The Terra blockchain has been hit pretty badly in the past few days. What transpired was unexpected and has never occurred before in the crypto market’s brief history. Terra’s UST stablecoin crashed and lost its peg to the US Dollar in a chaotic manner. It once used to be the third-largest stablecoin by market cap. LUNA, the token that runs the blockchain-backed UST, lost nearly all of its value following the crash. The situation got so terrible that Terra validators had to stop new transactions at some point. What’s next for algorithmic stablecoins? Being an algorithmic stablecoin, this raises a question about the credibility of other algorithmic stablecoins. How can the other algorithmic stablecoins have any hope of surviving if the third-largest stablecoin can lose all its value in just a few days? Algorithmic stablecoins Cryptocurrencies are known for their high degree of volatility and the ease with which their prices can fluctuate. Stablecoins fill this void by providing some stability in the widespread volatility. Stablecoins are digital assets designed to maintain a constant value compared to an underlying asset or currency, often 1 USD. We can categorize stablecoins into two primary groups. The first category consists of stablecoins like Tether and USDC that maintain their value through the use of reserves denominated in fiat currency. The second type of stablecoins is algorithmic or decentralized stablecoins like UST...
