Do Kwon had one job. The self-titled “master of stablecoin” designed a popular digital token, TerraUSD, that was supposedly pegged to the dollar. On Wednesday its value slumped below 30 cents. The collapse brings highfalutin cryptocurrency ideals back to earth.
Terra is different. Kwon designed the peg using a parallel cryptocurrency, Luna. By design, traders can swap $1 worth of Luna for one Terra. So if the value of Terra falls below $1, traders have an incentive to swap it for $1 worth of Luna, banking a profit and reducing the supply of Terra until the price recovers. The appeal of this approach for diehards is that this eschews real-world financial assets like bank deposits which are subject to government oversight.
Kwon’s fans, known as Lunatics, considered such an approach heresy. Their aim was to build a permissionless, decentralised financial world free from intermediaries like banks and custodians. Wednesday’s plunge is a reminder that they can have ideological purity or stability, but not both.- TerraUSD, a so-called stablecoin that is designed to be worth $1, was trading at 34 cents as of 1240 GMT on May 11, according to price site CoinGecko.
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