After collapse lost $ 48B, Crypto: ‘Let’s launch more’

Crypto does not learn.

In May, terraUSD, a so-called “algorithmic” stablecoin, broke its dollar hold, causing a run. In one week, investors were out 48 billion dollars.

The problem was that instead of a one-to-one reserve of dollars and highly liquid investments such as short-term government bonds used by competitors including Circles USDC and Tether’s USDT, Terra / LUNA stablecoin ecosystem relied on an algorithm-based arbitrage mechanism to support its dollar holdings. When it first failed, it failed miserably.

Now, just two months later, a couple of projects want to launch non-currency supported stack coins, claiming to have fixed the issue that killed terraUSD and its partner token, LUNA, which was used to maintain the link.

So straight from the cryptos “are you kidding me?” department, we have Aave, a leading decentralized finance (DeFi) lending platform, which proposes GHO stablecoin and memecoin Shiba Inu developers which proposes SHI stablecoin.

Who lets the dogs out?

That concern about unstable stack coins is something that developers of Shiba Inus stack coins have addressed, without spelling out any details on how they want to do it.

“Needless to say, Shi’s a concern after seeing other stable tokens collapse and billions of dollars being wiped out of the market completely,” wrote Shiba Inu’s lead developer, Shytoshi Kusama. “So when it comes to Shi, we’ve seen independent development from a group of developers in our decentralized network. They’ve submitted a version of Shi that seems to avoid the problems found in other lunar images.”

There were no real details on how it would work, except for a new token TREAT, which would help “give balance to Shi.”

Which probably sounds algorithmic.

The name TREAT refers to Shiba Inus’ roots as a Dogecoin memecoin competitor that fixes some of Doge’s design flaws. Both have a Shiba Inu dog as their logo.

So yes, the memecoin department of crypto now proposes a stablecoin – a type of cryptocurrency whose stability depends on users’ confidence that they can redeem their stablecoins on request.

Ghostly stability

Aave is first and foremost a DeFi lending / lending platform with security that provides investors who offer cryptocurrencies to be lent a high interest rate.

Borrowers provide collateral worth up to 125% to 150%, which is automatically liquidated if the volatile crypto markets cause the value of the collateral to fall too low. Aave is one of the largest, with more than $ 6.5 billion locked in by lenders.

Investor lenders are known as “ghosts” after the Aave token logo – this is where the proposed GHO stack coin comes from.

The way the Aave protocol developer, Aave Companies, intends to overcome the problems that killed Terra / LUNA is by replacing the support reserve that supports USDC and USDT with an oversight mechanism. Stablecoins will be characterized by everyone who can provide security. When the borrowed amount is repaid, with interest, the security is returned.

GHO is not an algorithmically stable currency and will not have the shortcomings of Terra / LUNA, the company told Decrypt.

The problem is that liquidation is something that happens on a fairly regular basis for borrowers on both DeFI crypto-lending platforms and their centralized competitors – several of whom just went bankrupt or were saved by acquisitions.

See more: $ 45B Stablecoin Rout confirms worst fears about crypto’s need for reserves

The second problem is liquidity. Stablecoins ‘stability ultimately rests on users’ confidence that they can redeem the crypto security on request. This means that if the safety symbols fall too fast, problems can occur.

Regulators worried

This is why most of the regulators who are intimidated by the Terra / LUNA collapse have proposed mandating that all stack coins be backed with a one-to-one reserve of dollars, euros or another fiat currency.

Three days after Terra / LUNA’s collapse began, US Treasury Secretary Janet Yellen told the House Financial Services Committee that although on that scale there was not yet “a real threat to financial stability”, stablecoins are growing very fast, presenting the same type of risks as we have known for centuries in connection with banking. “

See also: Yellen: Terra’s fall shows Stablecoin dangers

The EU’s recently completed Markets in Crypto Assets (MiCA) regulatory protocol requires stablecoins to have a one-to-one reserve of euros.

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