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A comment on Tether starting to lose its peg too, after Terra did. Parent comment

Re:Tether starting to lose its peg too, after Terra did by usednet on Thursday May 12, 2022 @04:45AM (#31350950)
That explanation is not correct. Algorithmic stablecoins rely on a pairing with another crypto, in UST’s case LUNA. 1 UST can always be swapped to $1 US dollar of LUNA. It is interchangable, so $1 US dollar’s worth of LUNA can also be swapped for 1 UST. Hence, the “algorithmic” in the name. This way traders are always incentivized to keep the price of UST at $1.

There is no collateral requirement. In UST/LUNA’s case they had collateral, mostly in Bitcoin, in the Luna Reserve Guard but their collateral proved insufficient. Some algorithmic stablecoins are entirely uncollateralized.

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Re:Tether starting to lose its peg too, after Terra did by thematrixturtle on Thursday May 12, 2022 @04:59AM (#31351081)
That's all irrelevant, since Tether is not an algorithmic stablecoin, and they claim to have 1:1 reserves for every USDT.
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Re:Tether starting to lose its peg too, after Terra did by usednet on Thursday May 12, 2022 @05:01AM (#31351106)
The parent comment was edited to remove the section on UST after my comment.
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Re:Tether starting to lose its peg too, after Terra did by benjaminwootton on Thursday May 12, 2022 @05:06AM (#31351157)
I still don’t follow why the second currency is required?

They will always swap a UST for $1 of LUNA so a UST is implicitly worth $1.

LUNA itself doesn’t have anything behind it though apart from concidence. So we have a stablecoin manufactured from a volatile unbacked asset where the market cap can fall arbitrarily low.

I know it failed, but it’s not quite clicking for me what they were even trying?

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Re:Tether starting to lose its peg too, after Terra did by pjc50 on Thursday May 12, 2022 @06:06AM (#31351641)
The second currency is required for the same reason that three card monte requires three cards.
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Re:Tether starting to lose its peg too, after Terra did by usednet on Thursday May 12, 2022 @05:15AM (#31351218)
Ponzis can be very profitable. I think algorithmic stablecoins are stupid too.
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Re:Tether starting to lose its peg too, after Terra did by nly on Thursday May 12, 2022 @07:50AM (#31352589)
And if the LUNA/USD market becomes insanely volatile or the liquidity vanishes, the algorithm will fail.
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Re:Tether starting to lose its peg too, after Terra did by charcircuit on Thursday May 12, 2022 @06:21PM (#31360810)
fyi ampleforth is an example of a algorithmic stable that doesn't pair with another crypto. Some algorithmic stablecoins incorporate a rebase mechanism when the price deviates from the peg.
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