Brian Anderson, a 45-year-old former teacher in Utah, borrowed $95,000 against his home and put the money in Anchor Protocol, a kind of crypto bank offering yields close to 20 percent on deposits that has been blamed for helping to crash TerraUSD (UST) stablecoins.
Encouraged by an online investing course, Anderson told the Wall Street Journal that he had planned to use the interest payments and other gains to attend a U.S.-accredited medical school in the Caribbean and become a doctor.
“I thought it wasn’t risky being in a stablecoin,” Anderson told WSJ.
People who thought the TerraUSD (UST) stablecoin was stable and invested heavily in it or its associated Anchor protocol are dealing with buyer remorse as they see their hopes of easy money dashed.
TerraUSD was hyped as a blue-chip cryptocurrency and a safe haven from volatility because it was a stablecoin pegged to the U.S. dollar and designed to maintain its value of $1 per coin. Its crash caught many investors off guard when it fell below $1 earlier in May. It was trading around 2 cents as of this writing.
Investors borrowed money or poured their savings into TerraUSD because of the chance to make money in Anchor Protocol, a kind of crypto bank offering yields close to 20 percent on deposits. Critics doubted that Anchor’s yields were sustainable in the unregulated, untested market, but this type of interest rate is common in decentralized finance (DeFi), Wall Street Journal reported.
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The hype was too good to be true and now the TerraUSD crash has raised calls for more government oversight of stablecoins.
The TerraUSD crash has been devastating for people outside the U.S. in Nigeria, Argentina, Iran, Iraq and Venezuela, who thought the stablecoin was a way to store funds better than their own, often-volatile local currency. Many reported learning about crypto from YouTube, and said they believed it was safe because it was traded on popular exchanges like Binance.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
TerraUSD (UST) — an algorithmic so-called stablecoin and sister to Terra (LUNA) — should always have been worth $1, according to the hype. LUNA was tied to the price of UST and was used to “stabilize” UST’s dollar peg and the Anchor savings protocol attached to it.
Reactions on social media were not universally sympathetic to people who told their stories of losing their Terra investments to the Wall Street Journal.
“Wait, it wasn’t an FDIC insured deposit?” CapStackPug tweeted.
“What is the big deal? He took a risk. We have all taken loses” Roy Bluemel tweeted.
“This wasn’t money saved. This was a loan” Archie Andrews tweeted.
Image: Photo of Andrew Jackson on a $20 bill, Jan. 28, 2022. (AP Photo/Tony Dejak)