DAVOS, Switzerland – Stablecoins, a pyramid scheme not supported by resources to support, the head of the International Monetary Fund, said Monday, pointing to the collapse of Terra USD and Lunar, which sent shockwaves into the cryptocurrency market.
Stablecoins are a type of cryptocurrency aimed at tracking other assets. Terra also knows that in the case of USD, or UST, it promises to track US dollars. So one UST will be equal to one dollar.
But UST is a so-called algorithmic stablecoin. While other stablecoins such as Tether and USD coins claim to be backed by fiat currency and government bonds, UST had no reserves. Instead, the ability to peg itself with UST dollars depends on an algorithm.
The US lost its dollar peg earlier this month. Luna, UST’s sister token, crashed at $ 0 This episode led to a massive downturn in the cryptocurrency that caused billions of dollars worth of value to disappear from the market.
“When we look at stablecoins, it’s the place where the big mess happened. If a stablecoin is one-to-one with assets, it stays stable. When it’s not backed up with assets, it promises a 20% return, it’s a pyramid, Kristalina Georgieva, managing director of the IMF, said during a panel hosted by CNBC at the World Economic Forum on Monday.
“What happens to the pyramids? … they end up falling apart.”