After the Terra (LUNA) disaster, Ethereum co-founder Vitalik Buterin criticized the decentralized finance industry (DeFi). Referring to Terra’s collapse, the programmer said the industry is flawed and that no real investment offers annual returns of 20 percent.
The Terra fiasco triggered a bloodbath for cryptocurrencies and instilled fear and uncertainty in many investors. Terra investors suffered losses of more than $60 billion. Meanwhile, the rest of the cryptocurrency sector suffered an equally hard fall. Bitcoin (BTC) itself is trading at $28,799, while major altcoins such as Ethereum (ETH), Cardano (ADA), and Solana (SOL) have seen losses of 9-12 percent in 24 hours.
Speaking to Bloomberg, Buterin called for a “higher level of control” in the DeFi sector. The projects that need it most, he says, are “those that are trying to optimize capital efficiency.”
Learn from Terra and stay away from algorithmic stablecoins: Buterin
In addition, he stressed that it is equally important to recognize industry mistakes. In this case, he notes that current success is no guarantee of good returns in the future. The same goes for the stability of a project: good performance is not a promise of “not total collapse.”
As a precaution, Buterin urged everyone to cross-check the performance of systems under both stable and extreme conditions. Conditions such as investor pessimism show a project’s resilience in the face of adversity. After all, it is the stormy days that determine the true strength of a structure.
Besides Terra, another failed cryptocurrency project that started on a positive note is EOS. The network raised more than $4 billion in its Initial Coin Offering (ICO)-the largest in cryptocurrency history to date. But problems soon arose due to alleged wash trading and slow developments. Recently, the EOS community sued EOS’s founding company, Block.one, seeking US$4.1 billion in damages.
Regarding UST stablecoin, Buterin warned of the technical problems associated with automated or algorithmic stablecoins. In this context, stablecoins such as Tether (USDT) and USDC have distanced themselves from UST after its dramatic downward spiral.
Attempts at resuscitation
In the first hours after the UST decoupled from the dollar, traders exploited discrepancies in LUNA price data. The result was an impressive loss for DeFi’s projects. The Venus Protocol, for example, lost as much as $11 million.
The Terra community has approved a proposal to launch a completely new blockchain – Terra 2.0. The network will be “fully owned by the community” and will replace Terraform Labs (TFL) and Terra founder Do Kwon. The future performance of the new blockchain remains to be seen, as its reputation is in tatters and investors have not yet recovered.