According to Bloomberg News, stablecoins aside from TerraUSD cannot live up to the billing as the algorithmic token collapse has kept the investors guessing the after-effects of the turbulence of the broader market.
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Most of the competitor algorithmic stablecoins that use a complex combination of trader incentives and computer code for maintaining their pegs of one-to-one to the dollar are much below the threshold, although not at the extreme 80% seen on TerraUSD on Wednesday. MakerDAO’s DAI and Fei dropped by 0.4% and 1.6%, respectively. Neutrino USD and Tribe plunged 8% and 9.7% during the same period, as per data obtained from CoinMarketCap.
Meanwhile, Tether and USDC, the two largest stablecoins claiming actual assets, including the dollar back, are holding their dollar peg.
Dan Liebau, associated with Modular Asset Management’s blockchain strategy’s chief investment officer, said algorithmic stablecoins are currently at the experimental stage and nothing more. The ones backed by a decreasing or increasing amount in stablecoin’s protocol token include a risky category.
TerraUSD, or UST, and Luna, its related token, had a long way to slide. Recently, both climbed among the top 10 tokens as per market value after Do Kwon, the founder of Terra, set up the Luna Foundation Guard, which pooled billions of dollars of Bitcoin to back it up. Investors hurried to take advantage of the yields that could record almost 20% on Anchor protocol, which is then powered by the Terra blockchain.
Bloomberg News reports that Paul Veradittakit, a partner in Pantera Capital, Menlo Park, revealed that the effects of the collapse of UST are likely to bring a greater wave of caution as evaluation for the rest of the rest the algorithmic stablecoins for investment is on. Apps developed on Terra/Luna will likely intend to diversify the platforms to mitigate risk, and apps looking up to Anchor for the yields will have the opportunity to tap into the other liquidity protocols and cryptocurrencies.
TerraUSD is not recorded as the first algorithmic stable coin that lost its peg. Neutrino, which had issued and burnt tokens to keep the equilibrium, lost its peg last month. A similar incident happened to Iton Finance last June. Dallas Mavericks owner Mark Cuban called out for regulations that define what a stablecoin is and the collateral that will be acceptable.
