Changpeng Zhao says Terra’s failure still proves the resilience of the crypto sector

In a blog post, the CEO of the Terra (LUNA) ecosystem addresses the topic of the historic decline of the Terra ecosystem. Binance, Changpeng Zhao (CZ), said he was “pleased with the resilience the crypto industry has shown.” However, he also shared some experiences that the industry should learn from this event, especially in terms of design issues.

Changpeng Zhao. Source: video recording, Youtube / Entrepreneur ME

First, when an asset is linked to another with a third asset as collateral, there will always be a risk of anchor failure even if the asset is overloaded. Due to the volatile nature of cryptocurrencies, it is actually possible for a security asset to collapse within hours.

On the other hand, Terra’s firewood and coin mechanism, which allowed TerraUSD (UST) holders to exchange 1 UST for 1 USD LUNA, also has some shortcomings.

“It’s silly to think that issuing more would increase the total value of an asset,” CZ adds. “Printing money does not create value, it only dilutes them for existing holders. The exponential creation of LUNA has exacerbated the problem.”

CZ also criticized the fixed 20% annual percentage return (APY) of Anchor protocol, which was used to lure users into the ecosystem and convince them to bet their UST tokens. Many felt that Anchor was akin to a “Ponzi scheme” long before the UST crash, arguing that it was not viable.

As a reminder, the Anchor Lending Protocol contained the majority of the circulating supply of UST, and it was used as a key mechanism to encourage users to keep UST at its high yield.

“The key lesson: Don’t just go for a high annual return. Look at the basic factors,” CZ said.

The CEO also referred to the trial Luna Foundation Guard to re-establish UST’s anchor by borrowing billions of bitcoins (BTC). CZ argued that this could only have saved the ecosystem if the fund had acted earlier.

“The incident could have been avoided if they had used their reserves when the loss of anchoring was at 5%,” he said. “When the value of the coins collapsed by 99% (that’s $ 80 billion), they tried to spend $ 3 billion to save the protocol. Of course, that didn’t work.”

CZ also noted indirect ripple effects. Most notably, the selling pressure has recently caused Tether (USDT) to break away from its bond. There have also been major divestitures in the crypto market, with some major players now seeking to get out of all their positions.

For example, the investment company Delphi Labs recently submitted a proposal to close the DeFi credit protocol March.

Despite all the anxiety after Terra’s collapse, CZ believes that the industry has come through well and is showing great resilience.

“Even without a rescue package, the big stack coins have done well, and most other crypto projects are doing well,” he said.

This Monday morning, LUNA trades at 0.00019, an increase of 12.5% ​​in one day, a decrease of 11.5% in a week and a decrease of 100% in one month. Meanwhile, UST stands at $ 0.065797, an increase of 1.5% in one day, a decrease of 56% in a week and a decrease of 93.4% in a month.

On the other hand, the crypto market in general also sees improvements: Bitcoin and Ethereum (ETH) are e.g. increased by 2.7% and 3.6% within the last 24 hours, but is still a decrease of 3% and 4.2% over the last 7 days respectively.

Follow our affiliate links:

  • Buying cryptocurrencies in the SEPA zone, Europe and French citizensvisit Coinhouse
  • Buying cryptocurrency in Canadavisit Bitbuy
  • To generate interest with your bitcoinsgo to the BlockFi website
  • To secure or store your cryptocurrenciesget Ledger or Trezor wallets
  • To trade your cryptocurrencies anonymouslyinstall the NordVPN app

To invest in cryptocurrency mining or masternodes:

To collect coins while playing:

  • In poker on the CoinPoker gaming platform
  • To a global fantasy football on the Sorare platform

Stay informed with our free weekly newsletter and to our social network:

Leave a Comment