Is This The End for Decentralized and Algorithmic Stablecoins?

Is This The End for Decentralized and Algorithmic Stablecoins?

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15/05/2022 by Jerry Ihejirika
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Is This The End for Decentralized and Algorithmic Stablecoins? The fall of UST and the experience gained or learned so far have shown that it’s difficult (not impossible) for a decentralized algorithmic stable coin to keep or maintain its peg during extreme market conditions. How UST fell so fast needs to be studied if there
Terra Luna

Is This The End for Decentralized and Algorithmic Stablecoins?

The fall of UST and the experience gained or learned so far have shown that it’s difficult (not impossible) for a decentralized algorithmic stable coin to keep or maintain its peg during extreme market conditions. How UST fell so fast needs to be studied if there will be the hope of having algorithmic stable coins in the future.

The crypto industry definitely needs decentralized or algorithmic stable coins that can be stable or maintain their pegs when under or during extreme market conditions. We need it for DeFi most especially and maybe for the metaverse too. This is because fiat-backed stable coins such as USDC and USDT will surely face heavy regulations from the government and could be replaced or taken over by CBDCs in the future. The government doesn’t support DeFi and CBDCs could be used to restrict or limit the growth of DeFi so as to support TradFi.

If it was manipulation or attack that led to the sharp fall of UST, how can such be prevented in the future? If it was a wrong mechanism or move by the Terra team that led to the shambolic fall of UST, how can it be corrected in other algorithmic stable coins? I believe most algorithmic stable coin issuers and investors are currently studying and dissecting what actually led to the sharp fall of UST despite having a strong burning coin (LUNA) and a reserve fund (BTC). It’s still not clear how the reserve fund was actually used to bring UST back to peg during that period and Do Kwon and his team still have some questions to answer regarding the use of the reserve fund.

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I believe what happened to UST will lead to the rise of better, stronger, and more stable decentralized algorithmic stable coins. I will also advise you not to put all your capital or profits in one stable coin, and spread the risk.

Do you think we still need algorithmic stable coins in the crypto market? If yes or no, why?

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