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IMF head says stablecoins not backed by assets are a pyramid, hinting at UST


DAVOS, Switzerland — Stablecoins that are not backed by assets to support them are a pyramid scheme, the head of the International Monetary Fund said Monday, hinting at the collapse of terraUSDAnd lunaThat sent shockwaves through cryptocurrency markets.

A stablecoin is a cryptocurrency which aims to track an asset. The case for TerraUSD or UST, as it is also known, promised that it would track other assets. U.S. dollar. So, one UST equals one dollar.

UST, however, is an algorithmic stablecoin. Unlike stablecoins USD Coin or tether that claim to be backed by government bonds and fiat currencies, UST does not have any reserves. Instead, UST has the ability to peg to itself to USD relied on an algorithm.

This month, the UST lost its dollar peg. Luna, the sister symbol of UST crashed to $0. It triggered a major slump in cryptos, with billions of dollar worth of value being wiped from the market.

When we think about stablecoins, this is the place where there was the most chaos. Stablecoins are stable if they can be backed by assets one-to-one. It is a pyramid if it doesn’t have assets but promises a 20% return,” Kristalina Georgieva (managing director of IMF) said Monday during CNBC’s panel.

What happens to pyramids?” … They will eventually be shredded.”