The TerraUSD Stablecoin Lunacy Explained
<p>One of the more ironic parts of the crypto space over the past few years has been stablecoins. Crypto is a bet on dollar (and other fiat currency) devaluation, yet stablecoins choose to peg and therefore derive their value from the dollar. What?</p>
<p>It’s pretty silly stuff. Stablecoins were supposedly dreamed up to give crypto investors a less volatile option for their portfolios. But there already exists one — the U.S. dollar or gold or TIPS (inflation protected securities). Or if you’re worried about the U.S. and its debt shenanigans, get some Swiss Francs.</p>
<p>Instead, because slapping the blockchain (and defi) label on anything seemed to make it super trendy and cool, stablecoins took off. Stablecoins claim to be backed by the dollar — i.e. they hold dollars in reserve (similar to how a gold standard currency works). This means that in theory one stablecoin could always be exchanged for one U.S. dollar no matter what was going on, providing a floor price and target value for the stablecoin.</p>
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