The stunning collapse of a token that was meant to always be worth $1 has roiled investors — and regulators.
Stablecoins are supposed to be everything tokens like bitcoin and ether aren’t.
Whereas bitcoin’s price fluctuates sharply, stablecoins are designed to be worth the same as something else — usually the U.S. dollar. Many stablecoins are also issued directly by companies, whereas bitcoin operates independently of any central authority.
Recent events have shown that not all stablecoins are as stable as they’re made out to be. TerraUSD, a so-called “algorithmic” stablecoin, fell below its peg dramatically, eventually crashing to a fraction of a cent and bringing an associated coin down with it.
The debacle has led to fresh scrutiny from regulators, who are worried stablecoins will one day get so big they could cause damage to the larger economy if they fail.
Tether, the world’s largest stablecoin, is a $70 billion juggernaut in the crypto world. But the company, which claims each of its tokens can be redeemed for exactly one dollar, has long faced doubts about the assets that underpin it.
Watch the video to learn more about stablecoins and why they’re so controversial.