As the cryptocurrencies like Bitcoin, Ethereum among others are known for their steep volatility, there is another asset class called Stablecoin and this is known for its least volatility due to its peg with the US dollar. The main reason for building a stablecoin is that it won’t fluctuate in price along with giving crypto benefits.
However, at the moment the crypto market is alarmed with Terra’s UST stablecoin losing its dollar peg. And this has raised the question about the stability of its competitor’s Tether and USD coins.
What Impact Does UST Will Have On Other Stablecoins?
The idea behind the stablecoin is that if an investor wants to recover their USDT, USDC, or any stablecoin, then they would be receiving exactly $1 back for every token that the user sells.
Now, when we talk about UST, it’s a stablecoin algorithm that uses smart contracts in order to maintain its 1:1 dollar peg. However, as the crypto market has deeply plunged with the bearish flow, at present the UST price has hit an all-time low of $0.33 and has lost its dollar peg.
Though the UST has a different tokenomics, a concern regarding other stablecoins has popped up, for which the Tether co-founder, Reeve Collins told Decrypt in an email assuring the users that there is no need to panic. He further says that Tether users should feel secure as Tether will hold its peg as it is dollar-backed and the market force doesn’t have any effect on the token.
However, a few times Tether and USDC have lost their peg to the dollar. Recently, on March 16, 2020, Tether’s USDT had declined to $0.98 and even USDC lost its peg trading at $0.97.
On the contrary, the CEO of Umee, a layer-one interoperability chain built on the Cosmos ecosystem, Brent Xu, is of the opinion that UST will restore its dollar peg soon. But he quotes that USDC and USDT are not completely immune to the market news.
Meanwhile, Derek Lim, lead at crypto insights at Bybit exchange, believes that though Terra’s price action doesn’t stand as a threat to USDC or USDT, they are linked through the Curve 3pool, the platform that allows investors to trade stablecoins.