Stablecoin Analysis Definitions Collapse Events And Investment Strategies

Basic Definition and Function of Stablecoin

Stablecoins are key tools in the crypto market that maintain price stability by being pegged to fiat currencies or assets, helping to mitigate volatility risks. Their main uses include transaction settlement, lending, and storing the value of digital assets.

Important Collapse Event Review

• TerraUSD (UST) collapsed in price in 2022 due to algorithm failure, triggering a major market upheaval.
• Iron Finance (IRON) experienced a redemption rush in 2021, leading to a price collapse and causing liquidity tightening.
• Other small stablecoins such as sUSD and DEI have also experienced value deviations, reflecting market risks.

Analysis of the Causes of the Crash

The main reasons are the excessive reliance of algorithmic stablecoins on market confidence, insufficient reserves of centralized stablecoins, and panic redemptions by investors, which create a vicious cycle.

Impact on the cryptocurrency market

The collapse of stablecoins has triggered liquidity tightening, sharp price fluctuations, and increased regulatory efforts, affecting investor confidence and market stability.

Investment Risks and Response Strategies

Diversifying investments and choosing audited and transparent stablecoins is an effective way to reduce risk. Close attention should be paid to policy changes, and caution should be exercised regarding algorithmic stablecoins.

Summary

Stablecoins play an indispensable role in the digital financial ecosystem, while risk control is the key to successful investment.