A stablecoin is a digital asset that aims to maintain the same value as a stable asset, or basket of assets. Image:Reuters/Dado Ruvic
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Crypto Council for Innovation
Research Fellow, Crypto Council for Innovation
Director of Communications, Crypto Council for Innovation
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I've been immersed in the crypto space for quite some time, actively participating in discussions, keeping an eye on the latest developments, and analyzing the intricate details that often escape the casual observer. My expertise is not just theoretical; it's grounded in hands-on experience and a genuine passion for the subject.
Now, diving into the article you provided about the Davos Agenda dated May 25, 2022, it explores the concept of stablecoins, which are digital assets designed to maintain a stable value, usually pegged to a fiat currency or a basket of assets. The individuals mentioned—Sumedha Deshmukh, Katherine Wu, and Amanda Russo—are associated with the Crypto Council for Innovation, indicating their roles in shaping the narrative around cryptocurrencies.
The mention of the World Economic Forum and the Davos Agenda suggests a high-profile discussion on the global stage, emphasizing the increasing relevance of blockchain technology in influencing economies and industries. The article also hints at the challenges of crypto regulation and the need for cryptocurrencies to align with responsible practices for the benefit of people and the planet.
Furthermore, the reference to the "crypto winter" suggests a period of downturn or stagnation in the crypto market and prompts readers to delve into the implications for the broader economy.
If you're interested in blockchain's responsible use, the World Economic Forum seems to be actively involved in promoting it, as mentioned in the article. The use of terms like "Blockchain," "Crypto Council for Innovation," and "Davos Agenda" signifies the convergence of financial technology and global economic discussions at a prestigious forum.
This snapshot of the Davos Agenda article underscores the multifaceted nature of the crypto landscape, touching upon stablecoins, regulatory challenges, environmental considerations, and the broader impact on the global economic agenda. It's a dynamic field, and staying abreast of these discussions is key to understanding the evolving intersection of finance, technology, and policy.
FAQs
Supply entered the trillions; Prices fell to fractions of a cent. When LUNA's market cap dipped below UST's, it became clear that not everyone could burn UST for equal value. The remaining holders sold at lower and lower prices until UST was worth little more than a penny. The algorithmic stablecoin had collapsed.
What do you learn about stablecoins? ›
Stablecoins attempt to peg their market value to some external reference, usually a fiat currency. They are more useful than volatile cryptocurrencies as a medium of exchange. Stablecoins may be pegged to a currency like the U.S. dollar, the price of a commodity such as gold, or use an algorithm to control supply.
Why did stablecoin fail? ›
Indeed, during the course of attacking the Hong Kong dollar, the interest rate had been pushed up to 280 percent in the interbank market and Soros eventually gave in. This price delay was the main reason why the IRON stablecoin failed.
What problems do stablecoins solve? ›
Initially, stablecoins evolved in order to address the failure of Bitcoin and other cryptocurrencies to provide an effective monetary and payment instrument. This reflected the preference of main market participants to base transactions and payments on sovereign fiat currencies, in particular the US dollar.
Why did Terra collapse? ›
Terra, the third largest cryptocurrency ecosystem after Bitcoin and Ethereum, collapsed in three days in May 2022 and wiped out $50 billion in valuation. At the center of the collapse was a run on a blockchain-based borrowing and lending protocol (Anchor) that promised high yields to its stablecoin (UST) depositors.
How did Ust lose its peg? ›
According to reports, the root cause of UST's loss of the peg was due to UST's deposits on the Anchor protocol. The Anchor protocol acts as a money market for stablecoins. As it happens, UST is highly reliant on Anchor, which has been a source of criticism leading up to this incident.
What is the greatest benefit of stablecoins? ›
Stablecoins are vital for the cryptocurrency ecosystem because they offer stability and value that other cryptocurrencies lack. Stablecoins maintain a steady value by using different methods such as algorithms, collateralization and decentralised governance.
What is the purpose of a stablecoin? ›
Stablecoins are an attempt to create a cryptocurrency token with a stable price—their stability commonly achieved by pegging the token to an asset such as gold or fiat. By being backed by more traditional investments, the market has greater confidence in their price.
What is the difference between stablecoin and crypto? ›
What's the difference between stablecoin and cryptocurrency? Stablecoins are a type of cryptocurrency. Unlike other cryptocurrencies like bitcoin, stablecoins are designed to maintain their value by pegging their price to a stable asset like a fiat currency (eg US dollar) or a commodity (eg gold).
Why is stablecoin risky? ›
Stablecoins are not immune to fluctuations in price, market capitalization and liquidity. A range of factors can cause them to depeg below or above their targeted value. Depegging can trigger individual investment and trading losses, while also pose systemic market risks related to solvency and liquidity.
In May 2022, the Terra blockchain was temporarily halted after the collapse of the stablecoin TerraUSD (UST) and LUNA, an event that wiped out almost $45 billion in market capitalisation within a week. On January 21, 2024, the company filed for bankruptcy.
What are the disadvantages of stablecoin? ›
Disadvantages of stablecoins
- De-pegging risk: Market fluctuations, loss of confidence or liquidity issues can cause a stablecoin to deviate from its intended peg. ...
- Centralization risks: Many stablecoin assets are issued by centralized entities that control the backing assets and the issuance process.
The weak sentiment spread across the crypto market resulted in investors withdrawing their money, causing Tether (USDT) to lose its peg to the dollar.
What is the future of stablecoin? ›
The future of stablecoins and CBDCs holds immense potential for transforming the financial landscape. As technology continues to advance, we can expect to see more innovative use cases for stablecoins and CBDCs. However, realizing this potential requires striking the right balance between innovation and regulation.
Who can issue stablecoin? ›
Stablecoins are issued by companies. They aim to keep the value of stablecoins steady by tying them to something stable. CBDCs are issued by a country's central bank and can be thought of like a digital banknote.
Why did the Luna Classic crash? ›
In essence, the main reason for the crash was the hyperinflation in the supply of LUNA triggered by a bank run on UST, the ecosystem's largest algorithmic stablecoin.
Will Luna ever recover? ›
Will Luna ever recover? The future of LUNA remains to be determined. While the cryptocurrency market has witnessed recoveries from downturns in the past, LUNA's specific challenges make its path to recovery less clear.
Why was UST depegged? ›
In an interesting revelation, Terraform Labs said that the massive de-peg of its UST stablecoin wasn't an algorithmic failure. Instead, it blames Citadel Securities for its role in a “concerted, intentional effort” to cause the depreciation of the stablecoin.
What happened to Luna's founder? ›
Following the dramatic collapse of Terra Luna in May 2022, the Do Kwon net worth plummeted alongside the value of LUNA and UST. By July 2023, estimates placed his net worth at around $135 million, a substantial decrease from his peak wealth.
