Paolo Ardoino, CTO at Tether and Bitfinex, said that the Terra LUNA stablecoin was not supposed to be a trifle, but was just a poorly designed “fortress of playing cards”. Last week, TerraUSD/UST lost its peg and fell by 40% resulting in Terra LUNA stablecoin plummeting by 100%, thereby stamping out the money of all investors. This catastrophic disaster had a severe impact on the overall cryptocurrency market as Luna Foundation Guard (LFG) — Terraform Lab’s non-profit arm based out of Singapore — dumped its reserves from other digital assets in the market in order to save their native tokens.
Speaking of Terra’s unexpected market collapse, Ardoino compared its TerraUSD/UST stablecoin to a “fortress of playing cards” that was supposed to crash at any moment.
Many big investors and smallholders in the cryptocurrency community have put forth a long list of unusual activities from the estranged founder of Terraform Labs Do Kwon that raise questions about these dubious actions. For example, Mr. Kwon was also the founder of a failed algorithmic stablecoin project known as “Basis Cash.” In October 2021, the National Tax Service ordered Terra Virgin — the wholly-owned subsidiary of Terra Singapore — to pay 4.66 billion Won in income tax charges. This week, South Korean authorities ordered Do Kwon to pay $75.5 million for income and corporate tax evasion. It was also reported that Mr. Kwon was unhappy with South Korea’s tax policies and had liquidated his domestic holdings days before Terra’s collapse.
Ardoino made these statements during his appearance on the Reimagine Unplugged podcast earlier this week. Reimagine is a media organization that focuses on content surrounding cryptocurrency and Web 3.0.
Rug Pull or a Poorly Designed Castle of Cards?
Ardoino said that the grave issue was with Kwon’s imprudent sense of self-belief. He stated, “I have never met Do Kwon but let’s give him the benefit of the doubt. He developed a stablecoin with overconfidence and with the assumption that he was right and he had a lot of supporters from the crypto community, of course, for economic reasons. However, his stablecoin wasn’t the right rug pull; it was a poorly-designed project just how many crypto projects are.”
He also stated, “Consider it being a fortress of playing cards and it could collapse, but of course, he couldn’t comment on it, else the stablecoin would’ve met its demise much sooner. And again, it was evident to me; it was obvious in so many ways that the LUNA project was a terrible idea.”
He further went on to comment that the TerraUSD/ UST had become too popular to maintain its peg, as its collateralization was not big enough to support the project. However, it was large enough to crash the ecosystem even more.
The CTO stated that the company was in a tricky situation where they had to secure the peg so that have to sell their reserves from other cryptocurrencies, which is what led to the collapse of other cryptocurrencies. These additional crashes led them to sell more collaterals and it became a continuous cycle.
When asked what the regulatory scenario for the remaining stablecoins would look like in the future, the CTO mentioned that regulators and lawmakers first need to define the difference between stablecoins backed by algorithms and those fully backed by digital assets. For example, he mentioned that TerraUSD/UST is an algorithmic stablecoin, while Tether is a fully-backed centralized stablecoin.
