What’s behind the latest crypto dip?

If crypto is all it’s been hyped to be, then why is it dipping?

Aha. I thought you’d ask. Let me start by saying, the crypto market is less than a decade old, and there are bound to be periods when the market dips due to different factors. Call it teething if you like.

Okay, so how do you explain stablecoins not being stable? Why are they falling too?

This is not entirely true. Stablecoins, in theory, are supposed to be stable since they are usually backed by real assets, i.e. the US dollar, gold, silver etc. But, here’s where things get very interesting: there are four types of stablecoins (Physical, commodity, algorithmic and crypto-collateralised). Stay with me:

  • Commodity-backed stablecoins are tokens that are pegged to commodity products like silver, gold etc. A good example is Paxos Gold. If you hold 1 Paxos Gold, you own a physical gold kept in a vault.
  • Crypto-collateralised stablecoins are unique tokens backed by cryptocurrencies. A good example is DAI, a stablecoin backed by Ethereum. These types of tokens are usually over collateralised — you have to deposit more cryptocurrencies to hold these types of tokens. For example, to buy $100 DAI, you need to lock $200 worth of Ether (ETH).

Huh?

Okay, here’s how it’s supposed to work.

Supposed to?

LUNA and UST are interchangeable, and each time UST is exchanged for LUNA, the UST is burned (or removed from circulation) and vice versa. The idea is for LUNA to exist as a token used to maintain UST peg to the dollar.

  • In contrast, if UST trades above $1 the investor exchanges their LUNA for UST for profit.
  • They can also deposit their assets on Anchor, a lending platform that offers around 20% interest yearly on UST deposits.

So, what happened?

There was a weird development that resulted in many people selling vast amounts of LUNA and UST simultaneously.

What angle to this dip are many people not considering?

Many people overlook that despite the massive dip in the market, it still compares favourably to other popular stock options. For example, Bitcoin’s price has dipped by 47% in the last 12 months, which is significantly better than Netflix (65.18%) and Shopify’s (70%) stock prices.

Crypto optimism long-term: smart or foolish. Lol. You know my answer.

Smart, of course!

Since crypto is giving you heat right now, what gives you joy these days?

I resonate with the word YOLO (you only live once), and I’ve learnt to enjoy life. I’m also involved with some charity organisations that educate and empower young people. Reading books and hanging out with friends are other ways I enjoy myself.

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