Thursday, December 1, 2022

Terra’s Collapse Could Bring The End Of Algorithmic Stablecoins

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Terra’s collapse can bring the end of the algorithmic stablecoins according to Reeve Collins so let’s find out more about it in today’s latest cryptocurrency news.

TerraUSD’s crash brought on quite the level of scrutiny on the DEFI financial mechanisms and the feasibility of the algorithmic stablecoins into question. The co-founder of BLOCKV and Tether Reeve Collins said that the UST debacle and Terra’s collapse could bring the end of the algorithmic stablecoins.

During the World Economic Forum in Davos, Collins said that the collapse of Terra’s stablecoin is not a surprise really. He added that these are also not going to survive in the future:

“It’s unfortunate that the money … was lost, however, it’s not a surprise. It’s an algorithmic-backed, stablecoin. So it’s just a bunch of smart people trying to figure out how to peg something to the dollar.

And a lot of people pulled out their money in the last few months because they realized that it wasn’t sustainable. So that crash kind of had a cascade effect. And it will probably be the end of most algo stablecoins.”

Reeve Collins Source: YouTube

Terra’s drop from grace led to many speculating about the end of stablecoins but the notions are overblown and the big ones like USDC and Tether, haven’t really been immune to criticism in the past but were around long enough to be widely used and trusted. The stablecoins are built on different fundamentals and are backed by different reserves. This is why many believe that the implications of the centralized stablecoin system will be limited.

Many experts revealed foreseeing the fall of TerraUSD and even Jeremy Allaire, the co-founder, and CEO of Circle said that UST has a high-risk framework for a stablecoin. Despite the support for Terra and UST, the executive was surprised to see the fast death spiral and the destruction of value. Allaire noted that the cohort of stablecoins shows the holy grail of the decentralized digital currencies. Ethereum’s co-founder Vitalik Buterin doesn’t believe that the stablecoins are defective by design and added:

“While there are plenty of automated stablecoin designs that are fundamentally flawed and doomed to collapse eventually, and plenty more that can survive theoretically but are highly risky, there are also many stablecoins that are highly robust in theory, and have survived extreme tests of crypto market conditions in practice.”

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