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Stablecoins are useful, because they let you set prices on the blockchain that aren't denominated in BTC or ETH or another currency that fluctuates wildly. A go

Stablecoins are useful, because they let you set prices on the blockchain that aren't denominated in BTC or ETH or another currency that fluctuates wildly. A good stablecoin is pretty boring in terms of gains/profits, but can generate a modest stream of fees. Terra had a sister coin called Luna which it planned to use to keep Terra stable. Luna had the price dynamics of ETH or BTC, where it's value depended solely on the whims of the market. The whole thing was a perpetual motion machine that failed very predictably. Matt Levine has some good coverage.

MBCook 4y ago
How is having a sister coin supposed to stop volatility in the stablecoin?
- KMag 4y ago
  Having not looked into it, and just pulling this out of my rear, presumably the assumption would be that if it has low correlation to other cryptocurrencies, then it improves the stability of the basket of backing cryptocurrencies. Even if the correlation is high, anything less correlated than +- 1.0 helps the diversified basket.
- SturgeonsLaw 4y ago
  The mechanism was that 1 UST (the stablecoin) is redeemable for USD$1.00 worth of LUNA (the volatile coin), at whatever the LUNA/USD exchange rate is at that point in time, and vice versa. So in theory, if LUNA was trading for $10.00 then you could exchange 1 UST for 0.1 LUNA, then sell that 0.1 LUNA on an exchange to get USD$1.00. It works in the other direction too. Arbitrage maintains that peg. Of course, the flaw in this whole arrangement, is that if LUNA is in a death spiral and money is only really flowing out of UST/LUNA, then the peg is not maintained.
- MadeThisToReply 4y ago
  It didn't.
Tao3300 4y ago
> The whole thing was a perpetual motion machine that failed very predictably. At the very least, similarly structured algorithmic stablecoin schemes should be identified as a species of scam and made illegal. Knowingly trying to pull this kind of thing on people who are going to be left holding the bag and wondering when their Luna2 airdrop is going to show up in some piece of tech that they don't understand... it takes malice.

MBCook 4y ago

How is having a sister coin supposed to stop volatility in the stablecoin?

KMag 4y ago
Having not looked into it, and just pulling this out of my rear, presumably the assumption would be that if it has low correlation to other cryptocurrencies, then it improves the stability of the basket of backing cryptocurrencies. Even if the correlation is high, anything less correlated than +- 1.0 helps the diversified basket.
SturgeonsLaw 4y ago
The mechanism was that 1 UST (the stablecoin) is redeemable for USD$1.00 worth of LUNA (the volatile coin), at whatever the LUNA/USD exchange rate is at that point in time, and vice versa. So in theory, if LUNA was trading for $10.00 then you could exchange 1 UST for 0.1 LUNA, then sell that 0.1 LUNA on an exchange to get USD$1.00. It works in the other direction too. Arbitrage maintains that peg. Of course, the flaw in this whole arrangement, is that if LUNA is in a death spiral and money is only really flowing out of UST/LUNA, then the peg is not maintained.
MadeThisToReply 4y ago
It didn't.

Tao3300 4y ago

> The whole thing was a perpetual motion machine that failed very predictably. At the very least, similarly structured algorithmic stablecoin schemes should be identified as a species of scam and made illegal. Knowingly trying to pull this kind of thing on people who are going to be left holding the bag and wondering when their Luna2 airdrop is going to show up in some piece of tech that they don't understand... it takes malice.