On 9th November 2018, Terra (LUNA) surpassed the market capitalization of $1.4 billion as a result of its rapid growth and subsequent fall from grace. This article examines how other cryptocurrencies reacted to the news, what implications this has for future crypto-projects, and what conclusions investors can take away in light of the event.
The “will luna terra go back up” is a question that has been asked recently. The answer to this can be found in the analysts assessment of the aftermath of the Terra (LUNA) collapse.
No matter how much the technology advances, financial pundit Frances Coppola believes that algorithmic stablecoins like TerraUSD (UST) will always be subject to abrupt crashes.
In a conversation with Mike McGlone, senior commodities strategist at Bloomberg, Coppola said, “They can better their game theory, they can enhance their risk assessment, but I believe there will always be certain conditions of the world that they won’t have thought about.”
Last week, Terra’s UST stablecoin, which depended on an algorithm to keep its peg to the US dollar, crashed, causing havoc in the crypto markets.
Terra’s demise, according to McGlone, is part of a natural “purge” of the crypto sector that occurs in every down market. Concerns about the top stablecoin Tether (USDT), which momentarily lost its peg to the dollar as a consequence of Terra’s fall, should not be overstated, according to the expert.
Tether depegged momentarily in April 2019 after the New York state attorney general launched a lawsuit against its sibling business, Bitfinex, as McGlone pointed out.
“‘We don’t care,’ responded the market. “This is a better approach to move funds,” McGlone said.
While investors were flocking to Tether in the aftermath of Terra’s collapse, Coppola noted that other stablecoins like as USD Coin (USDC) and Binance USD (BUSD) served as safe-haven assets, proving to be more trustworthy.
Despite this, Coppola believes Tether is unlikely to undergo a collapse similar to Terra’s since it is backed by actual assets in its reserves. Tether would be able to avert a major bank run in the case of a crisis, she said, by withholding redemptions according to its policies.
Crypto exchanges, not stablecoins, are the biggest source of systemic risk in the crypto sector, according to Coppola.
“A lot of individuals are going to lose a lot of money in the case of a Coinbase disaster,” she warned. “It would be a Lehman moment in the crypto world,” says the author.
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