Tether Co-Founder Thinks TerraUSD Crash Could Be the End for Algorithmic Stablecoins

The collapse of the algorithmic stablecoin TerraUSD has raised questions about the future survival of similar crypto assets and Tether co-founder Reeve Collins believes that the UST crash could spell the end of most algorithmic stablecoins, if not all. In an interview at the World Economic Forum in Davos, Reeves stated that the TerraUSD collapse "was not a surprise" to him, adding that algorithmic stablecoins have not seen the worst of it yet. In his view, other algorithmic stablecoins might soon follow UST, ultimately bringing their kind to an end.

"It's unfortunate that the money ... was lost, however, it's not a surprise. It's an algorithmic-backed, stablecoin. So it's just a bunch of smart people trying to figure out how to peg something to the dollar,” said Collins speaking to CNBC.

"...a lot of people pulled out their money in the last few months because they realised that it wasn't sustainable. So that crash kind of had a cascade effect. And it will probably be the end of most algo stablecoins," he further added.

Stablecoins are a type of cryptocurrency that is usually pegged to a real-world asset. TerraUSD or UST, is an algorithmic stablecoin, which was supposed to be pegged to the US dollar.

Whereas stablecoins like Tether and USD Coin are backed by real-world assets such as fiat currencies and government bonds in order to maintain their dollar peg, UST was governed by an algorithm.

Meanwhile, Jeremy Allaire, CEO of Circle — one of the companies behind the issuance of the USDC stablecoin, said he thinks people will continue to work on algorithmic stablecoins.

"I've compared algorithmic stablecoins to the 'Fountain of Youth' or the 'Holy Grail'. Others have referred to it as financial alchemy. And so there will continue to be financial alchemists who work on the magic potion to create these things and to find… the Holy Grail of a stable value, algorithmic digital currency. So I fully expect continued pursuit of that," Allaire told CNBC.