Marc Cuniberti: The stable coin blow up
After nine straight weeks of a bitcoin decline, now the experiment that combined math and software to get a digital currency to behave like a U.S. dollar crashed in dramatic fashion, posing the biggest threat yet to develop a decentralized cyber currency.
TerraUSD, or “UST,” is another in a long line of attempted cyber currencies, called “cyber coins,” the most celebrated of which is Bitcoin.
TerraUSD was called a stable coin, which, unlike its thousands of counter parts which include bitcoin, was developed to provide a “stable” valued vehicle in the cyber coin universe. Investors in cyber tokens know of the wild swings that cyber coins can have. Terra was an attempt to provide a coin that would retain its value at par, which is to say, remain worth one U.S. dollar at all times.
TerraUSD, an “algorithmic stable coin,” uses a variety of methodologies and incentives in an attempt to maintain its peg of one-to-one to the dollar. It strives to accomplish this by working with a crypto token in the same ecosystem. That token, called Luna, can be swapped for Terra and vice versa.
This back and forth swapping by traders supposedly keeps the price of a Terra where it should be, which is walking in lockstep with the U.S. dollar.
The thinking around developing a stable vehicle was to enable crypto traders to make transactions in differing cyber coins easily and quickly without needing to leave the digital asset universe. It also was thought to alleviate intermediaries and the concerns the value of various coins would fluctuate when trades or swaps were executed.
If it all sounds a little gobblydegookish, it’s not you. I have found unless one is a full on member of the computer geek squad, the world of cyber coin will be more than a bit confusing.
Even for experienced Wall Street alumni like myself, although millions of people trade and write about the world of cyber coin, there is much we plain folks don’t understand about exactly what is going on in the cyber coin universe.
A month ago, the future looked bright for TerraUSD. Until last Monday, when all of the mechanisms that were supposed to keep TerraUSD stable, were anything but stable.
TerraUSD fell to a low of 60 cents on that day, and reached a further low of around 20 cents in another crash on Wednesday. At the time of this writing, it sits a two cents.
Pretty rocky stuff for a coin called “stable.”
The event took down the market cap of TerraUSD from $18.4 billion to essentially zero. The Luna “backbone token” also avalanched.
Nikita Fadeev, head of crypto fund Fasanara Digital, which de-risked its position in advance of the crash, said, “Everything broke. It is full capitulation.”
Exactly why all of the so called “stable” UST mechanisms failed remains unclear. Conspiracy theories abound as to what happened, but in this analyst opinion, when vast amounts of monies are floating around in cyberspace, this whole fiasco comes as no surprise. Once again, many lost everything while others walked away very rich. Nothing new in the world of cyber coin.
I know there are a lot smarter people than me when it comes to the net and the cyber coin playground. As a result, it’s no place I want to put my hard earned money, and I doubt the average Joe Shmoe should be doing it either.
The move is on to provide more backing to TerraUSD to once again stabilize its value, with figures around the 1.5 billion being tossed about. But since none of this is government backed, I view the entire cyber coin universe and its multiple trading platforms to access it as one big Wild West show. There are landmines everywhere, rife with amateurs and novice traders, and it’s run by techno wizards of unknown repute.
The whole thing reminds me of a three ring circus, complete with the “3 Card Monty” con game, where everybody that plays never seems to win, at least for long.
With the latest collapse of the cyber token called “stable coin,” I can say it comes as no surprise. What is ironic is that what was supposed to be the epitome of why people flock to the bitcoin game, which is autonomous stability and safety, failed miserably in both respects.
If some people still elect to play in the cyber coin universe after this collapse, it will be one of most baffling investor decisions I have ever seen.
“Watching the markets so you don’t have to.”
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, SDSU, and California Insurance License #0L34249. His website is moneymanagementradio.com, and was recently voted Best Financial Advisor in Nevada County. 530-559-1214
Seems like most of my latest articles have been about inflation, the Federal Reserve (the FED) and their interest rate increases, and the crazy action in the stock markets.
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