Q&A: the collapse of terra and what it could mean beyond crypto

theguardian.com:

The collapse of a multibillion-dollar cryptocurrency called terra has sparked a wave of “fear, uncertainty and doubt” across the sector, leading some, like Coinbase’s chief executive, Brian Armstrong, to suggest the industry is heading for another “crypto winter”. But how did one coin stumbling cause such panic? And could a downturn spill into the wider economy?

The term cryptocurrency covers a broad swathe of digital assets all based on the same fundamental structure as bitcoin: a publicly available “blockchain” that records ownership without having any central authority in control. Advocates argue it allows for a truly censorship-resistant economy and, thanks to successor platforms such as ethereum, a new version of the web that allows for payments and ownership to be built in at the base level.

Critics counter that, more than a decade after bitcoin was created, the sector has yet to spawn an actually useful product, instead merely enabling the creation of a wave of speculative bubbles and zero-sum gambling that has lost some retail investors as much money as it has made for others.

Both sides agree the recent collapse in the crypto market is evidence of waning interest, but the real question is whether it is simply temporary or a more permanent crunch that will expose the sheer quantity of scams and frauds that pervade the sector.

Almost half the sector’s entire value, $582bn (£475bn), is still tied up in the original cryptocurrency, bitcoin. Half again, $250bn, is in ethereum, a more programmable successor to bitcoin, which provides the infrastructure that underpins many other projects.

Then there are stablecoins, the biggest examples of which, such as tether ($80bn) and USD Coin ($50bn), are effectively the sector’s