Since May 9th, after the Golden Week holidays in Japan, one of the crypto assets, "Tera USD", has plummeted.

As a result, the price decline spread to other crypto assets.

It was popular as a so-called "stablecoin" designed so that one tera was about the same value as one dollar, but the value was reduced to less than one tenth.

What happened to Terra, which was supposed to be stable (= stable)?

(Aya Shinoda, Reporter, Ministry of Economic Affairs)

Terra's crash

Since the birth of Terra, 1 Terra has been around $ 1 since its birth, but it fell sharply from May 9th and dropped to the 5 cents level on May 21st.

In a short period of time, the value has been reduced to less than one-tenth.



One expert sternly points out that the plunge was "because we couldn't guarantee the value of something that wasn't worth it."

What is Stablecoin?

Stablecoin is a crypto asset that aims to maintain a certain price with legal tender.



Bid coins are a typical crypto asset, but they are not easy to use for payments because their values ​​fluctuate drastically.

Stablecoin was devised to make up for these weaknesses.



There are two main types, the "collateralized type" that is secured by legal tender and other cryptographic heritage, and the "unsecured type" that is not.

The unsecured type aims to stabilize the value by adjusting the supply amount based on the algorithm (calculation), and is also called the "algorithm type".



Terra is an unsecured type, and it was a mechanism to adjust the supply amount by conducting an arbitrage transaction with another crypto asset "Luna" and stabilize the value to "1 tera = $ 1".

The trigger was ...

A major feature of Terra is a unique service called the "anchor protocol".

It is said that if an investor deposits Terra, he / she can get an annual interest rate of about 20%, and it is thought that about 60% to 70% of the investors who own Terra used it.



It was this anchor that was one of the triggers for the crash.



In May, information about a large number of withdrawals from anchors ran around on SNS, which led to a series of withdrawals by investors, and it became a run on the bank.

Distrust of Terra and Luna spread, and selling became a form of selling, and it became impossible to maintain the linkage with the dollar.

The future of cryptocurrencies

Behind the plunge in Terra seems to be the changing tides of financial markets.



In the era of ultra-low interest rates, crypto assets, which are risky but have high yields, were considered investment targets.

However, interest rates are on the rise as the Fed and others have turned to monetary tightening to curb inflation.

Investors are increasingly diverting money to safer assets, such as bonds, to avoid risks amid concerns about the future of the global economy.



Under such circumstances, crypto assets have been recognized as high-risk products, and many have already been on a downward trend since the beginning of the year.



Experts said, "The starting point was the growing distrust of what was the basis for considering the value of a dollar in the first place. If it was worthless, the value could not be guaranteed. The structure of the product is complicated. One of the factors behind the crash is that it was difficult for investors to know where the risks were, because it was difficult to understand. "



In this case, at least for unsecured stablecoin, there is a big question mark.



However, as the major tides of financial markets are changing, investors' views on crypto assets themselves may change.

Scheduled to pay attention

On the 30th, the domestic production volume of each automobile manufacturer in April will be announced.

It will be interesting to see how much the supply chain stagnation, such as the lockdown in Shanghai, China, which has a zero-corona policy, has affected it.



The US ISM Manufacturing Index will be released on June 1st, and employment statistics will be released on June 3rd.

Market officials are also paying close attention to the current situation of companies suffering from labor shortages, as to how the number of workers and average hourly wages are changing amid a deep-rooted sense of caution about inflation.