- The FTX Crypto exchange founder Sam Bankman-Fried has talked about the stablecoins following the massive crash of LUNA and TerraUSD (UST).
- He highlights that stablecoins can be used to mean multiple various things.
- These are hard times for the crypto sector, there is no denying it, but we can safely say it is the worst time for stablecoins.
Bankman-Fried recently highlighted via Twitter about how the stablecoins should have different definitions given the recent pullback that the Luna Foundation Guard’s (LFG) TerraUSD (UST) and LUNA faced.
He cited through a lengthy Twitter thread that a good point someone brought up is really ‘stablecoin’ is used to mean multiple different things.
One thing it can mean is stablecoin backed one-to-one by a US dollar in a US bank account. And as a first step, that is what current drafts of US regulations are looking to license.
The CEO also highlights that other stablecoin tiers that are susceptible to fluctuations and risk because they are not supported strictly by the US Dollar but an amalgamation of assets and debts.
And that is the case of algorithmic stablecoins. If the underlying asset crashes, it can go down. For instance, UST.
If we talk about the solutions, the FTX CEO suggests applying varied definitions to the different versions of what presently falls under the vast stablecoin terminology umbrella.
Furthermore, he highlights that we should not use the same term for all of these things. What we call algorithmic stablecoins are not actually stable in the same way that fiat-backed stablecoins are. They are more like structured products and need upside if they want to justify the risk.
And that this might not seem as important to folks in crypto, as we already know that algorithmic stablecoins are quite different from fiat-backed ones. But in the policy space, that message often gets lost. We need to be explicit about it.