Terra as the failed crypto project attempts a new path forward

Terra as the failed crypto project attempts a new path forward :

This week, backers of the failed cryptocurrency project Terra voted to restore the initiative, with a new luna blockchain and token – and without its controversial algorithmic stablecoin, TerraUSD.

The founders are in the search of the upcoming step forward for the project that crashed as quickly as it took off. The crashing of the Terra project led to the combined losses of about $60 billion between the stablecoin, also known as UST, and its sister cryptocurrency luna. In the last month, UST dived below its $1 peg, which encouraged a cryptocurrency sell-off.

Like many stablecoins, UST was pegging at a 1-to-1 ratio with the dollar. Minting one new UST required “burning,” or destroying one luna. This structure has allowed for the arbitrage opportunities that were key for maintaining the peg: Users could always swap one luna for UST and vice versa at a guaranteed price of $1, regarding the market price of every token at the time.

Tether earlier claimed that its stablecoin was divided 1-to-1 by U.S. dollars.
This isn’t the first time when the decentralized algorithmic stablecoin has failed. Many in crypto had a hope that the Terra project might succeed in the future. But it may take a long time before investors recover from the current month’s Terra fiasco —and that could put the new project on shaky ground.

“There’s a big question mark. Whether that will be successful or not, will it take a lot of time for rebuilding trust with investors and builders,” Felix Hartmann, who is a managing partner of Hartmann Capital, told to CNBC?
Regulatory problems also create panic. Stablecoins have been at the top of mind for the regulators for the same reasons highlighted by the TerraUSD crash: lack of transparency in the trading of stablecoins and the reserves that are coming back to them, as well as market participants’, rely on them to enable trading in other crypto market protocols.

“Algorithmic stablecoins as a concept are no more,” said Omid Malekan, he is a crypto industry veteran and adjoining professor at Columbia Business School.
“There are other ones are out there not as big as UST but they’re all in some state of failure to maintain the peg right now,” he added. But the open question now is also what kind of a regulatory response the entire industry gets with them.”
—CNBC’s Ryan Browne

Leave a Comment