I'M SURE MANY OF YOU ARE WONDERING WHAT HAPPENED TO TERRA AND UST.
This algorithm stable coin collapsed in the last few days in one of the biggest losses in the crypto space.
This affects us in all the adoption cryptos are having in recent times, in this episode we will see what happened in detail with TERRA and UST
For those who are new in the space, a stable coin is a coin that's pegged to the dollar that's not supposed to fall below one dollar or at worst remain between 98-99 cents, to make it more simple to understand it is the equivalent of the dollar in cryptocurrencies.
So if you invested $1000 in a cryptocurrency, and it goes to $27000, if you want to realize the gain is converting those $27000 to a more stable option you have to swap your fluctuating currency to a stable currency as it was UST.
WHAT HAPPENED?
What happened was that UST started to lose its peg to the dollar or was moving further and further away from the value of $1, now the way this stable coin works as it is algorithmic is that UST is backed by TERRA, there are many stable currencies that are backed by USD for dollars, so they are backed by a fiat currency, in the case of the UST it is backed by the price of TERRA so as UST loses its value the algorithm mints more TERRA, and they increase its supply, that seen from the traditional system they print more money, so that UST goes up in price again and keeps the peg.
What happens is that the whales, fearing that the currency will continue to fall, start to sell, causing other people to do the same and continue to drag the price down.
In the last week, TERRA fell into a death spiral.
So as the UST continued to fall in the value of the dollar, more TERRA continued to be printed which caused inflation, so the price of UST fall and the algorithm mints more TERRA adding to the supply dragging TERRA's price down, so whales that continue to sell, making UST go down and continuing the spiral.
Those of us who have been in this space for some time have already seen something similar with a platform called IRON Finance in which the STEAL was the shear of this ecosystem and the stablecoin was IRON which was backed by TITAN, this coin suffered the same fate in which the whales sold and suffered a bank run happening the same as with TERRA.
The problem with this is that it is a big blow to cryptocurrencies because the stable coins are the coins that we use to save money in a currency that is not fluctuating and many take these stable coins to put them to generate interest in platforms to gain interest.
WHAT IS THE PLAN?
There are plans to restore the losses of the investors who lost money with LUNA and UST.
Among the plans that TERRA has, is to create a new coin by making a fork of luna, similar to what happened with ETH and ETHC at the time, many don't agree with this because if the coin does not have a good reception and no demand it will be useless because people will dump it to recover what they lost and start selling, and it could be another failure for TERRA.
What people are asking for is that the 1.5BILLION dollars in BTC that LUNA FAUNDAISHEN GARD has, be distributed to those affected that had UST in the ANCHOR platform, being this enough to reimburse at least 97% of the people.
After this it would be a good option to create another currency for the holders of TERRA and if people see the potential they can turn it into a success, so this is the possibility of TERRA to regain the trust of people and regain confidence in crypto by returning the money they have in LUNA FAUNDAISHEN GARD, but if they stay with the 1.5 Billion dollars and only create another currency they will not have the results they want.