Ethereum’s Vitalik Buterin On Two Reasons Behind Terra LUNA Collapse.
Vitalik Buterin, the co-founder of Ethereum said in an interview with The New York Times that a major blow was dealt to the decentralization of crypto earlier this year when stablecoin issuer Terra (LUNA) crashed.
In addition, he explained that there were two causes for the collapse of Terra LUNA.
The Fundamentally Bad Economic Behind Terra Luna
According to Vitalik Buterin, decentralization in the crypto space has steadily progressed since Mt. Gox collapsed in 2014.
There was a hack at Mt. Gox back then, resulting in a loss of thousands of bitcoins; Mt. Gox soon filed for bankruptcy.
He added that hacks involving centralized intermediaries led people to adopt a decentralized model for buying and selling crypto, which was going well until Terra melted down in May.
“And so you don’t need centralized intermediaries to hold things on the cryptocurrency side. And I think that actually has improved things. The times when it hasn’t improved things, probably the biggest one was the Terra LUNA collapse of a few months ago, which was interesting because I think there was a combination of two causes. One of them was that the mechanism behind Terra LUNA was just fundamentally bad economics.”
The Non-Transparant of Terra LUNA Team
Although Terra’s blockchain is decentralized, Ethereum creator says the team behind it took too much control behind the scenes.
Terra was working on accumulating Bitcoin to support its algorithmic stablecoin UST, according to Buterin.
“And nobody knows what the LUNA Terra team were doing with Bitcoin or the asset. And they made a lot of promises. And look, they really tried hard at making these kind of very centralized efforts to manipulate the market and prop up their coin. But it ended up eventually failing, right? So I think that story is instructive, because it shows like to some extent, decentralization by itself doesn’t solve every problem,” he said.
Although Terra may have done some things in the shadows, Buterin points out that blockchain’s transparency allowed some people to predict Terra’s demise.
“Because if the algorithm is bad, then even a fully open and transparent implementation of a bad algorithm is going to break. But at the same time, it does still show the difference between the decentralized and trustless part of the ecosystem, where lots of people were able to see ahead of time what was going on. And lots of people were able to warn about what could happen,” he explained.