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how do algorithmic stable coins work?
by hnaccount_rng 4y ago
how do algorithmic stable coins work?
- riwsky 4y agopoorly, it turns out
- FabHK 4y agoRead any of the recent Matt Levine Money Stuff columns on Bloomberg that has "Stablecoin" in the title (rather than Musk/Twiter...)
- shawabawa3 4y agoThe idea behind UST was that if it falls below $1, you can redeem it for $1 of Luna instead. The idea being that UST is "backed" by the activity on the terra Blockchain (fees are paid in Luna) Of course, that means if UST is below $1 there is an arbitrage loop. buy UST at a discount, redeem it for Luna, sell Luna for USDC, repeat This causes downward pressure on Luna's price. As Luna drops so does the faith in UST recovering, you end up with.... Luna dropping from $100 to $0.01, there's nothing backing UST effectively and it's still trading below peg (around $0.40)