Collapse in the price of the algorithmic TerraUSD Stablecoin (UST) affected people from the most vulnerable segments of the population, namely poor citizens living in countries with high inflation.
According to a report published May 26 by Rest of the World, citizens in countries such as Argentina, Venezuela, and Nigeria found the perceived safety of the UST a very attractive argument in favor of steblecoins when they considered what to do with their meager savings.
The report’s authors argue that the collapse of LUNA and UST shattered that illusion. Among the many people the reporters spoke to was a 47-year-old Argentine woman named Valeria, who earns about $300 a month selling prepared food from her home in Buenos Aires.
She was worried about her savings in Argentine pesos because of the country’s high inflation rate, which exceeded 50 percent on an annualized basis earlier this year. Consequently, she invested more than $1,000 (all of her savings) and $500 lent to her by a friend, meant to buy a new refrigerator, in the TerraUSD (UST) stabelcoin. It was promoted as a cryptocurrency pegged to the U.S. dollar at a ratio of 1 to 1.
Valeria spent several months researching UST before she started investing in various protocols about four months ago. In mid-May, Stablecoin lost its peg, which meant its value deviated from the value of the dollar, causing its price to drop to a few cents. Valerie’s savings practically zeroed out, and what’s more, she was unable to withdraw her money from the protocols because the withdrawals were blocked.
Many people who don’t know much about cryptocurrency started using Stablecoins as a way to save money because there is no way to legally buy US dollars in Argentina,” Pablo Sabbatella, director of Defy Education, an Argentine crypto education startup.
He also said that in 2012, the Central Bank of the Republic of Argentina banned residents from buying dollars for savings in an effort to protect its foreign exchange reserves.