Terra (LUNA), a US pegged stable coin, may be considered the worst scandal in crypto history.
As deep-pocket investors navigate the treads in crypto, stablecoins have become a hot topic due to their risks to the financial system. TerraUSD (UST) is an algorithmic coin that started as an experiment to offer a coin that worked like a real currency. It was accomplished by being pegged to the US dollar.
Concerns about the fate of crypto or stablecoins tied to a real currency like the US dollar have been raised after TerraUSD plummeted almost 97 percent from its 2022 highs.
“It’s one of the worst scandals in the history of the crypto industry,” said Coin Metrics Co-founder Nic Carter during an interview with CNBC. “It was a huge black eye.”
It’s one of the worst scandals in the history of the crypto industry.
According to Carter, LUNA lost more than $55 Billion of paper wealth citing eerie similarities to the Lehman Brothers scandal.
Terra (LUNA) and DeFi
LUNA was introduced to show people that using cryptocurrency is easy. The Decentralized Finance (DeFI) community was hoping for the success of the stablecoin, but its crash has left a lot of the early supporters underprepared for new scenarios.
Customers were frustrated and concerned because Terra (LUNA) became unstable. Terraform’s plan to keep UST failed in a dramatic way, making Kwon responsible.
Concerns about the idea of using software and not collateral to maintain the $1 peg were brought up by the fall of TerraUSD.
The Failure of Basis Cash
Adding to the fall of Terra, a recent report by CoinDesk claims that Do Kwon was one of the co-founders behind failed stablecoin, Basis Cash. Kwon continues to try to save his stable coin by raising another billion dollars from new and old investors.
During the CNBC interview, Carter went on to describe the crash of LUNA as being similar to the Madoff Ponzi, stating:
These ideas were fundamentally unsound – fundamentally unsound economic ideas.
Terraform Labs has struggled to win investor support, even as Do Kwon aims to rebuild the liquidity.
Terraform Labs, the company that powers the Terra blockchain, is backed by some of the biggest players in the cryptocurrency industry. According to Bloomberg, both Cashaa and Nexo declined to participate in the rescue.
Is This The End to Stablecoins?
The failure of Terra and Basis Cash won’t mean the end of algorithmic stablecoins. It will be interesting to see if Terra (LUNA) can be saved and if it can maintain its peg to the US dollar, even if it receives a bailout.