The TerraUSD stablecoin made headlines this week that were not pleasant for investors. UST has managed to lose its currency peg to US dollars. The stablecoin temporarily crashed to a low of US$0.25 on Wednesday, May 11th, as panicked investors sold their holdings. Now the coin has risen to US$0.48, which is still well below parity. Will the stablecoin ever recover from this?
Read more about the price of TerraUSD and find the latest financial news with the Born2Invest mobile app.
Why has TerraUSD crashed?
Stablecoins are cryptocurrencies that are supposed to solve the volatility problem that has existed in the blockchain industry for more than a decade.
Broadly speaking, there are two main types of stablecoins: centralized and decentralized. Centralized coins like Tether and USD Coin are controlled by companies to ensure that each coin is backed by real money. In this case, Tether is owned by BitFinex, while USDC is owned by Circle.
Decentralized stablecoins such as TerraUSD, Neutrino, and USDD, on the other hand, are algorithmic in nature. Therefore, they are not backed by hard assets such as the U.S. dollar or bitcoin. Instead, the underlying protocols ensure that the price always stays at around $1. This happens through a continuous process – when UST stablecoins are purchased, Terra (LUNA) coins are burned. We explain what Terra coins are and how to buy LUNA here.
The UST crash occurred when the supply and demand dynamics of the protocol broke down. As a result, the coin crashed to its current low of 25 cents. This means that those who still own UST will lose about 75% of their money if they sell the coins now.
The consequences of this crash have been devastating. The price of Terra Luna also plummeted by more than 90%. Similarly, the native tokens of DeFi platforms built in this ecosystem have plummeted. These include Anchor Protocol, Astroport, and Lido, for example.
Will UST recover?
The biggest question among crypto investors is whether UST will ever recover. In a statement on Wednesday, Do Kwon, the founder of Terra, said that the coin will eventually recover. The statement explained the mechanisms built into the platform to ensure parity is eventually achieved.
Recovery might happen, even if there is little trust in the ecosystem now. Perhaps some may remember that Neutrino also lost parity in April, causing the price to plummet to $0.33. Today, the Neutrino price has risen again to 0.90. Therefore, it is possible that the UST price will also recover. It is also worth noting that Tether has already fallen below the $1 price several times.
The other reason is that investors tend to overreact in such conditions. A good example of this is the collapse of the Russian ruble to an all-time low after the invasion of Ukraine. But today, the currency seems to have recouped the losses and is even trading at a higher rate than it was before the war. Therefore, there is a possibility that the TerraUSD rate will stabilize again when the situation cools down a bit.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
First published in CRYPTO MONDAY, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.
Ualá Will Invest $150 Million to Expand in Latin America
In Argentina, Ualá acquired two companies this year: Ceibo Créditos, which provides "buy now, pay later" financing tools at the...
Agrari Launched a Crowdfunding Campaign for Direct Shipments
With this proposal, Agrari aims to revitalize the agricultural and rural sector, in the search for a sustainable model of...
24Genetics Partners With Quirónsalud to Sell its Genetic Tests
The prices of the devices marketed by 24Genetics range from approximately 99 euros to 400 euros. The company offers different...
Green Arrow Fund (Gapef3) to Take Control of Sicilian Richetti, Producer of Fetta al Latte
Richetti has achieved double-digit growth in recent years as a result of the rapid development of the refrigerated snack segment,...
X20 DAO, the First Decentralized Autonomous Organization Under Italian Law, Was Created
X20 DAO was born in 2022 from an idea of Attorney Alessandro Negri, founder of LX20 Law Firm specializing in...
Business2 weeks ago
The TopRanked.io Weekly Digest: What’s Hot in Affiliate Marketing [Week 38]
Business2 weeks ago
World Football Summit: FIFA World Cup Business Opportunities and Beyond
Featured2 weeks ago
Solarisbank Wins Bid for ADAC Credit Card Portfolio
Featured1 week ago
There Is No Plaza Accord (1985) on the Horizon to Stop USDX