The Rise and Fall of Algorithmic Stablecoins: Lessons from Terra USD’s Collapse

The Tremors of Terra USD

When Terra USD (UST) decided to take a detour into the world of unstable fortunes, the crypto market felt every shake, rattle, and roll. Once the darling of algorithmic stablecoins, UST plummeted from grace, taking down nearly 79.8% of its peers’ market share with it. From an all-time high of 12.4% in April 2022, algorithmic stablecoins now cloggily occupy just a mere 1.71% of the crypto ecosystem.

Market Highlights: The Current State

It’s not just UST that is feeling the pinch; the entire stablecoin market is having a rough patch. January 2023 marked the tenth consecutive month of decline, a feat that even a bad sitcom would envy. As CryptoCompare points out,

“The decline in stablecoin dominance suggests market participants are rotating out of stablecoins and into risk assets.”

In layman’s terms: investors are growing tired of waiting for a bus that’s just not coming.

Top Contenders: USDT, USDC, and BUSD

In the chaotic rubble following UST’s doom, the heavyweight champions of the stablecoin market have come out swinging. Tether (USDT) is leading the pack with a staggering 48.7% market share—its highest since October 2021. Meanwhile, USD Coin (USDC) and Binance USD (BUSD) are also holding their ground, providing a semblance of stability amidst the chaos. Who knew stablecoins could become a soap opera?

Stablecoin Wars: The Battle for Supremacy

It’s not all sweet nothings and sunshine in the stablecoin territory. With so many contenders, a fierce “stablecoin war” has erupted. Coinbase decided to stir the pot by launching a zero-fee trade for swapping USDT to USDC, which prompted a mixed bag of applause and snickers from the crypto community. Meanwhile, Binance is playing its cards close by automatically converting users’ USDC and other stablecoins into BUSD like a magician pulling rabbits out of hats. Talk about keeping your friends close and your competitors closer!

Future Perspectives: A Role in Payments?

In a surprising turn of events, Visa’s CEO Al Kelly thinks that stablecoins might just have a seat at the table in the payments realm, alongside central bank digital currencies. Who would have thought stablecoins would get this kind of VIP treatment? While they may be down in the dumps today, there’s still a glimmer of hope for a comeback—as long as they don’t try any funny business like their fallen comrade UST.