During this week we have seen a shower of news in relation to the Luna cryptocurrency and the UST stablecoin due to the fact that both have become catalysts for a negative sentiment in the cryptocurrency market. In this sense, giving continuity to this event, which is not is by no means minor in the crypto world, and has created an interesting precedent, Derek Lim, head of crypto knowledge at Bybit has shared his opinion about the problem.
According to Lim, the pressure that Terra USD (UST) has faced in recent days shows no signs of abating, and everything has turned into an unprecedented situation where the market capitalization of what used to be the third largest stablecoin at over $18 billion has dropped to just over $600 million according to data from Coinmarketcap.
“UST is an algorithmic stablecoin, which means that its value is tied to an arbitration system. Over the past few days, the system was unable to keep up with the huge flash selling pressure, causing the value of UST to become unpegged, resulting in a cascade of sell-offs and panic selling.”Lim explained.
About the stablecoin sector
On the other hand, Lim highlighted the importance of understanding the differences between some of the stablecoins that exist in the market and have a leading role in the world. “Other stablecoins like USD Coin and Tether (USDT) are collateralized. This means that they are backed by a traditional-style treasury, held by a centralized company.”, Lim explained, alleging that by presenting this model, according to him, there is little risk of “contamination” with the Terra situation, which for now, seems to only be contained in UST, LUNA (Terra’s native token) and the projects immediately associated with both.
Incidents in regulatory aspects
All this said, Lim thinks that without a doubt, governments and regulators will and should be interested in this situation. “I would like to point out that one of the main concerns that US regulators have made clear in various reports (recent examples are: Money and Payments: The US Dollar in the Age of Digital Transformation and US Department of the Treasury – Report on Stablecoins) is that a bank run on stablecoins could destabilize the financial system in general”said.
“This incident has shown that a bank run on the third largest stablecoin by market cap has hardly affected the broader crypto markets let alone the S&P and beyond.”Lim added.
Lastly, and in this sense, Lim made a recommendation on behalf of Bybit, so that investors are forced to thoroughly investigate the risks associated with investing in new projects. “Bybit and offers a great library of resources on Bybit Learn to help investors navigate these waters”he mentioned.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.