Following Terra’s collapse last week, CEO Changpeng Zhao of Binance has revealed his thoughts.
As Terraform Labs’ UST stablecoin lost its dollar peg and caused a $40 billion wipeout that devastated the entire crypto sector, Binance CEO Changpeng Zhao wrote a fresh statement Friday reflecting on the events that played out last week. Zhao has been critical of Terraform Labs in recent days.
Among the things he spoke about were the “lessons to be learnt” from the incident, as well as his own personal insights and advice for bitcoin investors. When the price of UST fell below the peg, Terra’s dual token system was intended to enable LUNA to be created. “There will always be a potential for inadequate collateralization or depegging when you peg to one asset using a different asset as collateral,” he stated. Then he went after Terraform Labs for their tokenomics approach. “Printing money doesn’t generate value; it only dilutes current holders,” he wrote. “The situation was made much worse by the exponential issuance of LUNA. Whoever came up with this idea needs to get their brain examined.”
A loan platform that guaranteed UST depositors 20 percent APY was called “over-aggressive incentives” by Zhao. Anchor’s users were paid by Terraform Labs, which made up the income loss. However, this strategy, according to Zhao, was unsustainable. Eventually, you’ll have to create “revenue” to keep it going… This is the only way to avoid financial ruin,” he said.
A high return “doesn’t always guarantee healthy projects,” says Zhao. “A self-perpetuating, shallow idea,” he said, adding that investors should always “look at fundamentals” while making decisions.
Labs of Terraform Reiterating his displeasure, Zhao blasted Terraform Labs for using LFG’s Bitcoin to support UST after it had lost its peg, calling the choice “dumb.” Additionally, he emphasised the need for teams to be “always operationally incredibly responsive.”
Terraform Labs’ lack of updates throughout the breakdown prompted him to doubt their communication approach. Keep in touch with your users on a regular basis, particularly during times of crisis.
Zhao’s insights were harsh, but he also had a lot of great things to say. He said that Binance would continue to assist the Terra community, and observed that despite a decline in pricing and a temporary USDT depeg event, crypto has shown some resiliency. While Bitcoin lost just 20% of its market value when Lehman Brothers collapsed, the combined size of UST and LUNA was more than Lehman’s at the time, he pointed out.
Stablecoin regulation was also mentioned, and he concluded by looking to the future. It’s unfortunate when things go wrong, but we’re dedicated to helping create a long-lasting blockchain ecosystem that benefits everyone, as he noted in his post.