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Terra debacle nearly kill crypto: What exactly makes a stablecoin usable?

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CryptoRuby wrote a column · May 16, 2022 11:57
The past week has been a dark period in the history of crypto, with the total market capitalization of this industry dipping as low as $1.2 trillion for the first time since July 2021. The turmoil, in large part, has been due to the real-time disintegration of $Terra (LUNA.CC)$.
Last week, Terra has officially stopped block production as the blockchain's native token hit a low of $0.0003, near zero.
Terra hits a low of $0.0003, Source: moomoo
Terra hits a low of $0.0003, Source: moomoo
Terra 'officially' halts blockchain as LUNA hits zero
Terra 'officially' halts blockchain as LUNA hits zero
In a tumble starting on May 9, Terraform Labs' TerraUSD — a token that primarily uses algorithms, rather than collateral, to adjust its supply and maintain a 1-to-1 peg with the US dollar — and its digital coin counterpart Luna lost almost all their value, while activity on the underlying Terra blockchain was twice suspended. A month after reaching a record of $119, the price of Luna now trades at near zero, while UST is stuck around 20 cents.
The downfall of Terra calls into question the real-world utility as well as the long-term viability of algorithmic stablecoins. So what makes a stablecoin usable as the crypto market expands?
The most important thing is that it holds its peg because then that single unit of account begins to be unreliable and unusable."
—— Sang Lee, co-founder of crypto financial service provider VegaX Holdings
Lee believes that for stablecoins to be truly usable, people have to trust them. This creates a dilemma because, he said, "you can only use a currency if you trust it, but you trust it because other people use it." In his view, that dilemma can be nipped in the bud by ensuring there is a broad use case before building because the "use case is infinitely more important than collateral."
After two days of silence, the Terra founder Do Kwon has issued a new governance proposal to keep the community alive and compensate token holders.
The Terra community must reconstitute the chain to preserve the community and the developer ecosystem."
—— Kwon said in a Friday post on Terra's research forum
Kwon proposed that validators should reset network ownership to 1 billion tokens distributed among LUNA and UST holders as well as a community pool to fund future development.
The LUNA situation will, unfortunately, leave a bad taste in everyone's mouth as this has caused a lot of great altcoins to lose tremendous value. However, the event may result in the survival of only the best projects, with most sketchy platforms losing investor interest in a big way.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more
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CryptoRuby
Crypto news and opinion. ༼ つ ◕_◕ ༽つ Crypto enthusiastic (Not a financial advisor)
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