Like a film move, set in slow Terra’s stablecoin – the UST and native coin, Luna saw a huge crash. Thus, bone marrow shocking investors. Why? Because, although cryptocurrencies are highly volatile, stablecoins are regarded as the master of all, free from volatility.
In this article, we shed light on what stablecoins were like before the collapse of TeraUSD, the landscape of stablecoins after the collapse, and how to diversify the market of stablecoins as top crypto exchange risk management trading. Using pairs.
But first, let’s start with the top- terra, to understand it better.
Terra, Luna and UST: What Are They?
Tera is a decentralized blockchain, consisting of a native coin, the LUNA token (for all transactions and voting on the blockchain), and the stablecoin, TeraUSD or UST, which is pegged at 1-to-1 US dollars. UST was an algorithmic stablecoin because instead of having a reserve currency or other stable asset to back its tokens, it used a mixture of code and LUNA (via a mint and burn mechanism) to stabilize the process.
Such that a LUNA worth $1 can be burned to mint 1 UST, and 1 UST can also be burned to mint a LUNA worth $1.
How UST collapsed
The price of UST fell to $0.91 when more than $2 billion worth of UST was suddenly sold without bets (from Anchor Protocol). As a result, investors started burning USTs to mint LUNA, but the daily exceeded the 100 million limit. Once the stablecoin failed to maintain its peg, it ignited a panic sell in UST, which took its price from 0.5 to 0.3 to 0.2 and then to an all-time low of nearly 0.0.
Before this drastic shock in May 2022, Terra was ranked among the top 10 cryptocurrencies with a swell rate of $120 and a market cap of over $40 billion in April.
Meanwhile, TeraUSD’s unprecedented collapse prompted a hole in the stablecoins to ask how safe they are in the midst of a market crisis.
What are stable coins?
Stablecoins are cryptocurrencies, designed to provide price stability by pairing them with a stable asset – precious metals or fiat currency, in most cases denominated in US dollars. They provided security, low risk, and were “volatile”. That way, for a stablecoin pegged 1:1 to the dollar, you can exchange 500 tokens of that stablecoin for 500 USD at any time.
Note, however, that UST was unlike other stablecoins such as Tether (USDT) and USD Coin (USDC) as it was an algorithmic stablecoin backed by a complex mix of codes and its sister token, Luna, rather than the dollar.
post accident scenario
Since cryptocurrencies are correlated, the massive Luna crash rocked the cryptocurrency market in a big way with a loss of $60 billion (€55.8 billion).
Tether USDT also dropped as low as $0.98 instead of its $1 peg, while other cryptocurrencies such as bitcoin and ether also lost substantial amounts.
Furthermore, Tether USDT has come under fire as critics questioned its reserves and the number of dollars backing it.
Crypto Exchanges Embrace Stablecoin Diversification
Stablecoin diversification is vital to the security of a trading portfolio. Some crypto exchanges have added USDT trading pairs to the existing USDT pairs. This minimizes the risk of liquidation and creates a list of preferred options for knowledgeable traders. Some such crypto exchanges are:
1. Binance — Binance is one of the top crypto exchanges with a distinct range of products. The Binance platform is dedicated to increasing the freedom of funds for users. The platform has trading pairs such as ADA/USD, BTC/USD, ETH/USD, SOL/USD, DOGE/USD, XRP/USD, and BNB/USD.
2. Bit.com — Bit.com is a high-performance crypto exchange built with institutional-grade security to serve both new and experienced crypto traders.
The exchange added 14 new trading additions to its platform such as AAVE/USD, BTC/USD, BCH/USD, COMP/USD, CRV/USD, ETH/USD, and AXS/USD.
3. FTX – FTX is a worldwide cryptocurrency exchange that includes innovative products such as derivatives, options and leveraged tokens. It supports over 300 cryptocurrencies with pairs such as AVAX/USD, FTT/USD, MATIC/USD, FTM/USD, GST/USD LOOKS/USD, and APE/USD.
This strategy provides traders who are skeptical about stablecoins with a better alternative pair on these exchanges after the failure of TeraUSD. It will also ensure the diversification and stability of the stablecoin market.