“We are in the midst of the biggest collapse in crypto’s history.
UST, the third-largest stablecoin (largest not issued by a centralized entity) has de-pegged, trading at $0.35 at the time of writing. Its seigniorage token, LUNA, has collapsed in value, falling 99.9% from its all-time high, eviscerating more than $41 billion in value in one of the largest, single-asset wealth destruction events in history.
Although events have yet to fully play out, the far-reaching consequences of Terra’s collapse cannot be understated. For starters, it is yet another example of the importance of true decentralization. UST claimed to be meeting this need – But in practice it was highly centralized. The system required an incredible amount of human intervention and back-room, closed-door deals in order to function properly.
Let’s unpack the collapse of UST to see how the system broke down, and what the broader implications of its failure may be.”
“The Terra network has already lost most of its financial capital. Now, it must work fast to preserve its human capital. Plenty of projects are building on the Terra network. But there are also other blockchains that are signaling an openness to absorb such teams into their own networks.
In the “ecosystem revival plan,” Kwon suggests that UST is not coming back—and the Terra blockchain must redistribute tokens to move forward.
The holders of Luna have so severely been liquidated and diluted that we will lack the ecosystem to build back up from the ashes.
To “preserve the community and the developer ecosystem,” Kwon proposes resetting the distribution of the network’s LUNA governance tokens to 1 billion, 40% of which would be redistributed to holders before Terra’s UST stablecoin became de-pegged from the U.S. dollar over the weekend.
Another 40% will go to those who hold UST at the time of the upgrade. A further 10% would go to LUNA holders when the blockchain was halted today for a second time in 24 hours. The remaining 10% would be used to pay for future development on the network.”
“As the collapse of Terra’s LUNA and UST tokens has sent shock waves throughout the industry, accelerating the decline of the price of bitcoin, knocking tether off its peg and reiterating concerns from institutions and regulators about the viability of the asset class, crypto lending appears to be its next victim. Data now suggests that there’s a cavalcade of people looking for an exit.
The total locked-in value for DeFi is at $150 billion, down from $230 billion a month ago. Data would suggest that many traders are moving their crypto out of DeFi protocols and into stablecoins like USDC with plans to redeem them.
Lending protocol prices aren’t taking well to this dash for the exit. Across the board, the tokens of major lending protocols are down with aave falling 53% over the past week. Celsius has dropped 55.6% over the past week and compound has fallen 49% during that time.
The good news from this crisis is that many parts of the infrastructure surrounding crypto are continuing to hold.”
“Yellen said that ‘the government’s role should be to ensure responsible innovation – innovation that works for all Americans, protects our national security interests and our planet, and contributes to our economic competitiveness and growth.‘
The American Blockchain PAC that I lead as CEO welcomed Secretary Yellen’s sound guidelines for a process of developing a legal and regulatory structure to protect the public while creating a climate that fosters innovation.
The “Thompson principles” offer a framework for digital commodities exchanges, voluntary registration and qualified digital commodity custodians. They also offer an improved process to create digital commodities; to provide a full accounting of stablecoin assets and liabilities; to protect customers using stablecoins and register asset-backed digital commodity users.
Congress and the financial services industry finally grasp that cryptocurrency is not just another extraordinary, popular delusion or the result of the madness of crowds. The blockchain (from which cryptocurrencies are fashioned) is fundamental to many important emerging technologies like non-fungible tokens, Web 3, and the metaverse.“