When you hear the word stablecoin, it gives you a lot of confidence. However, the last few months have been such that stablecoins could mean anything but stability, and that is the sad reality. Things kicked off when the Luna/UST debacle happened, and UST got depegged. As a result, Luna also crashed to less than 1 cent due to the Dominic effect. After this, the depegging didn’t stop as multiple coins started to lose their value and never recover again.
Stablecoins are not 100% safe as the name would suggest otherwise
There are 132 stablecoins in the market right now, according to Coinmarket.com, and less than half of them are pegged to the dollar (valued between 99 cents to $1.01). This shows that majority of investors who have bought smaller or less popular stablecoins promising high returns have lost money. When we think about stablecoin, the first thing that comes to mind is that it can help us generate a stable income. But in most cases, it’s all false promises.
After the UST debacle happened, the developers themselves revealed that the stablecoin wasn’t designed to handle 20% APY. However, to make things attractive to investors, they were still forced to go along with the number. And we all saw what had happened.
If you assess most of the stablecoins that have lost their peg, we can find a lot of common grounds. They either might be using proprietary algorithms promising stability like UST did or give very high APYs to attract investors. For example, USDD promised up to 12% annual returns and was designed like UST/LUNA. The stablecoin also lost its peg a while back but has been able to reclaim the $1 price again.
What should a novice crypto investor do?
The easiest way to avoid a stablecoin scam is to stay away from smaller coins that offer high APYs. If you invest in the top 3 stablecoins like USDT, USDC, and BUSD, the chances of anything going wrong are slim. It is again not 100% safe but definitely 1000 times better than smaller coins.
Secondly, do not chase high returns with these coins by using shady platforms. Binance could offer only 6-8% returns on USDT deposits, while an XYX company might give 12%. It’s not necessary that the XYZ company is actually a scam, but the higher the return, the more the risk.
What are your thoughts as stablecoins are losing their dollar peg left and right? Let us know in the comments below. And, if you found our content informative, share it with your friends.