This year is the hardest year for cryptocurrency market. The bearers even managed to hit those stable currencies that could not maintain their peg to the dollar. For example, the stable currency of the former Terraform Labs lost its link with the US dollar in May, bringing huge downward pressure on other assets of the blockchain. Another algorithm stable currency that has been trying to keep matching with the US dollar is USDD, Tron's stable currency. On June 19, 2022, the counterfeit currency fell to US $0.93. Since November 27, it has failed to return to the trading level of US $1.
It is not only the algorithm stable currency that is negatively affected this year
USDT cited a similar case. Although it is the main stable monetary asset in the crypto market, there will be a downturn in 2022, sometimes far from the $1 barrier.
The tracks of giant USDC and BUSD are no different. Even at the time of writing, Circle's stable currency was trading at $0.99.
For this reason, it is necessary to analyze the decline in the number of stable points of the algorithm. They are the most troublesome people in the cryptocurrency market. These stable currencies do not use assets as collateral to maintain parity with the US dollar. In this sense, they are controlled by algorithms. Their purpose is to expand or reduce their total circulation supply according to market conditions, while maintaining their stability.
The biggest problem is that sometimes the algorithm is wrong or misconfigured. This led to other situations besides the elimination of the stable parity between the euro and the dollar. For example, in the case of the University of Science and Technology of China, the ecosystem of Terraform Labs is flawed, allowing arbitrage opportunities, because the curve (CRV) supporting stable currency parity is low in liquidity.
In addition, in May, the DeFi Anchor project, an agreement that allows users to deposit with the University of Science and Technology of China for rewards, reduced its yield from 20% to 4%. This surprised many investors, who decided to let UST anchor and sell it on the market.
As a result, in a very short period of time, the University of Science and Technology of China lost its exchange rate mechanism of pegging to the US dollar, falling to a fraction of the face value, and making the economic losses of many people who believe in a stable euro zero.
Poor management is also one of the reasons for the decline of stable currency
You are not mistaken. Stable currencies such as Dai, USDT, USDC and BUSD need professional management so that they will not lose contact with the US dollar. For example, MakerDAO's stable currency put forward a particularly good proposition, namely decentralization, and guaranteed its parity with cryptocurrency.
However, during the market crisis, with the price of cryptocurrency falling, Dai may lose contact with the US dollar if he does not have sufficient reserves. At the time of writing, that was happening. On the other hand, central stable coins such as USDC and USDT should have a calculated reserve in case the crypto market may experience distrust and include stable coins in uncertain market moments.
During the two secret scandals "Terra Ecological Collapse" and "FTX" in 2022, the USDT failed to maintain stability, and the sale of stable currencies in the market led to its loss of parity with the US dollar. In theory, this should not happen at all, because the emergence of stable bonds is just to bring a sense of security in times of panic, so that investors no longer fear. However, in practice, it can be observed that everything is completely different. Stable assets are only less volatile than Bitcoin (BTC) and do not fulfill their value proposition.