Stablecoins: Are They Really Stable?

Stablecoins may have at least two sides. Emilie Choi discusses different types of stablecoins and their potential, while Professor Paul Krugman argues that this type of cryptocurrency is an example of an old banking problem.

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Topics include: Stablecoin Categories • What Happened With Terra LUNA? • What’s the Actual Value?


[MUSIC PLAYING] WOMAN: Finally, there are avenues for users to tap into if they don't want volatility, but they do want to explore the world of crypto. Fiat-backed stablecoins would be a great example of these. PAUL KRUGMAN: It's a token that's issued by an institution that promises to redeem that token for $1. And it would be nice if they would disclose enough for us to be sure of that. MAN: Just because there's decentralization doesn't mean we have no rules at all. You can be anonymous. You can hide. You can do that in traditional industries too. So there are issues. [MUSIC PLAYING] - There's a couple of different categories within stablecoins. One is algorithmic, which I think holds a ton of potential. But to date, there have been some problematic cases, including Luna, that may make users kind of shy away from that at this moment. I still think that that category holds a ton of promise over the longer term as builders continue to evolve how they build those stablecoins. The other type of category is fiat-backed stablecoins. USDC is an example of that. The great thing about that is that it is pegged to the dollar, and so you don't have the inherent instability that might come with another form of crypto, including an algorithmic stablecoin. These fiat-backed stablecoins are a very, very great place for users to get into the crypto economy. And it also has all the benefits of crypto, including 24/7 near-instant settlement, no middlemen involved, and global in nature with lower fees. [MUSIC PLAYING] - Very recently in the crypto space, one project fails, UST Luna, disastrous failure, spectacular failure. A lot of money disappeared. A lot of people lost a lot of money-- not just people, but also companies and projects. So UST is supposed to be the stablecoin. Terra is actually an ecosystem of projects built on the Terra blockchain. But in order to drive more activity and more traffic onto this blockchain, they have to promote different projects. One of the very strong projects is a project called Anchor. In order to attract users, Anchor promises 20% interest rate if you deposit Terra or Anchor into the ecosystem. And this type of high yield, high return is very hard to sustain over the long term, but they just pegged it. Normally, if you have strong demand, you can increase it. Low demand, you can decrease it. So that's one thing. And then once they got the loans from users and they say, OK, we're going to use this to issue a stablecoin called UST, and then UST is based on this asset plus Luna. So you have these two very highly correlated assets backing each other. And there was a very fundamental flaw where in order to maintain the stableness of the stablecoin, if the Luna price drops, that means the collateral is not enough to cover the outstanding market share. What they wanted-- what it was designed to do was, let's issue more Luna coins. Let's print more Luna coins. And this is a ...

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Since Bitcoin’s launch in 2009, crypto has offered the hope of a stronger, more democratic financial system. And it’s raised plenty of questions as it continues to evolve. Now experts and skeptics at the center of the conversation are sharing a straightforward look at how this ecosystem is changing. Learn the basics, dive deep into the world of blockchain and Web3, and get the breakdown on what you need to know now.

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Chris Dixon, Changpeng “CZ” Zhao, Emilie Choi, and Paul Krugman

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