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Terra Meltdown Highlights Crypto Dangers

The ‘stablecoin’ went from DeFi darling to death spiral in just a few days.

By Emily Nicolle | May 12, 2022 at 03:41 PM

A celebrated experiment that combined math and software to get a digital currency to behave like a dollar is crashing in dramatic fashion, posing the biggest test yet to decentralized finance (“DeFi”) and the will of its backers to defend it.

TerraUSD, or UST, is an algorithmic stablecoin, meaning it uses a complex combination of code, trader incentives, smart contracts, and no small amount of faith to maintain its peg of one-to-one to the dollar. It does this by working with a crypto token in the same ecosystem, Luna, which can be swapped for UST and vice versa by traders to keep the price of UST where it should be.

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