After Terra Fall To Earth, Get Ready For A Stable Coin Era

Cryptocurrency tokens gained massive attention since their launch in 2009. While Bitcoin is the first cryptocurrency token, there are more than 14k+ crypto tokens in the industry. The tokens combine to make a market volume beyond $3 trillion globally. You can also learn more ways to get Bitcoin for free.

Despite the growing numbers, there have been debates about crypto tokens. The prices of crypto tokens are highly volatile and fluctuate day in and out. The market price of a token that you invest in the morning has changed overnight. This applies to all crypto tokens under circulation.

Use Of Stable Coin & Its Growth In The Industry

A stablecoin is a type of crypto token that varies in its operating model. Crypto tokens are not backed by any fiat currency. It means a person can transfer digital currency over the net globally. The recipient can liquidate these tokens into native fiat currency. But in the case of stablecoins, it is generally tied to a fiat currency or a commodity. Fiat or traditional currency is either USD or Euro. Gold or silver is the preferred commodity used for tagging. The prices of these stablecoins remain tied down to either currency or commodity. It will allow investors to gain better price stability through their investment cycle. Additionally, the prices of coins changes depending on various factors.

Types Of Stablecoins

To understand this investment model better, you need to first gain an understanding of the type of stable tokens. As we speak there are three different types of stablecoins. Crypto-backed stablecoins are pegged to another cryptocurrency. Fiat-backed stable coins are either tied down to a currency or commodity. Algorithmic tokens have a unique logic defined in the system. This logic or algorithm is used to control the demand and supply of tokens in the crypto market. Stablecoins in general are not exposed to huge price fluctuations like crypto tokens. This allows the token to maintain a certain level of sanctity in their investments. Investors are not lured by massive profits using their funding.

Market Performance In 2022

While the above assumptions proved good, these notions were proved wrong in 2022. The market performance of crypto tokens showcased a terrible downfall. More than $1 trillion worth of crypto investments were wiped out from the market. Popular crypto tokens including Bitcoin, Ethereum, and Shiba are under pressure. These tokens have been struggling to maintain their portfolio in the market. For more than a month, the tokens have been performing in red and there is no indication of a market rise.

Terra Luna is a popular stable token in the investment market. More than 80 percent of its tokens were wiped out of the market in the past two months. Terra is an algorithmic stablecoin where the demand and supply are managed through various logic. Algorithm stablecoins make use of smart contracts and artificial intelligence to control prices. Smart contracts run in the back end to create and kill the supply of tokens in the investment market. An artificial intelligence told known as Anchor worked in the back end to enable it. However, with the market showing massive changes in prices the trust started to evaporate. Investors released their funding into the open market. Investments worth $60 billion evaporated overnight. This move reduced the price of Terra to almost zero. Rather, the token was completely washed out from the investment market.

Regulatory Agencies Acting On Investments

Similar to crypto, regulatory agencies were trying to understand stable coins as well. In March 2022, the US president signed a bill to proactively study both these investment schemes. The steering committee will provide guidelines on how to responsibly invest in cryptos.

Following the footsteps of the US, in April 2022 the UK government also came up with its regulations. The country aimed to regulate stablecoins. The stablecoin trust act works to regulate tokens pegged to cryptos and other assets.

Once Terra made its exit, regulatory agencies from various countries stepped in. Adequate monitoring capabilities have been introduced to ensure there is transparency in transactions.

There are various regulations and policies on stablecoins. But there is a need to bring a distinction between algorithmic and stable tokens. Asset-backed tokens need to be regulated and also bring adequate restrictions on their use of it.