Universidad Tecnológica de El Salvador
The 5 Biggest Lessons From Terra/Luna's Collapse, According to Tascha Che
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The 5 Biggest Lessons From Terra/Luna's Collapse, According to Tascha Che

Laura Shin and Tascha Che
Unchained, 2022
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In May 2022, investors in the Terra crypto ecosystem experienced a stunning destruction of value: The platform’s stablecoin UST, designed to hold a price of $1, plunged significantly below that mark, and Terra’s cryptocurrency Luna crashed to near zero. For investors, the unraveling revealed that certain stablecoins may not always provide a safety net. In this Unchained podcast episode hosted by journalist Laura Shin, crypto expert Tascha Che assesses the Terra debacle and draws five lessons for investors, who will find some important insights in this timely discussion.

Summary

The collapse of Terra’s Luna and UST exposed the problem with stablecoins.

Investors typically view stablecoins as dependable and price-resilient. However, the May 2022 Terra incident provided a dramatic reminder of the volatility of digital currencies. Designers of the Terra stablecoin, UST, had pegged its valuation to $1, while the accompanying Luna cryptocurrency traded as a floating asset. Yet UST broke below its $1 threshold, as Luna crashed nearly to zero.

Investors use stablecoins as a mechanism for “transforming risk or volatility,” just as insurance companies and banks do. While the UST...

About the Speakers

Laura Shin is the host of the podcast Unchained and the author of The Cryptopians. Tasha Che is a macroeconomist and the founder of Tascha Labs.

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