Collapsed ‘stablecoin’ terra to be rebooted in bid to recover losses

theguardian.com:

Terra, the “algorithmic stablecoin” project whose collapse earlier this month prompted a widespread crash of the entire cryptocurrency sector, is being rebooted as “Terra 2.0” in a last-ditch attempt to recover investor losses.

However, the new cryptocurrency, which will be launched on Friday morning, will no longer involve any effort to peg its value to the US dollar, in an attempt to avoid the “death spiral” that destroyed the original iteration. The plans were approved by a vote of Terra investors, with 65% voting in favour.

Instead, new tokens will be handed out to a broad selection of users who were involved with “Terra Classic”, both before and after the crash. The largest portion of the tokens will be given to people who owned the Terra stablecoin or its floating sister currency, Luna, as of 7 May, shortly before terra broke its peg with the US dollar and both currencies’ values spiralled towards zero. As of Wednesday the value of terra had fallen from $1 to nine cents.

A stablecoin, like the name suggests, is a type of cryptocurrency that is supposed to have a stable value, such as US$1 per token. How they achieve that varies: the largest, such as tether and USD Coin, are effectively banks. They hold large reserves in cash, liquid assets, and other investments, and simply use those reserves to maintain a stable price.

Others, known as «algorithmic stablecoins», attempt to do the same thing but without any reserves. They have been criticised as effectively being backed by Ponzi schemes, since they require continuous inflows of cash to ensure they don't collapse.

Stablecoins are an important part of the cryptocurrency ecosystem. They provide a safer place for investors to store capital without going through the hassle