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How Terra collapse nearly killed algorithmic stablecoins

Author: Content Editor
The Terra-Luna Ponzi scheme experienced massive growth, with the TerraUSD stablecoin reaching $40 billion and the Luna governance token reaching a market capitalization of $40 billion. However, the scheme eventually collapsed, causing significant damage to the wider crypto ecosystem. Some projects impacted by Terra's demise have attempted to pivot and find alternative designs, but most have failed to gain adoption. Terra still exists as TerraClassic, but its value has significantly decreased, and it is no longer considered a stablecoin. The corresponding governance token, Luna Classic, has also seen a massive decrease in value. The USDD stablecoin, intended to model Terra-Luna's design, has shifted away from algorithmic stability and become collateralized by burned TRX tokens and other assets. The governance of USDD appears to be centralized rather than decentralized. Celo, which initially functioned similarly to Terra, has become a level-2 solution on Ethereum and has seen a decrease in value. Frax, a dollar-pegged stablecoin, aims to be wholly collateralized by cryptocurrencies, but its market cap has also decreased. Overall, many projects that sought to replicate Terra's success have had to change their strategies following its collapse.

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