• Binance CEO CZ Discusses Terra Collapse’s “Lessons”

  • As he reflected on last week’s events, Zhao didn’t hold back in blasting the Terra team.

    CZ Discusses Terra Once More

    Changpeng Zhao has added to his ideas on Terra’s demise.

    The Binance CEO, who has been harshly critical of Terraform Labs in recent days, released a new message on Friday reflecting on the events of last week, when Terra’s UST stablecoin lost its peg to the dollar, culminating in a $40 billion wipeout that impacted the whole crypto market.

    Zhao outlined the disaster’s “lessons to be learnt,” sharing some of his personal takeaways and recommendations for bitcoin investors. He talked about Terra’s dual token structure, which was meant to allow LUNA to be produced anytime UST fell below the peg. “When you peg to one asset using a different asset as collateral, there will always be a chance for under collateralization or depegging,” he wrote. He then went after Terraform Labs for its tokenomics strategy. “Printing money creates no value; it simply dilutes current holders,” he stated. “Exponentially minting LUNA made the problem a lot worse. Whoever designed this should have their head checked.”

    Zhao also mentioned “overly aggressive incentives” in relation to Anchor Protocol, the lending platform that guaranteed UST depositors a 20% APY. Terraform Labs made up the revenue gap to pay Anchor’s users, a technique Zhao deemed untenable. “Eventually, you’ll need to create “revenue” to keep it going… “If you don’t, you’ll run out of money and crash,” he wrote.

    Zhao warned against large yields, saying they “do not always imply healthy projects.” He went on to call Terra’s design “self-perpetuating, shallow,” and advised investors to always “look at fundamentals.”

    Terraform Labs has been slammed.

    Zhao slammed Terraform Labs’ response to the situation once further, calling its choice to use LFG’s Bitcoin reserves to support UST after it had lost its peg “dumb.” He added that teams should “always be operationally extremely responsive.”

    He also questioned Terraform Labs’ communication strategy after only a few updates were posted throughout the meltdown. “Always communicate frequently with your users, especially in times of crisis.”

    Although Zhao’s takeaways were critical, he also expressed many positive thoughts. He stressed that Binance would support the Terra community and noted that despite a price dip and a temporary USDT depeg event, crypto had demonstrated considerable durability. “The combined size of UST and LUNA was bigger than Lehman Brothers when it failed,” he pointed out, noting that Bitcoin shed only 20% of its market cap in the fallout.

    He also highlighted the necessity for stablecoin regulation before concluding with a look forward to the space’s future. “While instances like the one with LUNA and UST are regrettable, we are committed to playing a crucial part in building a sustainable, enriching blockchain ecosystem for all,” he wrote.

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