secondary title
BeInCrypto Interview with Paolo - Stablecoin Crisis: Understanding the Recent Stablecoin Unpegging Events
Stablecoins are an important part of the crypto ecosystem. So when they lose "stability" it can cause a lot of things to go wrong.
Stablecoins have become a popular tool in the cryptocurrency market, offering crypto assets advantages while maintaining a stable value. However, stablecoins cannot fully guarantee stability. Some stablecoins have been unpegged from their underlying assets, causing widespread concern in the crypto community.
Stablecoins are cryptographic tokens designed to maintain a stable value by being pegged to an underlying asset. Fiat currencies, commodities or cryptocurrencies are often the underlying reserves for stablecoins. They are vital to the crypto ecosystem, serving as a bridge between traditional finance and digital assets like Bitcoin. Their expected stability and low volatility make them an attractive investment choice and a safe haven during market turmoil.
The most popular stablecoins include Tether (USDT), USD Coin (USDC) and DAI. According to CoinMarketCap, four of the top 20 cryptocurrencies by market capitalization are stablecoins at press time.
Stablecoins and unpegging events
Recent instances of stablecoins de-pegging from their underlying assets have raised concerns about their reliability. Earlier this month, USDC, one of the widely popular stablecoins, dropped from its $1 face value to 87 cents. The crisis at Silicon Valley Bank (SVB) triggered the drop. Circle, the USDC issuer, revealed that it holds USD 3.3 billion in reserves in SVB, accounting for about 8.2% of its total USDC reserves. This has sparked a crisis of confidence in the value of the asset. Circle later announced that funds would become available after a few days and reserve risk was “eliminated.”
Both USDC and USDT are reserve-backed stablecoins. In the case of USDC, it is backed by cash and short-term U.S. government bonds.
USDT, on the other hand, has traditional currencies, cash equivalents, and financial backing from third-party loans. When these reserves are threatened, even temporarily, the price of the token will deviate from its stable value.
The stablecoin unpegging phenomenon also has implications for the broader cryptocurrency market, and in particular poses a unique threat to DeFi platforms whose operations depend on the stability of these tokens.
“So 90% of DeFi has been relying solely on USDC,” explained Paolo Ardoino, CTO of Tether and Bitfinex. "I think it's an educational moment. If you're in a decentralized industry and you have a single point of failure, that's not a smart thing to do."
“If you have liquidity pools that provide loans, and you assume that stablecoins are always one-to-one. If they depeg 13%, that can cause crazy problems for liquidity pools. Fortunately, this time the depeg Nothing dramatic happened, but I think we could have seen the end of DeFi."
Terra: Major breakaway accident
The most notorious stablecoin unpegging incident was TerraUSD (UST) last spring. The stablecoin pledges to maintain the value of $1 using its sister coin, Luna, to support the peg. However, in May 2022, the Terra stablecoin and Luna token collapsed due to a bank run event, leading to a loss of investor confidence.
Algorithmic stablecoins like UST maintain price stability by controlling supply and demand, but major fluctuations in buying and selling can destabilize stablecoins Luna’s increased supply in the cryptocurrency market and TerraUSD’s unpegging accident caused Luna to become worthless , followed by the delisting of Luna and TerraUSD from most major cryptocurrency exchanges around the world. The mishap wiped tens of billions of dollars in value from the crypto ecosystem within days.
How should governments and central banks respond?
To address unpegging, stablecoin issuers have taken several steps to restore confidence in their tokens. They have increased transparency, improved collateral management, and implemented stricter oversight measures.
However, we need technical and regulatory solutions to prevent unanchoring accidents in the future. For example, an algorithmic stablecoin that uses smart contracts to adjust the token supply to maintain its value may be less prone to unpegging. Stablecoins backed by a basket of assets or a central bank digital currency (CBDC) may also offer a more stable alternative.
According to Ardoino, there are currently not enough rules in place to guarantee investor confidence and safety. “I think regulators should provide more guidance on how stablecoins work and what should be included in reserves. To me, this is very important because there are no large jurisdictions that have guidance for stablecoin reserves yet, ’ he explained.
According to Ardoino, despite the rise of central bank digital currencies (CBDCs), there are good reasons to believe that stablecoins are here to stay. On the one hand, central banks "are scared", he said. "Because once you launch it, you don't know the impact on the economy, which can be devastating. You don't know how people are going to react, how it's going to change banking, how it's going to change businesses."
it's all about education
What should we do next? "It's all about education," said Ardoino. "I also think that investors should always try to avoid FOMO, especially just because someone tweets about it. Before we start speculating on the market, we should know and learn Some important fundamentals. So, I always advise people to first understand why Bitcoin is important in our industry, and then start thinking about whether to speculate.”
https://beincrypto.com/stability-crisis-understanding-de-pegging-stablecoins/? utm_source=twitter&utm_medium=URL&utm_campaign=news&utm_id=EN
secondary title
According to the CryptoCompare Stablecoin Report, as of March 20, 2023, the total market value of stablecoins fell by 1.34% to $133 billion, the lowest since September 2021, and it has fallen for the 12th consecutive month. In addition, the market value of USDT rose 8.06% month-on-month to US$76.6 billion in March, and its market share rose to 57.5%, a new high since June 2021.
https://blog.ccdata.io/stablecoins-cbdcs-report-march-2023-8 f 087 b 82 a 372
secondary title
Tether CTO: Bitcoin is the 'ultimate way' to hold wealth
https://cointelegraph.com/magazine/sec-targets-coinbase-do-kwon-arrested-aftx-sells-95 m-mysten-labs-hodlers-digest-march-19-25/
