Binance CEO Changpeng Zhao shared recommendations for cryptocurrencies lost due to the collapse of TerraForm Labs LUNA and UST Coin. 40 billion dollars It affects the entire crypto market.
LUNA/UST crash tragedyy, causing financial losses to many, Changpeng Zhao said: blog post May 20, 2022. CZ emphasized that Binance is always working to protect its customers from losses, and acknowledged that crypto exchanges are limited to community-proposed solutions with numerous flaws.
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LUNA from Binance CEO
He said that Binance has offered TerraForm Labs a priority to focus on repaying individual investors. But first, CZ emphasized that the crypto space should learn a lesson from the collapse of Terra.
Changpeng Zhao said:
Theoretically speaking, there is always a chance of running out of collateral or depegging when pinning to one asset using another as collateral. Even if it is set as collateral of 10 times or more, the collateral asset may plummet 10 times or more. Nothing in this world is 100% stable (compared to anything else).
“The stupidest decision a project can make is to think that issuing more assets will increase the total value of the assets,” explained CZ. He went on to say that issuing more LUNA would only make the situation worse because the solution diluted the value of existing token holders.
According to Zhao, a strong incentive policy, apart from the increase in casting execution, is another cause of the LUNA crash. He also cited examples of anchor protocols that promoted inanimate growth by injecting 20% APY. Incentives are an easy way to attract customers, but the user base is a major reason for the project’s long-term stability, CZ said.
The Binance CEO argued that Terra has an ecosystem with some use cases, but the network’s growth has not kept pace with incentivizing new users. He noted that Terra’s progression was empty and ultimately burst like a bubble.
Terra took a weak stance on the unpegged UST, and the company did not act immediately enough to use its reserves to restore the peg. The Binance CEO said that TerraForm Labs could have avoided the entire event if it had used its reserves when the unlock was 5%.
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According to CZ, the Terra team did not take a proactive approach, leveraging the available $3 billion reserve to recover the UST’s peg, and the stablecoin plummeted 99%. He concludes the lesson that crypto projects must embrace operations and engage with customers every time, especially in times of crisis.
Featured image from Pixabay and Chart from Tradingview.com