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The collapse of Terra’s ecosystem – more specifically, the depeg of UST and the subsequent crash of LUNA – are undoubtedly crypto’s hottest story in 2022 and perhaps even beyond.
Speaking on the matter was the founder of Avalanche – Emin Gun Sirer. He noted how Terra’s previous growth affected other blockchains and what its collapse meant for the AVAX ecosystem and the broader cryptocurrency community.
Terra’s Growth Suppressed Other Chains
The Terra situation is highly regrettable. As you know Terra started out slightly before we (read Avalanche) did and it just blossomed. It ended up attracting a lot of the money and a lot of the growth of the space that would have gone to either AVAX or maybe Solana or some of the other latest-generations high-speed chains started going to LUNA.
He explained that at some point, projects such as Avalanche were getting choked by LUNA’s fast growth. This, in turn, caused many other chains to copy developments on Terra. His team, though, steered clear from undertakings of the kind.
We were smart enough to notice that we couldn’t do this. There are many reasons why not, but running a stablecoin of that kind with those kinds of feedback loops, it takes an enormous team with operational ability to try to keep that peg. We knew that we didn’t have that ability.
Sirer assured that there are no US-based teams that can deliver the regulatory structure for such an initiative.
Swapping $60M in AVAX for LUNA and UST Before the Crash
Realizing that Terra’s growth shouldn’t be ignored, Sirer said that they decided to partner up with them through a token swap.
He pointed out that they swapped some $60 million worth of AVAX for LUNA and UST tokens in a bid to form a partnership with Terra. This would, however, turn out to be a losing bet.
The founder shared that all of their LUNA tokens essentially went to zero, but they were able to redeem a part of their UST for dollars. Despite all of the above, he also said that this didn’t cause any economic challenges for Avalanche because the sum was insignificant and that it can be “cleared in a day.”
On the other side – he also shared that they’ve been in talks with the team behind Terra, and the AVAX that they swapped for hasn’t been dumped, but instead – it’s “the most valuable thing they hold,” and he doesn’t foresee them selling it going forward.
Compared to Mt.Gox
Avalanche’s founder also compared the fall of UST and LUNA to a distant event – one that was also particularly devastating for the broader industry – the hack of the Mt. Gox cryptocurrency exchange.
Sirer also spoke of the DAO hack
– another watershed moment in crypto’s relatively young history – but said that comparison to Mt. Gox is more accurate.
I would compare it to Mt. Gox. I think the Mt. Gox crash was far more significant, it affecte dmore coins, more people. Now, we as an industry, ended up learninga valuable lesson about algorithmic stablecoins.
What I fear, though, is that this kind of event invites in regulators.
Featured image courtesy of Flickr
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