UST’s collapse will affect other algorithmic stablecoins

Terra’s UST stablecoin crashed a few weeks ago, and some experts say the event spells trouble for other algorithmic stablecoins. 

The Terra blockchain collapsed a few weeks ago, with billions of dollars lost during that short period.

UST, the stablecoin of the Terra ecosystem, lost its peg to the US Dollar, resulting in billions of dollars being wiped out from the market.

Unlike stablecoins such as USDT and USDC, which are pegged to the US Dollar, UST is an algorithmic stablecoin. This means that the UST is governed by an algorithm.

Reeve Collins, the co-founder of BLOCKv and co-founder of another stablecoin tether, told CNBC in a recent interview that he believes UST’s collapse will probably be the end of most algorithmic stablecoins. 

He mentioned this during an interview with CNBC at the World Economic Forum in Davos. Collins stated that; 

“It’s unfortunate that the money … was lost, however, it’s not a surprise. It’s an algorithmic-backed, stablecoin. So it’s just a bunch of smart people trying to figure out how to peg something to the dollar. And a lot of people pulled out their money in the last few months because they realized that it wasn’t sustainable. So that crash kind of had a cascade effect. And it will probably be the end of most algo stablecoins.”

Collins isn’t the only big name in the cryptocurrency space to discuss Terra’s collapse in recent weeks. Binance’s CEO, Changpeng Zhao, talked in-depth about the collapse and played a crucial part in the relaunch of the blockchain.

Jeremy Allaire, CEO of Circle, one of the companies behind the issuance of the USDC stablecoin, also commented that;

“I’ve compared algorithmic stable coins to the Fountain of Youth or the Holy Grail. Others have referred to it as financial alchemy. And so there will continue to be financial alchemists who work on the magic potion to create these things and to find … the Holy Grail of a stable value, algorithmic digital currency. So I fully expect continued pursuit of that.”

The collapse of UST has led to talks about regulating the stablecoin ecosystem.