JUstin Sun, founder of the Tron blockchain and Grenada’s ambassador to the World Trade Organization, said the collapse of UST and LUNA was a good lesson in what not to do when trading. construction of an algorithmic stablecoin.
Prior to its collapse, the combined value of Terra’s twinned assets was approximately $40 billion. Founded in 2018, blockchain only really got off the ground in the last year of the recent crypto bull market. A suite of apps and a loud founder have captured the attention of retailers and institutions. And this meteoric growth may have been its downfall.
“If I was Do Kwon, I would have taken care of the situation much more carefully,” Sun said Friday, referring to the Terra founder, on CoinDesk TV’s “First Mover.” This may be easier said than done.
Just three days before Terra collapsed, Tron launched its own algorithmic stablecoin, USDD.
It’s still unclear what exactly catalyzed Terra’s demise. Some members of this blockchain community have pushed a conspiracy theory that institutions such as BlackRock (BLK) and Citadel Securities have forced liquidations by exploiting a known flaw in the design of the network. Others believe blockchain simply couldn’t handle the stress as all risky assets pulled back due to an impending economic downturn.
Read more: Citadel Securities, BlackRock and Gemini reject accusations of involvement in UST social media collapse
Sun, not always known for his restrained takes or rational demeanor, was a bit more down to earth. He said that whatever the impetus, Terra’s collapse was preceded by a major movement of capital on the network after Terraform Labs began removing UST from a liquidity pool on the decentralized exchange of Curve stablecoins.
Terra management has removed liquidity from a stablecoin exchange called 3pool in anticipation of its own dedicated tool to improve UST markets, called 4pool. Whatever happens next, Sun said the timing is perfect for anyone who wants to launch an attack on Terra.
“Nobody [could] defend the price or the peg,” he said, referring to the mechanism that keeps the UST artificially pegged to the US dollar.
Sun may know the technical details of the UST collapse, given that some pundits have noticed the similarities between Tron’s USDD and Terra’s UST. He said he planned to launch the USDD stablecoin project three months ago and was grateful for the learning experience of the “dramatic” end of UST.
That said, Sun remains concerned that the USDD could be attacked by short sellers or face a similar fate as the UST.
Terra cannot undo the damage it has caused, although current and future algorithmic stablecoins must focus on “organic growth”. They must also be proven decentralized and likely live on multiple blockchains, he said.
Tron, which offers ultra-low fees to transfer money, is home to many users of the centralized stablecoin (USDT) link. Criticized in the past for its lack of transparency, Sun said it believes Tether, the organization that runs the eponymous stablecoin, maintains full reserves.
“I would like to encourage Tether to have an even more transparent way of communicating with the crypto community,” he said.
Still in its infancy, Sun said the USDD “is very safe.” At the very least, its market capitalization of $348 million means that if it crashed, it would not cause cascading problems in the crypto markets like the UST did. The typically boastful Sun said he was looking at a $2 billion valuation for the coin.
Read more: Justin Sun Talks USDD Stablecoin in the Wake of LUNA/UST Unravel
“We have to be more careful,” he added. Although they have proven risky, he is still a staunch proponent of algorithmic stablecoins, which might be the easiest way to create a proxy dollar asset that is truly independent of regulation.
“Nowadays, stablecoins are the most centralized part of this decentralized world,” he said, adding that “the fate of centralized options is decided by regulators around the world.”
Taking a lighter line, Sun said Terra developers should turn the now worthless UST and LUNA tokens into coins like “SHIBA or a DOGE coin”.
“It’s the only way to solve this problem,” he said.
See also: UST will not be the end of Algorithmic Stablecoins | Opinion
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.