Terra Luna crash: What are ‘stablecoins’ and how stable are they really?

The world of cryptocurrencies was sent into a spin with the collapse of stablecoin TerraUSD and its sister coin Luna, whose prices crashed earlier this month.

There’s nothing new about wild volatility in cryptocurrency prices. But investors were caught by surprise by the sudden drop in TerraUSD’s price, because it is a so-called stablecoin.

As the name suggests, the raison d'être of stablecoins is to remain stable, as they are supposed to be pegged to fiat currency, such as the dollar or the euro.

TerraUSD has been pegged almost exactly to the dollar since its release, but on May 9 it crashed, and it is now worth just over $0.11 (€0.10).

Its sister coin Luna was worth more than $80 (€76) a coin at the start of May, and as of 18 May it was worth a fraction of a cent.

The crash of these two coins has been compared to a mini 2008 financial crisis within the crypto eco-system, with their collapse having a knock-on effect on other digital coins and projects, wiping billions of dollars off the market.

This begs the question: are stablecoins actually stable


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