For the past three years, widespread acceptance of cryptocurrency has been heading upward. Could all of that hard labor be for naught?
The consequences of Terra’s demise may be far-reaching than we previously imagined. I recently posted an article suggesting that the cryptocurrency business is under attack from various sources, and based on current attitude among the community, I worry it has only just begun.
Cryptocurrency as a Ponzi scheme
Many no-coiners have referred to cryptocurrency as a Ponzi scheme and a fraud throughout the years. While there have been instances, the crypto business has only just begun to see true enterprise acceptance.
Likewise, our recent op-ed argued that the crypto business has legitimized itself as an existential challenge to the present banking system. This threat has central banks, the World Economic Forum, the International Monetary Fund, and the rest of the conventional banking industry afraid that they may lose control of the global economy.
I recognize that abandoning the old financial system might result in anarchy, but I also feel that the current system is dysfunctional and has to be reconstructed. Many of the world’s wealthiest firms and people would have to forego a more equitable distribution of wealth and financial independence among the bottom 99%.
Adding fuel to the flames against cryptocurrency
However, the upcoming crypto winter may be the final chance for the old guard to seize control of digital assets such as cryptocurrencies and NFTs. The cataclysmic circumstances of the Terra collapse immediately wiped away more over $30 billion from the aggregate crypto market valuation.
The added fear, uncertainty, and doubt (FUD) induced by the crash resulted in a loss of $160 billion as the broader market sagged. Concerned investors have begun to consult with consultants about risk management in such instances.
According to BitewiseInvest CEO Hunter Horsley, advisers’ top worries right now are:
– Regulation – LUNA – Coinbase bankruptcy scenario – Use cases – Power consumption – The impact of CBDC on BTC How many wins will there be?
LUNA, a new blockchain with a completely diluted market worth of $5.8 billion, was launched mere weeks after this horrific tragedy. The circulation supply is around $1.2 billion, with approximately 70% of tokens granted to Luna Classic and TerraUSD holders instantly invested on their behalf.
To “defend the security” of the blockchain, the staked tokens will be vested for 2 to 5 years. Any rational individual would wonder where this value originates from and how the Terra ecosystem can practically produce $6 billion out of thin air.
The Terra money printer goes “brrrrrrrrrrrrrrrrrrrrrr
The crypto community is well-known for comparing recent government acts to those of a “money printer,” but how is this any different?
But how is this any different than the debut of LUNA 2.0? It is mind-boggling that there is no governmental supervision or consideration for the subtleties of starting a completely new blockchain.
Regulation is not necessarily bad; the aversion to regulation in the crypto world stems from the fact that it is nearly always centralized. Because cryptocurrency supports the concept of decentralized finance, it necessitates some type of decentralized regulation, or else the entire thing is worthless.
Worryingly, the plan to rebuild the Terra ecosystem and then deploy the new chain took less than two weeks, which is ridiculous!
A $6 billion ecosystem was conceived, voted on, and executed in less time than it takes to acquire a mortgage on a $150,000 property in Manchester (believe me on that one!) Former banker CryptoWorldJosh stated,
“Terra creating a new “Luna” coin barely two weeks after it had the worst crisis in Crypto history, leading in over $50 billion in losses?” Is this even real?
Cryptoregulation is unavoidable.”
There is no way this new project can be regarded worth billions of dollars when it was conceived with little thinking. The Terra ecology was dependent on the arbitrage between UST and LUNA.
The new blockchain does not include any UST, therefore one of its key value propositions has been gone, yet it still appears to be worth more than the New York Times ($5.7B). Ari Paul, the founder of Blocktower Capital, commented, “I believe in second chances, but not by unrepentant crooks returning to old methods mere months later.” Terra harmed crypto more than we realize.
Many people are accusing Terraform Labs CEO Do Kwon of being a fraudster and a Ponzi scheme architect, and these are the mildest charges! Furthermore, those who have been labeling TerraUSD a Ponzi scheme from the start are now being validated as a result of the enormous losses incurred by worldwide investors.
Furthermore, as Ethereum co-founder Vitalik Buterin astutely pointed out, TerraUSD did not have to die in this manner. The code was not well-thought-out, and the model was not properly verified. The mechanisms utilized to keep the peg to the dollar were mostly dependent on good market sentiment. Everything else was going to tumble around the Luna token as soon as the market lost trust in it.
Nonetheless, as a byproduct, the notion of a decentralized stablecoin is no longer viable. It is more likely than ever that severe legislation will be implemented to prohibit automated stablecoins entirely, pushing crypto away from innovation.
We may have seen TerraUSD utilized as a currency if it had been a small success before collapsing.
It will be utilized as a case study for future automated stablecoin research. However, this fantasy is most likely dead. No one will ever want to be a part of a project that like TerraUSD again, and centralized funding will undoubtedly help the effort.
I believe the last two weeks have created a precedent that will put the crypto sector back years. This is not an isolated opinion; as Nic Carter recently tweeted:
“Terra provided the MSM with ten years’ worth of wonderful ammo to bash us with.” Retail losses, fintechs putting client assets in, and VCs dumping the top and pounding their chests That’s all there is to it. Yes, we deserve the historical L. “We completely failed to self-police.”
The Terra fallout is far from done.
There is no doubting that the consequences of Terra and Do Kwon’s conduct will have a long-term impact on the crypto sector. The repercussions has most likely not yet subsided. Many exchanges, including Binance, have yet to deliver the airdrop tokens to investors because to the technical difficulties of integrating a new chain and correctly spreading the tokens to all investors.
Because of the delay, investors who had tokens in their wallets were able to trade for days before the rest of the community. If this happened in traditional markets, someone would very certainly go to prison for mishandling of funds and unethical trading activities.
In addition, liquid LUNA Classic tokens have been replaced by illiquid LUNA 2.0 tokens. Only 30% of the tokens have been given to holders, with the remainder being staked automatically. The holders of these coins did not consent to have their investments frozen for years, but the chain’s governance vote indicated otherwise.
There is a case to be made that the on-chain governance was coordinated by the Terra community, and so a democratic procedure was followed. Despite this, just 200 million votes were cast in support of the switch to a new chain, despite the fact that there were 7.5 trillion tokens in circulation.
I predict that the impending crypto winter will be utilized to try to impose centralized control in the areas of crypto that represent the greatest danger to the current system. There will be a lot of misinformation spreading around stating that this is to safeguard “mom and pop investors” and prevent future Ponzi scams. Retail investors are frustrated that no one has been held responsible, and they are afraid of losing their funds. Joe, nicknamed OLavasova, resorted to Twitter to vent his rage.
“I despise regulation, but witnessing $40 billion Luna crash with no one held responsible, jailed, or prevented from participating in any future crypto projects, along with the introduction of Luna 2.0, makes me want to see some hardline legislation in place.”
Some of the restrictions may be beneficial to the sector, but others will be intrinsically harmful, disguised to give us a false feeling of security. When new restrictions are suggested, I urge that we remember why we believe in crypto and consider all sides of the issue. “Who stands to gain from this?” you could ask.
If the answer is a centralized entity, it is not meant to defend you; it is there to protect them.