The most popular cryptocurrency in the world is Bitcoin. But there is another crucial cryptocurrency category as typical cryptocurrencies, which are Stable coins. The most popular stable coins are USDT, USDC, and BUSD. Stable coins are 1:1 pegged to the U.S dollar, and these are created to combine the general nature of cryptocurrencies with the stable value of thU.S.U.S. dollar. But with the current situation that happened with UST (Terra’s Stable coin), is the future of stable coins at risk?
USDT was launched in July 2014, and its name was Realcoin; Realcoin is a second-layer cryptocurrency token built on top of Bitcoin’s blockchain through the Omni platform. Later it was renamed USDT. USDT’s unique feature is that Tether guarantees its value to remain pegged to the U.S. dollar; according to Tether; whenever it issues new USDT tokens, it allocates the same amount of USD to its reserves, thus ensuring that USDT is fully backed by cash and cash equivalents.USDT does not have its blockchain — instead, it operates as a second-layer token on top of other cryptocurrencies’ blockchains: Bitcoin, Ethereum, E.O.S., Tron, Algorand, Bitcoin Cash, and OMG., and is secured by their respective hashing algorithms.
But, there are a few concerning things about USDT, which include a lack of transparency, lack of trust in the mother company, and the S.E.C. is also behind the tether. The USDT hasn’t lost it Pegg yet, but some speculate that it could happen sooner rather than later. But can a 79 Billion dollar market cap of tether vanish?
On the other hand, USDT has its arch-rival, USDC, a US-backed stable coin that a regulated institution issues. The USDC came to its inception in 2018 and gained trust and love from the whole crypto market because of its transparency. Now Circle and Coinbase are behind the success of USDC. USDC was able to shrink the market dominance of USDT from 74% -> 45% in just four years. But will this be able to save Stable coins from their bad reputation?
What happened with Terra Luna and UST
Terra Luna was a successful project and was a top 10 cryptocurrency. But on the 9th of May, UST, the stable coin of terra ecosystem, has de-pegged from its 1 dollar price and went down as low as 13 cents. Luna algorithm was set to print new Luna tokens to hold the Pegg of UST. When UST lost its peg following the Wormhole hack, trillions of new Luna tokens were printed, and Luna lost 99.99% of its value. It fell from 85 dollars to a fraction of a cent in just a few days. Luna had a market cap of 40 billion dollars, and now it has fallen to just 1 billion dollars. Luna investors lost billions of dollars. This one-in-the-lifetime event has driven away many retail investors from the crypto markets. This is a black swan event for the whole cryptocurrency market. Now people are afraid of what would happen to other stable coins like USDT and USDC.
Will USDT and USDC also go to ZERO?
The short answer is No, but a few crucial concepts need to be understood. Nothing in crypto is fall-proof. We all love crypto and its use cases, but we have to admit that harsh truth. But these two stable coins have been here for years, and they have gone through challenging periods like this before. But still, stable coins aren’t regulated by governments, and we never know what will happen when regulations come. But as a crypto investor, I prefer USDC over USDT because at least it is regulated by Circle and Coinbase. These are not financial advice and are solely for Entertainment and Educational purposes. Do your research before investing any of your hard-earned money.