Stable coins are meant to be backed by dollars, but the people running them haven't done that, they spent the reserves hoping no one would notice.
Looks like some people have.
Looks like some people have.
If UST starts to lose value, buy pressure is created because someone could buy 100 of them at (say) $39 and immediately convert to $100 of Luna. If it starts to rise, say to $1.10, you use Luna to convert to UST at a discount and then sell it to turn a profit. There were multiple other mechanisms to this, including one that involved staking your UST for interest and getting Anchor tokens, so that others could take loans. Anchor would give a 20% interest rate(!) and then there was something about loan defaults and buying collateral at a discount and ...
Massively complex, and one of those things that works fine, until one day it doesn't.
And I don't believe you would be wrong! It looks almost purposely designed to blind the casual investigator with complexity and buzzwords, while luring them in with the promise of m4d g41nz.
What's the issue with scrutinisation?
The community at large has awful factions, but a portion of this tech will be normalized sooner than we hope.
I mean the USD is not stable either by definition, but there's more checks and balances there and your $1000 won't halve in value overnight except in extreme situations like the world shutting you off of the international financial system for invading a neighbouring country.
This is separate from the issues facing stablecoins. I'm reminded of the British government's failed attempt to maintain a "stablepound" against the "stablemark", in the proto-stablecoin mechanism known as the ERM. https://en.wikipedia.org/wiki/Black_Wednesday
Many of the same features are there. Spend the reserves! Increase the interest rates! Ultimately they had to de-peg.
The person on the other side of that trade? George Soros. Yes, really.