Terra USD’s stablcoin plunge has brought down the crypto market. What will happen next?

This has been one of the most stressful months for the cryptocurrency market. The reason is the complete failure of Terra, a fast-growing blockchain project. The value of the stablecoin UST, aka TerraUSD, as well as the token called Luna, is still plummeting.

In addition to the investors themselves, many of whom have invested substantial sums in the project, the crypto market has also suffered from the situation. Its capitalisation has lost more than $400 billion in value. Moreover, if previously stabelcoin was positioned as the most reliable, now this statement is highly questionable.

Details of what happened

Terra has its own blockchain and the product is the UST stabelcoin. The latter’s trick lies in its linkage to the dollar. It is because of the linkage to fiat that stablcoins are in demand by crypto traders. This way, the safekeeping of assets was ensured, given the volatility of financial markets. In addition, transfer fees are minimal and a number of tax implications are avoided.

Due to the provision of stabelcoin reserves, an investor can leave the project at any time and still receive their payout. Because of the fiat currency peg, the project has the right amount of cash to compensate.

UST is an algorithmic stablcoin. It is based on a code. The functioning of the coin is based on market activity as well as trust. In the last six months, the active purchase of UST has been triggered by investors’ desire to collect profits from Anchor. The latter is a cryptocurrency lending platform that promises a 20% yield to every member who purchases Stablecoin and provides it with a protocol.

In reality, however, the company has failed to deliver such a return. This was first stated by experts and then by the company’s representatives themselves. The excuse was the need to bear development and marketing costs. But the investors to get the desired profits had previously made large bitcoin loans, in order to be able to buy UST.

Having got the stablcoins, many new owners started waiting for its value to fall, which would provide them with huge profits. But the UST has fallen against the dollar, after what an active withdrawal of funds began. Investors began to run away from the project, while there was still an opportunity. As a result, the cryptocurrency Luna, which is associated with Terra, depreciated. Those who didn’t have time to withdraw their funds from the project simply lost them.

The future of the crypto market

First of all, this situation was the end of the popularity of Stablecoin. Although developers are still working on getting a functional and secure algorithmic coin, there are less and less enthusiasts. There are still brave investors out there, but their numbers have dwindled significantly.

As far as the entire crypto market is concerned, it has a chance to survive the crisis and rise again. Except that few people will believe in complete security, which they have been chattering about since the first days of its launch. In addition, regulation needs to be addressed at the level of each state that recognises cryptocurrency.