The Ethereum creator, Vitalik Buterin, criticised the entire premise of UST, claiming that it was intentionally misleading and inherently flawed from the start.
“Algostable’ has become a propaganda term serving to legitimize uncollateralized stables by putting them in the same bucket as collateralized stables like RAI/DAI,” Buterin tweeted yesterday.
Stop “experimenting” with ponzis, algostables, yield farming and other unsustainable nonsense.
Start experimenting with public goods funding, governance/DAOs, decentralized identity/reputation, regenerative finance and privacy tools.
This is the gwei.
— sassal.eth 🦇🔊🐼 (@sassal0x) May 14, 2022
Unlike other prominent stablecoins, UST isn’t backed by cash or assets. Instead, an algorithm ties the value of UST to the value of LUNA through a burning/minting mechanism designed to keep UST at $1. When that mechanism collapsed last week, it destroyed UST and LUNA as well as $40 billion in value.
Terra previously assured investors that UST was just as stable as asset-backed stablecoins. Do Kwon, Terra co-founder, has kept the phrase “Master of Stablecoin” in his Twitter bio throughout the crisis.
“We need to emphasise that the two are very different,” Buterin said, referring to algorithmic stablecoins and asset-backed stablecoins.
Do Kwon reemerged on Friday with a new strategy to revive LUNA after a days of silence. The plan is to permanently abandon UST and reset LUNA to a 1 billion token circulation, with tokens given out to both former holders wiped out by last week’s events and current holders.
Within hours, Changpeng Zhao, CEO of Binance, the largest cryptocurrency exchange in the world, stated that such a proposal is doomed to fail.
Zhao, who rarely comments on the performance of cryptocurrencies traded on his platform, made an exception yesterday, tweeting that “forking” LUNA, or splitting the blockchain to create a second version, “won’t work.”
“Forking does not give the new fork any value,” Zhao stated flatly. “That’s wishful thinking.”
Personal opinion. NFA.
This won’t work.
– forking does not give the new fork any value. That’s wishful thinking.
– one cannot void all transactions after an old snapshot, both on-chain and off-chain (exchanges).Where is all the BTC that was supposed to be used as reserves? https://t.co/9pvLOTlCYf
— CZ 🔶 Binance (@cz_binance) May 14, 2022
The fatal flaw of such a strategy, according to Zhao, is Kwon’s failure to comprehend that “minting coins (printing money) does not create value; it simply dilutes the existing coinholders.”
Zhao went even further, openly questioning Kwon and Terra’s transparency when handling the crisis caused by the collapse of UST and LUNA. According to Kwon, Terra’s overseeing nonprofit – Luna Foundation Guard (LFG) – had used billions of dollars in stockpiled Bitcoin to save UST.
“Where is all the BTC that was supposed to be used as reserves?” Zhao asked.
Binance delisted LUNA and UST on Friday, removing both coins from margin and spot markets, after Terra halted its blockchain to limit the risk of governance attacks as LUNA plummeted to zero. It resumed trading for both later that day, but exclusively against Binance’s own stablecoin, BUSD, to which Zhao responded, “I am very disappointed with how the Terra team handled (or did not handle) the UST/LUNA incident.”