Crypto Recap: Terra’s Tumble and a Bitcoin Blessing from Saifedean
Inflation’s still soaring. Terra may have met its maker. And Bitcoin’s hanging in there like a prized fighter that’s seen this kind of blow before.
Man, you miss a week of this stuff and it’s like you can never catch up.
Let’s start with Terra. The coin that plummeted nearly 100% almost overnight. I’m not going to get into the weeds here (terrible pun), but a quick definition of what the asset is and why it’s been controversial may be helpful for some.
What are Stablecoins?
Terra (UST) is an algorithmic stablecoin. Let’s break this down.
Stablecoins are cryptocurrencies that are pegged to something outside itself — be it crypto or fiat or commodity — and this external asset is what backs its value. In the case of Terra, this “external asset” is the U.S. dollar.
Now for the algorithmic part: these coins were intended as a solution for keeping the token value stable — increasing the supply when market value goes up, lowering it when down. As demand increases, new stablecoins can be minted by burning a partner token, LUNA, and sending a small portion to the treasury.
Take note of this attribute because it plays a key role in some of the recent controversy, and it’s a big part of what makes stablecoins important.
So why would people support stablecoins? Well, they are trade routes that can be used if someone doesn’t want to rely on an exchange — and they’ve provided opportunities for staking and earning yield, outside traditional institutions or banks. (See our DeFi article for more on all this.)
Because they’re meant to be stable, stablecoins often operate as havens for funds when trading in a market that’s used to seeing ups and downs.
They may serve as a fundamental bridge between cryptos, and people have been hopeful that this algorithmic mechanism could enable a future where even stablecoins could be decentralized. Basically, they could be helpful in a lot of ways.
What Happened with UST?
Terra grew fast and feisty, reaching a $10B cap by the end of last year.
But just last week, after a single actor withdrew funds, there was a panic and the Terra network collapsed. The stablecoin lost its peg to the dollar, causing a rush on the ecosystem. On the heels of the UST crash, crypto has seen a $1 Trillion loss in value.
Many are trying to speak out to let people know that not all stablecoins behave similarly, but Terra’s swift plunge has left many others wary.
As Alden explains above, this whole ordeal kept getting worse with how it was managed during the crash. Sidenote, we love a crypto-women-supporting-crypto-women moment:
Okay, But Back to Bitcoin.
To be honest, many of us in the bitcoin community aren’t riddled with anxiety about the recent BTC price despite the headlines. This is typically because we see it as a long-term store of value that can (and to many, should) exist securely outside of exchanges.
Yes, institutional adoption and large-scale acceptance of the digital asset are very important in seeing healthy monetary communion worldwide. But there’s a tremendous amount of promise in its intrinsic worth — those attributes that make it so incredibly different from other forms of currency.
In Michael Saylor’s words,
“Bitcoin is not just an asset, it’s a network and it’s a protocol…it’s decentralized, permissionless, global, immutable, scarce, auditable, instantly transferable, not seasonable, highly divisible…mostly everything that gold can’t do.”
-Michael Saylor
I’ll leave you with a fantastic clip from an interview with two of our favorite tech/crypto gents, Saifedean Ammous and podcaster Lex Fridman. I still haven’t watched all four hours, but I’m sure I’ll make the time. After all, if it’s one big waiting game…