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This Stablecoin Wasn’t on Terra Firma

Algorithmic stablecoins might be a novel creation, but they couldn’t avoid some very old problems.

TerraUSD is, or was, the largest. The stablecoin part refers to how it aims to always be worth one U.S. dollar, making it a useful digital substitute for the greenback. The algorithmic part describes how it aims to accomplish this: By being swappable for another token, Luna, that had no fixed value. If the value of TerraUSD moved below $1, it could be “burned” and exchanged for a dollar’s worth of Luna—and vice versa. But that mechanism evidently broke down, and TerraUSD has ceased to be worth $1. It now fetches around 40 cents.