Re:Tether starting to lose its peg too, after Terra did
by eudoxus on Thursday May 12, 2022 @04:03AM
(#31350630)
"stablecoins in general" doesn't really apply here since the two in question work radically different. Collateralized vs Algorithmic. Theoretically the Terra UST stable coin didn't need reserves to keep the peg at $1, unlike Tether USDT, which does.
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Re:Tether starting to lose its peg too, after Terra did
by hnaccount_rng on Thursday May 12, 2022 @04:49AM
(#31350994)
how do algorithmic stable coins work?
Re:Tether starting to lose its peg too, after Terra did
by shawabawa3 on Thursday May 12, 2022 @07:07AM
(#31352233)
The idea behind UST was that if it falls below $1, you can redeem it for $1 of Luna instead. The idea being that UST is "backed" by the activity on the terra Blockchain (fees are paid in Luna)
Of course, that means if UST is below $1 there is an arbitrage loop. buy UST at a discount, redeem it for Luna, sell Luna for USDC, repeat
This causes downward pressure on Luna's price. As Luna drops so does the faith in UST recovering, you end up with.... Luna dropping from $100 to $0.01, there's nothing backing UST effectively and it's still trading below peg (around $0.40)