Why a crypto called Maker is surging higher as others fall apart

Its top rival may not be around much longer.

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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

What happened

Cryptocurrency prices are falling hard across the board today, with Maker (CRYPTO: MKR) being a notable exception. At 11:15 a.m. ET, the price of Maker tokens was up a whopping 19% over the previous 24 hours. And it's likely because TerraUSD (CRYPTO: UST) and Terra's Luna tokens (CRYPTO: LUNA) are trending toward zero at the moment. 

So what

For context, a stablecoin is a cryptocurrency for which the price is supposed to always be equal to a government-issued currency -- most often the U.S. dollar. MakerDAO is the organization behind a stablecoin called Dai (CRYPTO: DAI). Terraform Labs is behind a stablecoin called TerraUSD. 

There are other U.S. dollar stablecoins as well, including Tether and USD Coin. And to be clear, different stablecoins use different mechanisms to keep their values, well, stable. And right now, these various stablecoin models are trying to demonstrate their merits in order to gain widespread adoption.

Tether and USD Coin both hold real U.S. dollars in reserve, making them close competitors. By contrast, Dai issues new tokens based on crypto assets locked up in the system. Similarly, TerraUSD isn't backed by dollars but rather by a burning-and-minting symbiotic relationship with Luna.

Without going too far into the weeds, the rivalry between TerraUSD and Dai isn't imaginary. On March 23, Terra founder Do Kwon said on social media, "By my hand Dai will die." 

The sad irony is that over the past couple of days, TerraUSD and Luna entered a death spiral, with the value of each declining faster than its algorithmic mechanisms can repair the damage. As of this writing, TerraUSD has bounced off its lows, but it's still down more than 50% from $1, and it's fair to wonder if it will ever recover.

Now what

While TerraUSD's demise would be good for Dai because there'd be one fewer player, I'd be cautious approaching the stablecoin space right now. I believe the true takeaway with TerraUSD's decline is that these models are still new and still being tested. Because of this, weaknesses are sometimes unexpectedly uncovered, and the fallout can be swift. 

Therefore, if you do chose to buy Maker tokens because of what's happening with Terra, be sure that -- like always -- it's a disciplined investment and not more than you could afford to lose if something goes wrong. 

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

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. 

More on International Stock News

A man looking at his laptop and thinking.
International Stock News

Why Alphabet stock was sliding today

Let's take a look.

Read more »

A man looking at his laptop and thinking.
International Stock News

Nvidia's stock was down despite its amazing earnings. Here's what history says is coming next

Although it might seem to defy logic, it's not an uncommon phenomenon.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Nvidia share price slips despite 94% revenue growth

Q3 earnings beat expectations, but what about guidance?

Read more »

high, climbing, record high
International Stock News

Could the S&P 500 Index hit 6,500 by the end of 2025?

Could the index climb higher?

Read more »

a small child holds his chin with his head on the side in a serious thinking pose against a background of graphic question marks and a yellow lightbulb.
International Stock News

Is it too late to buy Nvidia shares?

Is Nvidia stock a buy ahead of its third-quarter earnings report tomorrow?

Read more »

a group of people stand examining a large glowing cystral ball held in the hands of one of the group members while the others regard it with various expressions of wonder, curiousity and scepticism.
International Stock News

Here's what to expect from Nvidia on November 20

Can Nvidia score another win?

Read more »

Two people lazing in deck chairs on a beautiful sandy beach through their hands up in the air.
International Stock News

2 no-brainer Warren Buffett stocks to buy right now

While replicating Buffett's success isn't possible, there are a handful of his investments that are no-brainer buys.

Read more »

A man with a beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
International Stock News

3 reasons to buy Nvidia stock before November 20

This week marks a big moment for tech investors as perhaps the most anticipated earnings of the year will be…

Read more »