What happens when a cryptocurrency that is supposed to stay stable at $1 suddenly loses 70% of its value? Such was the case with TerraUSD (or UST), a cryptocurrency that was pegged to another cryptocurrency called a Luna Token, that recently collapsed. First, how does it work? One UST was always set to be exchangeable for $1 worth of Luna. That means that if UST is worth 50 cents, you can buy a dollar's worth of it (2 UST) and then trade them for 2 Luna at the $1 per exchange rate (so, 2 UST = $2 worth of Luna) and now your investment just doubled. So what went wrong? Earlier this month, about $2 billion of UST were suddenly depegged (taken out of this UST/Luna exchange) and the currency went haywire. Now Luna is worth one cent, and UST is worth 30 cents (if you buy a dollar’s worth of UST, you can no longer "uptrade it" into Luna and profit). Suffice to say, no one is buying, and a lot of people lost a lot of money.
🪙 The Volatility Of "Stable" Coins
🪙 The Volatility Of "Stable" Coins
🪙 The Volatility Of "Stable" Coins
What happens when a cryptocurrency that is supposed to stay stable at $1 suddenly loses 70% of its value? Such was the case with TerraUSD (or UST), a cryptocurrency that was pegged to another cryptocurrency called a Luna Token, that recently collapsed. First, how does it work? One UST was always set to be exchangeable for $1 worth of Luna. That means that if UST is worth 50 cents, you can buy a dollar's worth of it (2 UST) and then trade them for 2 Luna at the $1 per exchange rate (so, 2 UST = $2 worth of Luna) and now your investment just doubled. So what went wrong? Earlier this month, about $2 billion of UST were suddenly depegged (taken out of this UST/Luna exchange) and the currency went haywire. Now Luna is worth one cent, and UST is worth 30 cents (if you buy a dollar’s worth of UST, you can no longer "uptrade it" into Luna and profit). Suffice to say, no one is buying, and a lot of people lost a lot of money.