It’s time to call algorithmic stablecoins something else, says Sam Bankman-Fried, CEO of FTX Crypto Exchange

Sam Bankman-Fried, founder of FTX cryptocurrency exchange, offers his thoughts on the future of stablecoins after two top cryptos suffered staggering losses this week.

Bankman Fried recently tweeted on how so-called stablecoins should have different and refined definitions following the loss of TerraUSD (UST) peg to the US Dollar (USD) by Luna Foundation Guard and the fall of Terra (LUNA).

“A good point brought up by someone recently: ‘stablecoin’ is really used to mean different things.

One thing it can mean is “stablecoin backed 1:1 by a US dollar in a US bank account”.

The current drafts of the US regulation want to make this possible as a first step.

The FTX CEO continued mention other tiers of stablecoins that are sensitive to volatility and risk as they are not backed exclusively by dollar reserves but by a mix of assets and liabilities.

Another is “Stablecoin hedged >=1:1 by liquid debt, Treasuries and US Dollars”. Non-zero price risk, but they usually stay very close to $1 because they can be refunded.

For example [Tether] USDT remained within a few % of $1 throughout this crash, and [I’m] Hear more than $1 billion successfully redeemed.

A third is “Stablecoin hedged >=1:1 by a highly volatile asset”.

These are “algorithmic” stablecoins. If the underlying falls, it may fall. A lot. VAT. »

When it comes to solutions, Bankman is Fried suggests apply separate definitions to different versions of what currently falls under the broader stablecoin terminology.

“Really, we shouldn’t use the same word for all these things. What we call “algorithmic stablecoins” are not as stable as fiat-backed stablecoins.

They are more like structured products and need more margin to justify the risk.

This may not seem so important to crypto users since we already know that algorithmic stablecoins are quite different from fiat-backed ones. But in the political arena, this message is often lost. We must expressly point this out.

In response to a question about whether FTX could help LUNA given Bankman-Fried gaining access to the admin keys of the decentralized exchange (DEX) SushiSwap (SUSHI) in September 2020, the CEO called it’s unlikely.

“This might be tricky – the really honest answer is that either UST or LUNA should probably go to 0 (or both).

There’s no way to save them both. (And it’s not clear at this point that there’s a way to salvage the UST ankle even if you sacrifice LUNA.)”

At the time of writing, TerraUSD is down 41.7% and is currently valued at $0.49.

Meanwhile, Terra imploded from over $80 a week ago to $1 on May 11th. LUNA is down 99.03% on the day and is trading at $0.006645 at the time of writing.

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