Stablecoins, defined: Why the crash of Terra and Luna has traders on edge

Stablecoins, explained: Why the crash of Terra and Luna has investors on edge


London
CNN Business
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Within the often head-scratching world of cryptocurrencies, there’s a small but growing sub-species known as “algorithmic stablecoins” that have some investors and regulators ringing alarm bells.

This week, one popular so-called algo coin cratered, wiping out billions of dollars’ worth of value in just a few days.

The coin, called TerraUSD, is designed to maintain its value at $1, forever and ever, amen. Instead, it fell as low as 23 cents Wednesday before recovering some ground. It was hovering around 60 cents early Thursday.

To critics of the controversial crypto product, it’s an “emperor has no clothes” moment. Or, more pessimistically, a Lehman Brothers moment.

To understand what’s going on in this corner of the crypto market, it’s important to understand what these newfangled investing products are…