Collapse has effects on all cryptos

NEW YORK: The undoing of the Terrausd algorithmic stablecoin and its sister token Luna has ramifications for all of crypto.

First, there’s the immediate impact: The rapid collapse of a once-popular pair of cryptocurrencies sent a ripple effect across the industry, contributing to plummeting coin prices that wiped hundreds of billions of market value from the digital-asset market and stoked worries over the potential fragility of digital-asset ventures.

Then there are the knock-on effects. In addition to delivering punishing losses to individual users and investment firms, the spectacular failure of a market darling like Terra threatens to have a cooling effect on the fundraisings that have jacked up crypto startups’ valuations in recent years.

Venture capitalists who have long been some of the industry’s biggest cheerleaders may not have quite the same risk tolerance now – especially those directly caught in the crossfire.

“It’s something the scale of which crypto has really never seen in terms of a top-five project just absolutely imploding,” said Matt Walsh, founding partner of Castle Island Ventures, a blockchain-focused VC firm.

Almost Us$45bil (Rm198bil) evaporated from the market caps of Terrausd (known as UST) and Luna over the course of a week, according to Coingecko.

There were some winners in this scenario – like the investment firms including F9 Research that shorted Terrausd (known as UST). Stablecoins backed by reserves rather than algorithms also came off looking like better options. But it’s the losses from these bruising past few days that will resonate.

Individual holders of UST and Luna, the token that’s part of the peg mechanism for the algorithmic stablecoin, are now deeply in the red, with tweets lamenting dashed fortunes flooding Crypto Twitter last week.