We know stablecoins are hella confusing but this is BIG.
👉 Background: Back in 2018, a Singapore-based company called Terraform Labs created TerraUSD (UST for short). It's a kind of cryptocurrency called a stablecoin that is pegged to the US Dollar. The idea is that it is meant to be keep a 1 to 1 ratio with the US dollar.
👉 What happened: Suddenly this stablecoin isn't looking so... stable. Yesterday, UST sank to 26 US cents. It also took cryptocurrency Luna (that was used to keep its price stable) down with it.
👉 What else: It's big and scary news for the crypto world. UST has regained some ground in the days since, but the new low sent shockwaves through the crypto market.
💡 Stablecoins are a form of crypto that are pegged (or fixed) to underlying or actual assets...think fiat currency (like USD) or government bonds or gold.
💡Stablecoins aim to provide an alternative to the high volatility of the most popular cryptocurrencies and are mostly used to settle transactions quickly.
💡 But UST is an algorithmic stablecoin. This means it uses a complex combination of code, trader incentives and smart contracts to maintain its peg. So without the backing of traditional assets, it was open to market manipulation... and took Luna down with it.
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