TerraUSD’s stablecoin meltdown holds the crypto market hostage

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TerraUSD (UST) occupies a subset within the crypto space known as stablecoins, which are a form of cryptos backed by real assets. Most are backed by fiat currencies such as the US dollar, others are linked to metals such as gold. Moneyweb Crypto

The big crypto news of the week was the rupturing of TerraUSD’s supposed peg to the US dollar. TerraUSD is a so-called algorithmic stablecoin supported by some fancy technology that was designed to maintain its value at $1. That 1:1 peg broke dramatically this week, with TerraUSD falling to $0.23 before recovering to $0.48 on Friday. TerraUSD occupies a subset within the crypto space known as stablecoins, which are a form of cryptos backed by real assets.

Until recently, TerraUSD was the ninth largest crypto with a total market cap of $24 billion. It’s now slipped to 17th place with a market cap of just $5.6 billion. It operated on an entirely different technology, comprising two separate cryptos: Luna and Terra. This is where the algorithm came into play. TerraUSD was theoretically always worth $1, while Luna, its sibling crypto, has no fixed price. If the value of TerraUSD exceeds $1, the equivalent value of Luna is burned.

 

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