The spotlight has been on the cryptocurrency market recently. However, this attention has been for the wrong reasons. The Terra ecosystem with LUNA and UST as its primary tokens collapsed immensely, negatively affecting the value of many digital asset classes.
What Are Stablecoins?
First, you need to be familiar with the concept of stablecoins, pegs and collaterals to know what caused the fall of Terra.
Cryptocurrency investors are no strangers to the inconsistent characteristics of the digital asset class, and anything can be responsible for the doom or boom in the crypto market. For this reason, stablecoins exist.
The main feature of Stablecoin is to remain stable, as its name implies. Therefore, the coins are pegged to a fiat currency like the dollar or euro. The stablecoin allows investors to exchange various crypto coins on significant cryptocurrency exchanges without converting the digital currency to fiat.
Furthermore, stablecoins are safe havens for crypto investors when the market becomes unpredictable. So, traders can sell their volatile assets for stablecoins instead of converting them to hard currency, which is more expensive.
The biggest stablecoin is Tether, with around $75 billion (€71.22 billion) in circulation, making it the third biggest cryptocurrency behind Bitcoin and Ethereum. Tether pegged to the dollar and its value theoretically remains stable at $1, despite lack of clear transparency of it’s backings.
So How did LUNA and UST crash?
While some stablecoins derive their value from being fully backed by reserves, UST, on the other hand, is an algorithmic stablecoin which relies upon code, constant market activity, and sheer belief to keep its peg to the dollar.
Investors unstaked over $2 billion worth of UST, which was sold off almost immediately. As a result, the selling pressure reduced the UST price to 91 cents. Therefore, massive withdrawals of TerraUSD, along with overall worries about crypto and a steady fall in prices, saw Terra lose its peg to the dollar.
Thanks to the recent cryptocurrency crash, many financial experts claimed that Terra was used as a Ponzi scheme. Therefore, the calls to regulate the crypto ecosystem have grown even louder.
EURST: The Digital Euro of Today
In the wake of the fall of a significant stablecoin and other tokens, including Bitcoin, Dogecoin, Ether Cardano, and Solana, the President of the European Central Bank, Christine Lagarde, commented that cryptocurrency lacks value and should be regulated to protect investors.
"My very humble assessment is that it is worth nothing, it is based on nothing, there is no underlying asset to act as an anchor of safety," Lagarde said during an interview with Bloomberg.
Nevertheless, there is a need for a digital currency that is strongly asset-backed and live audited. Hence, EURST is the first live audited euro stable token, asset-backed with US dollars.
EURST is developed by Wallex in an all-in-one asset and digital asset ecosystem which lets the everyday user enter the digital asset space quickly and implement cryptocurrency in their business and day-to-day life.
The stablecoin was created to upgrade the European digital economy by making it more accessible, transparent, and reliable. It is the most compliant and reliable tokenised euro currency for transfers and deposits, and in light of the upcoming stablecoins regulations, it seems to ensure all of the key stablecoins’ pillars - it has a transparent secure fiat reserve, stable peg to the Euro, live audit system, KYC measures in place and easy minting and redeeming.
The primary function of stablecoins is to allow investors to make digital transactions cheaply and securely. However, some stablecoins have failed to live up to that responsibility, which resulted in the crypto market crash of UST and consequetively Luna.
With EURST, you have a stablecoin that protects your investments from inconsistencies of cryptocurrency. Moreover, EURST is built on the ERC-20 standard and the Ethereum network, the most used and thus tested blockchain.