Stablecoins, RWA & Tokenization

What caused the UST/Terra stablecoin collapse?

The UST/Terra collapse in May 2022 happened because UST was an algorithmic stablecoin held to its 1 dollar peg by minting and burning a sister token, LUNA, rather than by real reserves. When large withdrawals broke the peg, the mechanism printed huge amounts of LUNA to absorb selling, which crashed LUNA's price and destroyed confidence in both tokens. This created a downward spiral, sometimes called a death spiral, that wiped out tens of billions in value within days. It showed that a peg backed only by another volatile token can fail fast.