Yes, that is true. All FIAT currencies are sustained by confidence. BUT: you have whole economies and governments backing most of those FIAT currencies. Take the US, EU or Swiss economey for instance - they are all producing something.
For cryptocurrencies, there’s nothing. No intrinsic value - and also no backing by a government etc.
The problem is how you try to pay out the people in the stablecoin with a fluctuatin asset.
Lets do an example; we have 10 people, everyone bought UST for 1$, the pool has given out 10$, those people are now staking and locking those funds for 20% apr.
The price of LUNA is now at 1$ and in theory can cover the locked funds.
Now, someone comes, short or sell LUNA, the price is now 0.8$, 12.5 LUNA have to be sold to cover the initial 10$.
The price falls further, it sits at 0.5$, 20 LUNA have to be sold to cover the same UST. You see where this is going.
Now the sell pressure (just like the buy pressure), comes from 2 parties, the guys trying to get out of UST, converting UST to LUNA (in thisexample 1UST is converted to 2 LUNA at a price of 0.5$) and the guys that bought LUNA as a speculative asset (and some shorters on top).
The Algo behind the coin will continue to produce LUNA to try and cover the needed funds, but since it can’t stabilize, and on the open market you cant recover the needed 10$ to cover all the issued UST you will just produce more and more coins.
We could probably say that in an optimal scenario this could work in favor of luna, since in a uptrend there is an overflow of Luna value to locked UST.
Say Luna is trading at 10$, total locked UST is 20, this makes it possible to have just 2 buyers and recover all the locked UST.
Hope this made it more clear?
You can just buy usdc with it and have 0 delta (or arb the exchange USDC/USDT)
Price of USDC/USDT spiked to 1/1.2 yesterday morning, so it’s unfortunately it’s not 0 delta. Another problem of USDC is that you can’t use it for buying other cryptocurrencies on most central exchanges. They usually have COIN/BTC, COIN/ETH and COIN/USDT pairs (or COIN/BUSD, if we’re talking about Binance).
thats what i say, you borrow usdt, change them to usdc.
now you can profit on the spike, sell your usdc at a profit, cover the usdt debt.
Ok, now I got it. I’m sure CEXs where you can borrow USDT would stop borrowing if this continues. Otherwise: what’s stopping you from creating your own money printing machine?
There is at Kraken, FTX, and many other exchanges. And it seems yesterday USDT went as low as 0.92 USD at Kraken.
Ok, so you are counting on the fact that there are more USDT holders than borrowers? Fair enough.
Well, I am surely not counting on this as a part of my investment strategy 
. Was just thinking about possible disaster scenarios.
“I know what I am doing” should be probably the reddest flag of them all, but this time I am confident that I am. I am investing according to an adjusted market capitalization index, and not in some individual coins, large or small. In fact UST was so far the only scam I fell for in last, oh, 12 years, and it was partially intentional, as I want to ramp up the risk with the crypto portfolio. I was going to start selling it after my 30 days fixed deposits would run out, but it turned out differently.
My total portfolio is so little that in case of troubles I can massively deleverage by transferring a relatively small amounts.
What’s the point? I am as well not counting on USDT to depreciate significantly as a part of my investment strategy. And my attempt to execute carry trades with UST ended in a disaster 
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In fact I keep telling myself over and over again that my portfolio size is too insignificant to generate any reasonable yield in comparison to what the price appreciation can bring, but I keep falling for an idea to have some easy additional income from crypto.
well, you could have made an easy 20% gain with basically 0 risk yesterday.
The upside is there (5-20 or even 100% if usdt collapses), and the downside is basically 0 (also you get usdt basically for free).
So the way I understand the way this automated algo works:
UST price (> 1 USD)
LUNA price
UST price = 1 USDAnd:
UST price (< 1 USD) LUNA price
UST price = 1 USDSo yeah, it only works if there is some value in LUNA. Otherwise it will keep printing LUNAs forever, because not only the increased supply is diluting the LUNA, also the LUNA holders are panic selling. This looks like an elaborate Ponzi scheme 
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You are right. I usually check KuCoin and Binance first, personally I trust them more. Kraken is just a fiat on-ramp for me.
I also checked ftx.com - how can such a crappy website be one of the biggest crypto exchanges in the US? I really don’t get it. Anyway, just checked history (daily chart) for USDT/USD, and the maximum it ever reached (March 2020) was 1USDT = 1.05 USD. So I guess the probability of 1 USDT reaching 2 USD is really really low.
I’m counting on common sense here. Everyone holder of USDT who’s not selling his 1 USDT for 2 USD, doubling his money risk-free, is not too smart. That’s regardless if there are more borrowers than holders or not.
No problem with me. If you think you know what you are doing - go for it. I just wanted to raise those words of warning.
Sure, so I should wait for something that happened twice in three years. In fact on USDT/USD chart from Kraken, the price is more often goes above 1 USD than below. Liquidity issues I suppose.
Partly, central banks have reserves (stocks, gold, other currencies). Initially UST was only backed by its own coin (Luna) with no other reserve.
Well, there are some people who claim that BTC value comes from the fact that it’s hard to mine one. But yeah, I think this could just be an illusion. It reminds me a bit of public works in Keynesian Economics: you pay a bunch of people to dig holes and then to fill them back in, just so that you don’t hand out money for free.
this could also be said for gold or any other product, no?
Like new supply will not be sold/created at those prices, but existing supply will be sold even at a loss. Just compare negative oil prices.
Is this an argument for or against BTC? I think for oil the problem is storage. You can’t store infinite oil if there is a temporary drop in demand, so you can experience negative prices.
I guess the question is: is everything that is hard to make, valuable? Does everything gain in value through the process of putting a lot of energy to make it? Or are there exceptions? It it costly to make a new bitcoin, and eventually it will even be impossible, but does it make it inherently valuable?
Only as long people use it. Same as gold, if we would not use it for storing value, it would be basically worthless (only production/recycling cost+small margin because of degradation to commodity good for the small industry and jewellery usage).
At some point the work to produce he good its just sunk cost.
Just like 1L of milk has value till its expired and no one will want to buy it from you.
Perhaps the best example in this is Real estate.
What is the value of a house? Its not the price of the bricks or windows, you cannot just make a list of all the expenses and sum them up.
The real value is what people are willing to pay, in this case if you can rent it, the price might be a factor of the rent. No one will ask you how much you payed for the bricks.
Some houses are much much more valuable even if in bad shape than new buildings even if in size comparable.
Agree with you, although in Switzerland my sentiment is also the cost/value of the land you build upon starts to exceed the cost of the time & material
Re. intrinsic value of Gold (sorry to continue this OT), I found the following data:
https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/
So there is a non-negligible % that has some form of utility, if we include jewelry. I would equate in these terms jewelry more akin to an NFT than a BTC.
Imagine all the brainpower going into crypto being redirected to something that actually creates value for humankind 
Isn’t it the same for BITCOIN? Until know it lasted much longer than UST.