Ethereum founder Vitalik Buterin: Terra stablecoin investors should be made whole

May 15, 2022.

Much of the market for cryptocurrencies was down last week due to the unraveling of the Terra ecosystem. TerraUSD crashed far below its $1 peg, and its sister token Luna collapsed to nearly zero.

Many life savings were wiped out by the demise of UST and Luna. The creator of Terra proposed plans to fix the damage done.

One proposal on the Terra forum suggests that Terra should make investors whole, again with its remaining funds, and that Vitalik Buterin is all for it.

Buterin agreed with a user who said that Terra should focus on helping people who had a lot of UST deposited in Anchor.

If Terra focused on the poorest part of the group, they could make it whole.

The user was supported by Buterin on Saturday. Relief and sympathy for the average UST smallholder who was told something dumb about the 20% interest rates on the US dollar.

He said that the obvious precedent was the FDIC insurance, which was up to $250,000 per person.

The first time the government backed bank deposits in the U.S. was in the 1930s, when the Federal Deposit Insurance Corporation was established. It was part of the New Deal series of government programs that restored faith in the financial system, but came under criticism for too much government involvement in business.

Buterin stopped short of endorsing regulation for the until-now unregulated space, but he said similar regulations were interesting.

An interesting unrelated one is Singapore employment law. I think things like this are good hybrid formulas.

Buterin said that the term "algostable" has become a propaganda term to legitimize uncollateralized stables.

He said that the two are very different.

UST has no reserves. Instead, it holds value based on an algorithm that is designed to balance the stable coin with a partner coin. The equivalent of $1 in Luna is burned or removed from circulation when a UST token is created.

Luna was brought down with the UST stable coin.

UST is down 85% in the last seven days. Luna is at a 100% loss and trading at zero.