IMF head says stablecoins not backed by assets are a ‘pyramid,’ hinting at UST debacle that crashed markets

The head of the International Monetary Fund said Monday that stable coins that are not backed by assets are a pyramid scheme.

Stable coins aim to track another asset. terraUSD promised to track the U.S. dollar. One UST is equivalent to one dollar.

UST is a stable coin. UST had no reserves, unlike tether andUSD coin, which claim to be backed by government bonds. UST's ability to peg itself to the dollar relied on an algorithm.

The dollar peg of UST was lost earlier this month. The sister token of UST, Luna, crashed to $0. Billions of dollars of value were wiped off the market in the aftermath of the episode.

The area where the big mess happened is where stable coins are found. Stable coins are backed with assets one to one. Kristalina Georgieva, managing director of the International Monetary Fund, said during a panel at the World Economic Forum on Monday that when it is not backed with assets, it is a pyramid.

What happens to the pyramids? They eventually fall apart.