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.

The point of projects like UST is to enable crypto traders to make transactions easily and quickly without needing to leave the digital asset ecosystem, rely on intermediaries, or worry about the value of their coins going up and down. By using software programs to manage the token's volatility, the opportunities for profiting off arbitrage are even greater—DeFi lender Anchor Protocol was known for offering market-beating rates of up to 20 percent to traders willing to deposit UST on its platform. In summary, it's the crypto dream.

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