This week, one popular so-called algo coin cratered, wiping out billions of dollars’ worth of value in just a few days.
The coin, called TerraUSD, is designed to maintain its value at $1, forever and ever, amen. Instead, it fell as low as 23 cents Wednesday before recovering some ground. It was hovering around 60 cents early Thursday.
To critics of the controversial crypto product, it’s an “emperor has no clothes” moment. Or, more pessimistically, a Lehman Brothers moment.
To understand what’s going on in this corner of the crypto market, it’s important to understand what these newfangled investing products are and how they work.
What’s a stablecoin?
Most stablecoins are tightly pegged to a traditional fiat currency, such as the US dollar, or to a commodity like gold. Investors buy them to store money and facilitate deals within the cryptocurrency infrastructure. They also are used for other types of financial exchanges, such as lending, borrowing or sending payments overseas with less friction than going through a traditional bank.
Their purported stability has turned these once obscure tokens into the bedrock of the crypto ecosystem. The collective market value of all stablecoins has grown to $180 billion as of March this year, according to the Federal Reserve.
But don’t let the name fool you: Not all…
