Stablecoin is a cryptocurrency that is always supposed to maintain its value at $1. I just don’t understand why people don’t use plain ol’ ordinary dollars if they want a currency that holds its value at $1.
**Cryptocurrency TerraUSD Falls Below Fixed Value, Triggering Selloff**
**Drop causes ripples in ether and bitcoin, exacerbating recent declines in their dollar values**
**By Caitlin Ostroff and Alexander Osipovich, The Wall Street Journal, May 9, 2022**
**One type of cryptocurrency, a so-called stablecoin, is meant to keep its value at $1. But on Monday, the third-biggest stablecoin, TerraUSD, fell as low as 69 cents, causing a flood of investors to sell their holdings.**
**Stablecoins get their name from their being tied to the value of government-issued currencies, such as the dollar. These $1 pegs are usually backed by Treasurys, cash and other dollar debt that is easily sold in times of market stress....**
**Unlike traditional stablecoins, TerraUSD is an algorithmic stablecoin. These pseudo dollars aren’t necessarily backed by any assets at all, instead relying on financial engineering to maintain their link to the dollar. Such designs have been criticized by market observers as risky because they rely on traders to push the value back to $1 rather than having assets that continuously support the price. If traders aren’t willing to buy them, coins can go into a so-called death spiral. ...** [end quote]
People are spending and lending hundreds of millions of dollars – REAL dollars – to buy and support stablecoins. I just don’t get it.
And I really don’t understand this paragraph. Maybe someone can explain to me how this makes sense?
**The break in the peg, which began over the weekend, started with a series of large withdrawals of TerraUSD from Anchor Protocol, a sort of decentralized bank for crypto investors, said Ilan Solot, a partner at crypto hedge fund Tagus Capital LLP. Anchor Protocol—which is built on the technology of the same Terra blockchain network that TerraUSD is based on—had been a major factor in the growth of the stablecoin in recent months, by allowing crypto investors to earn returns of nearly 20% annually by lending out their TerraUSD holdings.** [end quote]
20%? How can this be anything but a Ponzi scheme?