Basically why is everyone freaking out in Crypto?
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A lot of crypto businesses, including exchanges like Coinbase and “stablecoins” like UST, involve holding large amounts of other peoples’ money temporarily, like a bank. And just like a bank, they are sometimes allowed to invest some of that money.
We don’t know what they invest that money in, but it seems pretty likely that it’s some kind of crypto. That’s safe to do, as long as crypto keeps going up; but pretty much all crypto has lost value recently, so there’s concern that they may lose their reserves and go broke.
If UST loses their reserves, the currency will collapse and everyone left holding it will lose money. If Coinbase loses their reserves, some of their customers will never be able to withdraw the money they’ve deposited. And (unlike most real banks) the government will not step in to help those customers.
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