Why the Shiba Inu will not be the next Terra | Luna

Over the past few days, Terra’s price has crashed. The digital token has lost almost all of its value.

The panic has also spread to other cryptocurrencies. Shiba Inu fell nearly 50% at one point over the past week and remains down nearly 30%. But the worst could be over for the meme currency. Here’s why Shiba Inu won’t be the next Terra.

Anatomy of a Crypto Crash

What caused the latest cryptocurrency crash? We can put it down to the underlying structure of the Terra blockchain.

The Terra ecosystem has two cryptocurrencies: Terra (Luna) and TerraUSD. The latter is a stablecoin pegged to the US dollar. Some stablecoins, like the USD Coin, are backed by cash reserves or cash equivalents. TerraUSD, on the other hand, uses an algorithm to maintain a stable price.

The algorithm behind TerraUSD tries to automatically adjust the price by hitting or burning the stablecoin or its sister token Luna. This process usually works quite well. However, its Achilles heel is its inability to handle extreme price volatility.

A few days ago, the TerraUSD lost its peg to the US dollar. This led to a panic selling of the stablecoin, causing a downward spiral for TerraUSD and Luna. The algorithmic software could not maintain stability in the face of falling prices.

This selloff also spooked holders of other cryptocurrencies. Ultimately, almost every cryptocurrency in the market saw a significant decline. The only exceptions were stablecoins which are backed by fiat currencies.

Will the Shiba Inu be next?

Terra’s collapse may have investors wondering if the Shiba Inu will be next. The answer is simple, at least for now: No.. Shiba Inu is currently not tied to any stablecoins available for trading.

However, there is a Shiba Inu stablecoin in development. Shiba Inu lead developer Shytoshi Kusama recently revealed in a Medium post that the stablecoin project is “nearly complete.”

One of the main differences between the Shiba Inu stablecoin (called SHI) and TerraUSD is that it will be pegged at $0.01 instead of $1. The founder of Shiba Inu believes this will make the stablecoin even more stable.

SHI will be an algorithmic stablecoin. However, it is currently unknown whether the algorithm will attempt to maintain its peg at $0.01.

After the Terra debacle, Shiba Inu holders are unlikely to support a stablecoin that has the potential to bring down SHIB. It also seems reasonable to conclude that the developers of SHI would not take an approach similar to that used with the TerraUSD algorithm.

An important point to remember

Shiba Inu will not meet the same fate as Terra, however, Shiba Inu investors should take an important lesson to heart from the recent crypto crash caused by Terra.

The reality is that Shiba Inu’s fate is tied to the broader cryptocurrency market. If investors are wary of cryptocurrencies, in general, the chances of seeing Shiba Inu make significant progress are slim to none. On the other hand, if cryptocurrencies once again become a sought-after asset class for investors, Shiba Inu has a good chance of doing the same.

Shiba Inu is not pegged to the US dollar. But it is related to the state of the cryptocurrency market.

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