It would be a huge mistake to completely brush off cryptocurrencies, says Kristalina Georgieva, the managing director of the International Monetary Fund. She highlighted that the crypto world offers faster service, much lower costs, and more inclusion. Georgieva believes the crypto world is important and has its fair share of “rotten apples” as well.
The IMF chief said it’s the responsibility of global regulators to provide the necessary education needed to protect investors. In regards to the recent Terra stablecoin crash UST, Georgieva outlined the difference between stablecoins – those that are backed by fiat money and the algorithmic ones like TerraUSD. She explained that the less the backing, the more the investor should be prepared to take the risk of the digital asset exploding in their face.
UST was created in 2018 by Singapore-based Terraform Labs. The stablecoin used algorithms to help it maintain its 1:1 value to the US dollar. The Anchor lending protocol was one of the big draws of the Terra ecosystem. It promised lenders annual percentage yields of up to 20%. But the ecosystem took a nasty twist on May 8 when the UST lost its dollar peg. It plunged below $0.15 before hitting an all-time low of $0.0926. LUNA also fell 100% to a fraction of a cent, and the broader crypto market nosedived.
Georgieva pointed out that a stablecoin is only stable when it’s backed 1:1 with real assets. But when it’s not backed with assets, and promises to deliver a 20% return, it’s a pyramid. The IMF chief said pyramids eventually “collapse” – fall to pieces.