According to Ethereum co-founder Vitalik Buterin, the future of stablecoins is determined by the ability of users to "extract a fair value of their liquidity in a stablecoin asset." This is an absolute rule even if "market activity drops to near zero."
TerraUSD (UST) is a perfect example of a fluctuating stablecoin. Its popularity significantly dropped after the recent slump. However, Buterin is sure that numerous imperfect stablecoins should not stop the development of the industry.
After the UST collapse, large investors became deeply interested in the DeFi financial mechanism and cryptographic models. Analysts suppose that such innovations may allow users to make a big profit.
The Ethereum co-founder recommends that users conduct a thought experiment to determine the stability of a particular stable coin. The key question is whether the stablecoin is able "to safely 'wind down' to zero users." Buterin believes that "users should be able to extract a fair value of their liquidity in a stablecoin asset, if its market activity drops to near zero." He also emphasized that the process should not involve any financial losses.
According to Vitalik Buterin, UST does not meet the specified requirements. The fact is that UST was designed to use algorithms and trader incentives in relationship with Luna. The token’s price and demand for it are maintained at a particular level. If these indicators change sharply, the token will collapse.
Vitalik Buterin believes that such crypto assets as UST could remain stable if demand for them gradually drops. However, this scenario is hardly possible, the 27-year-old crypto billionaire concluded.