LUNAUSDT
LUNA / Tether USD
crypto Composite

I think the problem with UST is that the underlying collateral was LUNA, whose only/main value was... being the collateral for UST. Therefore, it was all reflexive, and there was nothing stopping it from going to zero (and it did).
An algorithmic stablecoin can work if its collateral has value for other reasons.

You're 100% right. Where did I suggest LUNA was a hard asset?

The “belief system” framing is actually pretty accurate.
The core issue is what happens during stress. When everything’s calm, the mint/burn arbitrage works fine. But in a panic, you’re asking the algorithm to defend the peg using an asset that’s also crashing because confidence in the system is breaking. It’s reflexive - the worse things get, the worse the defense mechanism performs.
Terra showed this clearly. The arbitrage relied on LUNA having value, but LUNA’s value depended on UST working. Once that loop broke, it wasn’t a slow bleed - it was a death spiral measured in hours.
The “early vs fragile” question is interesting though. I’d argue the pure uncollateralized model is probably fragile by design. You can’t create stability from nothing during extreme conditions. But hybrid approaches might have more room to evolve.
Frax started partially algorithmic and has basically moved to full collateralization. DAI works but it’s overcollateralized, not algorithmic. The surviving projects all added some form of real backing.
Doesn’t mean someone won’t crack it eventually, but “code that maintains a peg through pure supply mechanics” seems to require infinite confidence, which is the one thing you can’t guarantee.

I think the problem with UST is that the underlying collateral was LUNA, whose only/main value was... being the collateral for UST. Therefore, it was all reflexive, and there was nothing stopping it from going to zero (and it did).
An algorithmic stablecoin can work if its collateral has value for other reasons.

You're 100% right. Where did I suggest LUNA was a hard asset?

The “belief system” framing is actually pretty accurate.
The core issue is what happens during stress. When everything’s calm, the mint/burn arbitrage works fine. But in a panic, you’re asking the algorithm to defend the peg using an asset that’s also crashing because confidence in the system is breaking. It’s reflexive - the worse things get, the worse the defense mechanism performs.
Terra showed this clearly. The arbitrage relied on LUNA having value, but LUNA’s value depended on UST working. Once that loop broke, it wasn’t a slow bleed - it was a death spiral measured in hours.
The “early vs fragile” question is interesting though. I’d argue the pure uncollateralized model is probably fragile by design. You can’t create stability from nothing during extreme conditions. But hybrid approaches might have more room to evolve.
Frax started partially algorithmic and has basically moved to full collateralization. DAI works but it’s overcollateralized, not algorithmic. The surviving projects all added some form of real backing.
Doesn’t mean someone won’t crack it eventually, but “code that maintains a peg through pure supply mechanics” seems to require infinite confidence, which is the one thing you can’t guarantee.