Why this small cryptocurrency kept making waves today

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Two kids play joyfully in the crashing waves.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

The price of cryptocurrency Waves (CRYPTO: WAVES) has had an exciting week. At the time of writing, the price per token is only up 5.73% over the previous 24 hours. But the price has more than doubled over the past week. And it’s likely due to increasing optimism for the Waves ecosystem, which includes stablecoin Neutrino USD (CRYPTO: USDN).

So what

As a stablecoin, the price of Neutrino USD should always be $1. But it is more similar to failed stablecoin TerraUSD than to a stablecoin like Tether, which is backed by U.S. dollar reserves. And from May 9 to May 12, the price for Neutrino USD dropped all the way to $0.75, according to CoinMarketCap.com.

TerraUSD was collateralized by Luna (now called Luna Classic). The supply could increase or decrease by minting and burning new tokens in accordance to demand with an exchange mechanism between TerraUSD and Luna Classic. At least that’s how it was supposed to work. In reality, the two tokens ultimately entered what’s called a “death spiral” and couldn’t pull out.

Therefore, when Neutrino USD fell, many assumed that it would enter a death spiral with its accompanying token Waves as well. But it didn’t. As of this writing, the price of Neutrino USD is $0.99 — not perfect but practically recovered.

Because Neutrino USD was able to fight its way back, it’s restoring investor confidence in Waves, and that’s why the price has recovered so dramatically in the past week.

Now what

There’s a flip side to this conversation. To restore Neutrino USD to its $1 peg, coins had to be removed from circulation. Because of this, the overall market capitalization has fallen roughly 20% since April. This has effectively decreased total coin supply to meet user demand and stabilize the price.

But lower demand is a concern. For the price of Waves to keep going up sustainably, you’d want to see an increase in activity on the entire ecosystem, including for Neutrino USD. But as suggested by Neutrino USD’s declining market cap, that might not be happening right now, which is something to keep an eye on.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why this small cryptocurrency kept making waves today appeared first on The Motley Fool Australia.

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*Returns as of January 13th 2022

More reading

Jon Quast has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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