue, 05/10/2022 - 11:05
article image
Tomiwabold Olajide
Terra's algorithmic stablecoin, UST, suffered a free fall to lows of $0.61 on May 10 after losing its peg
Cardano Founder on UST Collapse: Markets Are Defined Best Under Stress
Cover image via stock.adobe.com

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of U.Today. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.

Read U.TODAY on
Google News

Cardano founder Charles Hoskinson believes that markets are defined best under stress as Terra and its cofounder, Do Kwon, come under heat following the UST collapse. Terra's algorithmic stablecoin, UST, suffered a free fall to lows of $0.61 on May 10 after losing its peg. Terra's native asset, LUNA, also declined more than 50% as the incident fueled negative sentiment among Terra holders.

UST's challenge came over the weekend as hundreds of millions of UST were sold on Anchor, Terra's native lending platform, as well as Curve and Binance, resulting in accusations of a "coordinated attack" on the UST stablecoin.

On Monday, Luna Foundation (LFG) stated that it was taking steps to "proactively defend the stability" of UST. That includes lending $750 million worth of Bitcoin to trading firms to "protect the UST peg" and a further 750 million in UST being lent out to buy more Bitcoin "as market conditions normalize." This, however, failed to assuage the situation.

While all this was going on, crypto pundits criticized UST while questioning its decentralized status. Concerns about the viability of UST's economic model have resurfaced as it battles to preserve its $1 peg.

Stablecoins are designed to maintain a peg to the value of currencies like the U.S. dollar, and traditional types of these tokens are backed by fiat assets. UST, on the other hand, is an algorithmic stablecoin with no such asset backing, relying instead on trade and treasury management to maintain its value.

Though Terra's algorithmic stablecoin, UST, may be the first to debut, it is unlikely to be the last, as several blockchains are already testing this concept. TRON recently launched its algorithmic stablecoin, USDD.

Djed, a decentralized algorithmic stablecoin for Cardano, developed by IOG and issued by COTI, went live in public testnet recently. Cardano founder Charles Hoskinson notes this as a major milestone for algorithmic stablecoins.

article image
About the author

Tomiwabold is a cryptocurrency analyst and an experienced technical analyst. He pays close attention to cryptocurrency research, conducting comprehensive price analysis and exchanging predictions of estimated market trends. Tomiwabold earned his degree at the University of Lagos.