On May 9th, 2022, the stablecoin UST lost its peg to the dollar and collapsed. The Terra collapse wiped out over $40 billion worth of value in a single week. It sent shock waves throughout the cryptocurrency market. Terra is an algorithmic stablecoin that aims to maintain a peg to the US dollar.
Quantitative tightening (QT) is when central banks let assets run off their balance sheets. It is the opposite of quantitative easing. As part of quantitative tightening, central banks don’t roll over assets like government bonds and mortgage-backed securities. This is usually done after weathering an economic crisis.
A stablecoin is a cryptocurrency that is pegged to another currency, commodity or asset. The most widely used stablecoins are pegged to the US dollar. This means, one stablecoin should be worth $1. Stablecoins combine the digital and borderless nature of cryptocurrencies with the low volatility of traditional fiat currencies.
The Global Financial Crisis took place between 2007-2008 when the US housing bubble burst. The housing bubble was the result of several factors, including loose lending requirements. During the Global Financial Crisis, real estate prices and stocks dropped sharply as millions of American home owners defaulted on their mortgages.
The Austrian Business Cycle theory aims to explain booms and busts through artificial credit expansion. According to the theory, economic boom and bust cycles aren’t due to flaws of the free market or natural occurrences but caused by artificially low interest rates. The theory originates from the Austrian school of economics.
Fiat currency is a form of government-issued money that isn’t backed by a commodity like silver or gold. Nation states adopted fiat currency as primary form of money after 1973.
Bitcoin is a cryptocurrency that a pseudonymous group or person called Satoshi Nakamoto invented in 2008. It is the oldest cryptocurrency and the largest by market capitalization. Bitcoin is different from government-issued fiat currency.
The blocksize war was a battle for control over Bitcoin’s protocol rules that took place between 2015-2017. The blocksize war consisted of two camps. The small blockers wanted to keep Bitcoin’s block size small. The large blockers, on the other hand, pushed for an increase in Bitcoin’s block size.
The Smithsonian Agreement was an attempt to reform the Bretton Woods system after president Nixon closed the gold window in 1971. The new agreement and reforms to the monetary system included devaluing the dollar against gold and adjusting the fixed exchange rates at which currencies were pegged to the US dollar.
Fractional reserve banking is a banking system in which banks only keep a small percentage of deposits on hand. The rest of the money is lent out. Under a fractional reserve banking system, banks expand the money supply with each new loan. This provides the economy with money.