UST’s collapse was “inevitable,” Samuel Bankman-Fried

The collapse of Terra’s UST and LUNA was “certain” according to entrepreneur, founder, and CEO of FTX crypto exchange Sam Bankman-Fried. Who tweets that the fall was “predetermined.” He adds:

“In the same way that “stablecoin” is used to refer to a variety of things, so too is the word “stablecoin.” Just as the naysayers had predicted, a stablecoin exploded in value during a significant market movement. It was predictable if you knew what you were talking about. This isn’t a judgment on whether something is good or bad. Cryptocurrency is new and different, and we’re all still learning.”

We’re all trying to find the right models and the right ways of thinking about it. So, while the stablecoin situation was predicted by some, it’s also a learning experience for everyone involved.”

Bankman-Fried’s comments echo those of other commentators who have seen the demise of Terra’s stablecoin.

“It was pretty clear to anyone who bothered to look that UST was going to zero. The economics were terrible, the token didn’t have a reason to exist, and the team had no credible plan to make it worth anything.”

I feel really bad for the people who got sucked into buying it.

SBF’s position on algorithmic stablecoins before the crash

SBF was also asked about his thoughts on the growing popularity of algorithmic, partly-backed stablecoins. In a recent interview with Joe Weisenthal, co-founder of the Odd Lots podcast. “What is your take on this?” Weisenthal inquires to him.

“One of the most fascinating things going on right now is the growth of Luna and UST. Although some people argue that any plan for an algorithmically-backed stablecoin is a perpetual motion machine, others claim that any monetary system based on mathematics will eventually fail. Do you think it’s possible to create a truly decentralized stablecoin? What do you think?”

SBF:

“I do have some empathy for the perpetual motion machine crowd. They can be helpful in certain ways, but if you take a step back and think about it, this is a stablecoin, backed by volatile assets, so what will happen in a large market move? Right? So, you know how this ends. The question is how long it takes to get there and whether or not, in the meantime, you have utility.”

I think that a lot of these decentralized solutions are going to have similar issues. Where they’re just not quite as robust as something like UST because there’s no centralized party that can act as a backstop.

The following is a screenshot of the exchange, which was tweeted and attracted a variety of reactions. Here’s one that appears to make sense:

Have any financial experts considered creating a decentralized stablecoin that is backed by a basket of tokens linked to commodities and equities? If it’s done correctly, it might be less volatile than a Bitcoin-backed stably.

The collateral that Tether has been using to back its USDT stablecoin is slowly but surely being depleted. According to a new report from Cryptocurrency research firm TokenAnalyst.

The UST and LUNA crash

UST and LUNA both crashed on May 19, 2021, with UST losing over 50% of its value in a single day. The price has since recovered somewhat but is still down around 30%.

The cause of the crash is unknown, but it could be related to Tether’s announcement that it would no longer be able to redeem USDT for US dollars.

This news sent shockwaves through the Cryptocurrency world. As Tether is one of the most popular stablecoins used by many exchanges as a way to stabilize their prices.

The crash also had a ripple effect on other Cryptocurrencies, as many of them were down significantly in the days following the UST crash.