algorithmic stablecoinDespite receiving harsh criticism from many different quarters, the ‘s continued to gain popularity rapidly. The sharp depreciation of the TerraUSD (UST) price since the beginning of this week has brought back the debate over the safety of these assets.
Algorithmic Stablecoins Under Criticism
In the past, questions have often been raised about the lack of collateral that supports the stablecoin supply.
One of the names that brought these issues to the agenda was billionaire investor Mark Cuban. Cuban has often expressed his doubts about the stability of algorithmic stablecoins in September 2021. Referring to the variance in the product description, he felt stablecoins would be subject to initial regulation:
“What is an algorithmic stablecoin? Is it stable? Do buyers understand what the risks are? It needs standards.”
Its comments are partially backed by collateral such as BUSD, USDT, and partially algorithmically supported. IRON It was about money losses in the token. FRAX, another algorithmic stablecoin designed to adjust collateral levels to the demand for its own currency, is also partially collateralized.
What Are Algorithmic Stablecoins?
Algorithmic stablecoins are best explained by their ability to maintain equilibrium relative to their value, pegged to fiat currencies such as the US Dollar. $UST If its price drops below $1, traders are offered an incentive of one dollar worth of LUNA to reduce their stablecoin supply. $LUNA is the interdependent matching cryptocurrency of $UST. Similarly, if the stablecoin value exceeds $1, traders are offered one dollar worth of UST to burn the LUNA supply.
Tron recently launched its own algorithmic stablecoin USDD, which it plans to back up with a $10 billion reserve. Following the turbulence experienced at the UST, Tron DAO Reserve announced that in addition to purchasing 500 Bitcoins, it distributed $2 billion to combat the price action.
Most stablecoins, including USDT, USDC, and BUSD, are looking pretty strong, albeit showing slight divergences amid the continued decline.
Disclaimer: What is written here is not investment advice. Cryptocurrency investments are high-risk investments. Every investment decision is under the individual’s own responsibility. Finally, Koinfinans and the author of this content cannot be held responsible for personal investment decisions.