The collapse of the Terra ecosystem can be compared to the collapse of Mt.Gox, the attack on the DAO, the bursting of the ICO bubble and the collapse of the crypto market in March 2020. Forbes writes that algorithmic stablecoins as a category may disappear.

According to journalists, the combination of greed and the immaturity of technology led to the perfect storm.

According to the publication, the event was another reminder of how get-rich-quick schemes can still eclipse the common sense that is characteristic of the “young” cryptocurrency market. This is another reason to rethink whether innovation is a disguise for excessive leverage.

“Leverage never makes bad investments good, but often makes good investments bad. Last week we witnessed a reduction in exorbitant leverage. UST-LUNA – it’s not just a bad idea, it’s a bad build. You can’t secure an asset that should be a stable, unstable asset.”– said Mark Yusko, founder of Morgan Creek.

Journalists compared the collapse of UST-LUNA to the 2008 mortgage crisis in the USA. At its epicenter were low-quality mortgages that were packaged and sold as new securities with high credit ratings. Similarly, TerraUSD was considered reliable until its collapse.

“The token was backed by software that few understood. But they invested in the asset because it promised quick enrichment. A lot of what seemed like a novelty was actually disguised as something else.”Caitlin Long, the head of Custodia (formerly Avanti) crypto bank, explained.

A representative of Lightspeed, one of the investors in the Terra ecosystem, said that the venture capital firm sees the algorithmic stablecoin not as a minor side branch from bitcoin, but as a shift in the computing paradigm.

Su Zhu, head of Three Arrows Capital, another iconic investor in the project, sees the collapse as an implementation issue rather than a flawed value proposition. The entrepreneur kept the hashtag #LUNA on his Twitter profile.

Some people asked me why I keep luna on my profile

I invested in it, believed in the community, and shared a common purpose.

Attacks and subsequent de-peg risks have been flagged by critics; fast growing ecosystem should have done more to move slow+safe

— Zhu Su 🔺🌕 (@zhusu) May 13, 2022

The collapse of UST-LUNA undermined the desire to maintain the spirit of decentralization in the face of the dominance of the central stablecoins USDC, BUSD and USDT.

Its issuers have been criticized in the community for a lack of transparency in collateral. This was particularly evident with Tether, which invested 50% of its reserves in commercial securities of unknown companies.

As a result of the event, there was a short-term loss in the US dollar and USDT parity due to the flow of funds to USDC. But at the end of the week, it was revealed that some investors left the last asset for fiat.

According to Dante Disparte, Circle’s chief strategy officer, the UST was run by a “deliberate and arbitrary” centralized organization under a decentralized banner. Earlier, Terraform Labs president Do Kwon pledged to “destroy” its DAI competitor, which launched in 2014.

with my hand $DAI it will die.

— Do Kwon 🌕 (@stablekwon) 23 March 2022

Yusko and Ark Invest analyst Yasin Elmanjra are convinced that, unlike previous “restarts”, the UST event will not lead to a revision of the position on prospects for algorithmic stablecoins. The best versions with Fiat support are already on the market.

According to Forbes, the confirmation or rejection of this assessment will depend on the market’s reaction to this sudden shock. The good news is that most investors are speechless. According to JPMorgan strategist Nikolaos Panigirtzoglou, they have been reducing risk since October 2021.

An additional positive factor is the feeling that UST-LUNA’s problems will not lead to a “contamination” of the traditional financial market. Treasury Secretary Janet Yellen agreed. Confirmation is Tether’s stability after a short-term drop in USDT rate to $0.95.

Journalists highlighted that the collapse of UST-LUNA could be an impetus for more responsible forms of innovation in the crypto industry, using the stablecoin from Custodia as an example.

Another form of such rethinking, called the launch of Aave and Compound DeFi protocols by teams targeting institutionalized loan pools. Forbes even recently awarded it a “B” rating by Standard & Poor’s, which can be seen as “a step in the right direction”.

Recall that the enterprise-focused landing protocol Clearpool launched the first private liquidity pool. Jane Street Capital and BlockTower Capital became participants.

Earlier, Goldman Sachs analysts stated that algorithmic stablecoins can only be successful if they are widely used in payment transactions.