https://www.bloomberg.com/opinion/articles/2022-05-10/anothe...
What makes people trust a currency is who is controlling it. In the case of some cryptocurrencies that answer may be "people who contribute processing power". For USD that is "the US government", and for miscellaneous virtual currencies it may be some company who manages it in spreadsheet...
Think of prisoners using cigarettes for currency - it's not necessary for the tobacco companies to be involved or even care.
The biggest AFAIK is still Maker/DAI which is orderly unwinding at the moment:
https://coinmarketcap.com/currencies/maker/
https://coinmarketcap.com/currencies/multi-collateral-dai/
(Click one year and market cap to see the unwinding.)
Algorithmic stables are vulnerable to things like what happened to ust because the coin basket has to be balanced always, DAI tends to be more or less stable because it has a big part of its reserves in USDC so its more like a wrapped USDC with a little ETH.
The more damaged ones were people who felt attracted for the completely unrealistic 20% interest.
However, this absolute dump was coordinated by big funds, they saw they could borrow and dump whatever, nobody would save the peg.
Sorry you can't say USDT and "more or less audited" in the same sentence. Literally un-audited. It's an empty vault in the Bahamas lol. [1]
Institutionalized stable would be a better description of USDT.
The issue is algorithmic and partially-collateralized stable coins are all, each and every one of them, vulnerable to attack. They purport to be $1, but you know fundamentally they are not. Therefore you can attack the peg and walk away with boatloads of money. This is actually how Soros made his money - he broke the GBP when it was pegged. [2] It's much easier to break these pseudo-dollars since the market is unregulated, you can do whatever you want, and they're small potatoes in the world of tradfi.
[edit] This is a great listen on the whole thing. [3]
[1] https://www.bloomberg.com/news/features/2021-10-07/crypto-my...
[2] https://www.investopedia.com/ask/answers/08/george-soros-ban...
[3] https://cryptocriticscorner.com/2022/05/04/episode-71-terra-...
Theoretically you can purchase synthetic stocks, tokenized real estate, other stablecoins. No one has tried it yet tho.
The problem is getting people to trust the underlying collateral. Also, you can take the Dai approach and be over collateralized. Dai is at 150%, instead of trying to maintain parity.
"The order further finds that Tether and Bitfinex’s combined assets included funds held by third-parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a “liquidity crisis.”"
> this absolute dump was coordinated by big funds
Really? Because people have been talking about the reserve to pay out the promised interest falling away for some time now.
DAI requires 150% collateral in a currency completely outside the system that it can't burn or mint.
It is a big difference.
edit: UST is going to be collateralized in the future if it survives this https://twitter.com/stablekwon/status/1524331190995484672
And they are both run by algorithms.