terra luna

After the LUNA / Terra UST debacle, which stablecoin is next to fail? Tether (USDT)? The world’s largest stablecoin and a cornerstone of the cryptocurrency ecosystem, fell below $1 on Thursday, raising concerns amid a market-wide slump and falling cryptocurrency prices.

In the typically very volatile crypto markets, stablecoins are considered to be a comparatively safe haven. Their value is kept constant by being pegged to other assets, such as fiat money and real assets like gold, or by an algorithm.

Tether failure would be systemic blow to crypto industry

Tether is the world’s largest stablecoin and the third-largest cryptocurrency overall.

However, on 11 May it had a market capitalisation of $83 billion but that has now fallen to $75.6 billion today. That steep slide in its market cap means that the stablecoin is being redeemed for dollars at an increasing rate (see chart below).

Tether plays a crucial role in the digital market, serving as a means of completing transactions and storing value.

A failure of USDT would represent a huge blow to crypto on a systemic scale. It appears that market participants may be switching to the USDC stablecoin in preference to Tether – USDC market cap rose today.

USDC, which is supported by the likes of Circle and Coinbase among others, has been more transparent about its cash and near-cash reserve holdings than Tether.

USDT market cap

Neutrino USD, an algorithmic stablecoin, is on the verge of failing

After the largest algorithmic stablecoin, TerraUSD (UST), fell to as low as 23 cents early Wednesday, Neutrino USD (USDN), an algorithmic stablecoin within the Waves blockchain ecosystem, fell below its US dollar peg to $0.77. Neutrino Dollar is currently priced at $0.969.

Cryptoassets are a highly volatile unregulated investment product.

USDN’s price has fallen drastically from the dollar peg for the second time in 40 days.

Users accused the platform of manipulating the price of the WAVES token through its decentralized finance (DeFi) lending platform Vires.finance on April 4, and USDN plummeted by double-digit percentage points.

Sasha Ivanov, CEO of Waves, denied the allegations and blamed USDN’s problems on short sellers, or traders who bet on an asset’s price falling.

Stablecoin Neutrino lost its peg

Luna crash update – will a rescue succeed?

Due to the untimely fall of TerraUSD and its sister cryptocurrency Terra Luna, the cryptocurrency industry has been in a state of shock for the past week.

The crisis shook the whole crypto market, and other tokens like bitcoin and tether have struggled as well. The price of the Terra (LUNA) cryptocurrency has plummeted by more than 99 percent, putting many crypto investors’ fortunes in jeopardy.

Terra, one of the top 10 most expensive cryptocurrencies, fell below $1 last week after reaching a high of almost $120 last month. In the midst of a market-wide collapse, other coins appear to be in peril.

The sudden crash meant its market cap dropped from above $40 billion to just $500 million, leading to massive losses for investors in a leading cryptocurrency.

Luna crashed due to its link to terraUSD (UST). Leading cryptocurrency exchange Binance temporarily suspended withdrawals on Luna on Wednesday.

A rescue plan that might see the blockchain “reconstitute” with the issuance of a 1 billion new coins has been put forward by Do Kwon, one of the co-founder’s of Terra.

If you are looking for the best cryptocurrency exchanges for buying tokens right now, then check out our guide.

What it means for the future of stablecoins

Though the Neutrino stablecoin appears to be stable once more, a sustained collapse in the value of Waves could mean catastrophe for both coins, considering their connected histories.

While the factors that led to this catastrophe are unique to the Waves ecosystem, it may serve as a warning for other algorithmic stablecoins. TerraUSD and Dai, the fourth and fifth largest stablecoins by market cap, both work in a similar way to Waves and Neutrino.

Tether, the most valuable stablecoin by market capitalization, isn’t algorithmic; it claims to be backed by real assets, although those claims have been debunked numerous times. With stablecoins viewed as critical to DeFi’s development, these occurrences could pose significant challenges in gaining investor faith.

Cryptoassets are a highly volatile unregulated investment product.