Terra crash has caused many investors to pull out of the crypto market but Vitalik Buterin opines that having a system that monitors the strength of cryptocurrencies at turbulent times would help to prevent a similar collapse.
Vitalik Buterin, the co-founder of Ethereum, has openly criticized the current state of the DeFi market. Buterin stated, while analyzing the Terra ecosystem’s collapse, that there is no real investment in the world that can deliver 20% annual returns.
The Terra implosion has caused a significant sell-off in the crypto sector, particularly in the decentralized finance (DeFi) market. The TerraUSD (UST) stablecoin quickly lost its dollar peg and dropped to zero in less than a week. This resulted in a massive sell-off in LUNA, wiping out more than $60 billion in investor wealth.
In light of the current episode, Vitalik Buterin has called for increased scrutiny in the DeFi space. Buterin told Bloomberg in a statement:
“The greater level of scrutiny on defi financial mechanisms, especially those that try very hard to optimize for ‘capital efficiency’, is highly welcome. The greater acknowledgment that present performance is no guarantee of future returns (or even future lack-of-total-collapse) is even more welcome.”
The Ethereum co-founder also emphasized the importance of assessing the stability of the systems. However, he added that they must be monitored in an extreme state or under pessimistic conditions to see if they can withstand the turbulence. Buterin also mentioned technical glitches as a barrier to automated and algorithmic stablecoins.
The Effects of Terra Collapse on DeFi Space
The decentralized finance (DeFi) space has taken a significant hit as a result of the Terra collapse. Bloomberg reports:
“DeFi developers are dusting themselves off after Terra’s collapse halved the sector’s total value, and dampened markets aren’t going to help in convincing them that now’s the time to get back in the game.”
Altcoins linked to the DeFi ecosystem have suffered the most in the last 24 hours. Top Defi altcoins such as ETH, SOL, AVAX, and DOT have been corrected by 10-20%.
