Vitalik Buterin Demands Higher Scrutiny in DeFi Space After Terra Collapse. Vitalik Buterin, the co-founder of Ethereum, has publicly criticized the current status of the Defi market. Buterin stated that there is no legitimate investment in the world that can give 20 percent profits each year while evaluating the Terra ecosystem’s collapse.
In a statement to Bloomberg, Buterin said:
The algorithmic stablecoin TerraUSD and its sibling coin LUNA have been the primary drivers of the bear market, plummeting to practically zero dollars in a matter of days and wiping away $60 billion in Terra coins alone.
One of the stablecoin’s key draws for investors was its guaranteed interest rate, which could be as high as 20% for UST deposits in the Terra blockchain-based lending initiative Anchor.
The Ethereum co-founder also emphasized the importance of assessing the stability of the platforms. However, he emphasized that they must be monitored in an extreme state or under pessimistic conditions to see if they can endure the turbulence. Buterin also mentioned technical issues as a barrier to automated and algorithmic stablecoins.
The Impact of Terra Ecosystem Collapse on DeFi Space
The collapse of Terra, a blockchain ecosystem that supported one of the most significant experiments in decentralized banking, sent an already pessimistic market into a tailspin last month. While Terra’s operators approved a plan to restart on a completely new blockchain on Wednesday, investors in the rest of DeFi remained skeptical.
After the Terra ecosystem collapse which made investors lose Billions of Dollars from the Market within a span of just 2-3 days. This Death spiral of the UST stable coin made countless headlines and countless doubts among crypto investors about the fundamental values of stable coins. As a result USDT market cap also shrinks by 10Billion USD. Followed by DEI Stable coin collapse.
However stable coins which are backed by some kind of assets are safe for now. As a result of Terra’s demise, demand for blockspace on the Ethereum network has decreased dramatically, lowering the network’s excessive gas fees. Gas prices have been going lower since December, with the exception of a few spikes during high-profile minting events like Yuga Labs’ Otherside property sale, according to Glassnode statistics, and have just reached multi-year lows.
Why Luna crash has raised questions about the stability of crypto assets? The massive drop may erode investor confidence in the cryptocurrency sector. As investors lost nearly all of the value of their Terra and Luna investments, exchanges and several crypto exchanges, such as Binance, have delisted the currencies from their platforms so that new investors do not wind up buying them. The crash also sent shockwaves through the cryptocurrency industry.
Ethereum Founder Buterin Criticizes Current DeFi Model
Buterin investigates possible ways for maintaining automated pure-crypto stable coin pegs while urging that the category not be dismissed entirely. He characterizes automated stablecoins by features like a completely decentralized targeting mechanism that tracks a price index and, unlike Tether and USDC, does not rely on any asset custodians.
Buterin also recommends more rigorously evaluating the safety of systems by looking at their steady-state as well as their pessimistic state to determine how they operate under extreme conditions and whether they can safely be shut down. He also warns about the risks of automatic stablecoins, such as technical failures.
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