One shiny premise of DeFi or decentralized finance—a catch-all term for cryptocurrencies and blockchain projects related to the exchange of value—is that by spreading out and automating operations, and removing power from middlemen like banks, it can offer a system more resilient to global forces, able to survive events like war and economic downturns that pummel traditional markets. Some industry insiders have even suggested crypto could be a good investing bet to ride out a potential recession. Now in our current precarious financial climate, with the traditional market slipping dramatically and Big Tech stocks plummeting, that theory of resilience is getting a real-life road test. And the results are not great.
Bitcoin has taken its own nose dive in the past few weeks, Ethereum, and others have dipped as well. As “Web2” tech companies like Amazon and Netflix watch their stock drop, Coinbase—one of the top three crypto exchange platforms—and Robinhood—which supports crypto trading—have seen theirs falling right alongside. Even popular proof-of-stake network Solana has seen its coin drop in value by about 80% since its all-time high in November. But the big crash came last week, when major algorithmic stablecoin TerraUSD (UST) dramatically tanked. A $100 stake in UST last Monday was worth just $18 by Sunday morning; that much in its sister token, LUNA, is worth pennies now.
Stablecoins, as the name suggests, are designed to be the rocks of the crypto ecosystem, pegged sturdily to real-world assets like the dollar. Exchanges use stablecoins to even out the volatility of other coins, and crypto investors may favor them as a safer bet to park money. They have served their function pretty well so far, although questions around consumer safety and their potential for illicit activity have certainly