There has been a certain amount of panic and a large amount of discussion regarding UST (TerraUSD), an algorithmic stablecoin ostensibly pegged to the US dollar, losing its one-to-one valuation. Currently, UST is recovering trading around $0.9273 but in the past 24 hours, UST traded around $0.69 – an incredible amount of value destruction. It seems there has been a proverbial run on the bank. The most popular stablecoins are USDT (Tether) and USDC – each pegged to dollar reserves.
Created by Do Kwon and Daniel Shin at Terra in Singapore. Do Kwon Tweeted yesterday to hold the line as they deploy more capital to backstop the slide.
Deploying more capital – steady lads
— Do Kwon 🌕 (@stablekwon) May 9, 2022
This statement led to Twitter snark attacking the concept of decentralization as UST is described as a decentralized crypt that is in need of central action to regain its footing.
Emin Gün Sirer, founder and CEO of Ava Labs, jumped into the discussion to calm the masses explaining that he believes UST is poised to be the one decentralized stablecoin to rule them all. Sirer said, “we need a decentralized stablecoin as fiat-backed stables are subject to legal seizure and capture.” A decentralized stablecoin is not at risk (or as much risk) to such an assault.
My thoughts and takeaways today:
1. We need a decentralized stablecoin. Fiat-backed stables are subject to legal seizure and capture. A decentralized economy needs a decentralized stablecoin whose backing store cannot be frozen or confiscated.
— Emin Gün Sirer🔺 (@el33th4xor) May 10, 2022
In defending DeFi, Sirer stated:
“Before anyone says “hey, open market operations by a team doesn’t seem decentralized,” remember that the value proposition here is to create an asset whose backing store is decentralized and can’t be confiscated or frozen. A capable team is absolutely essential for this.”
He added that he is “even more bearish on all copycats, and bullish on UST once the dust settles down.” Sirer sees the decline as a a “great arbitrage opportunity.” Adding:
“We just weathered a substantial bank run. Had this happened in TradFi, there would have been talk of doom and bailouts galore. One thing we know though, the bankers’ bonuses would still be paid.”