DeFi Believers Never Say Die, Even After They See Terra’s Demise

• Justin Sun’s new USDD stablecoin is offering a yield of 30%
• Sun sees need for assets outside the control of central banks

Even after the collapse of TerraUSD, hardcore believers in the future of decentralization are not giving up on stable coins.

A portfolio manager at a company that was an investor in Terra said that there will be an algo stable in the next seven to 10 years.

Defi has been one of the fastest growing sectors in the past few years, with a number of borrowing and lending applications that offer double- and triple-digit returns. They are dependent on attracting enough transactional volume to keep the networks going. The model appeared to work until central banks began removing Covid-eraStimulus, triggering a retreat in risk appetite and raising questions about whether the incentive-based systems are sustainable.

Terra collapsed in early May after the software intended to keep UST stable was unable to overcome a plunge in demand for its related Luna token. While it was the largest stable coin by market value, it was only one of many that failed or were unable to maintain promised 1-to-1 pegs to assets such as the dollar.

TheUSDD token was launched by controversial criptophonist Justin Sun on his network just before the collapse of UST.

Sun said in an interview that he saw the need for a stable coin without regulators as he experienced the fall of the market in China after the country announced a ban on the sector.

Sun said that if regulators decide to ban stablecoins, it would pose great risks to the whole system.

According to Sun, theUSDD went live on the tron blockchain in May. It can be used on the smart chains. Terra used a similar mechanism to maintain its peg. When the price of 1USDD drops below $1, traders can make an instant profit by sending 1USDD to the tron network in exchange for $1 worth of tron, the native token of the network.

Terra showed that an integration of such programming to keep a token stable is difficult because the stable coin is dependent on investors believing that its sister coin will continue to appreciate.

Tarun Chitra, founder and chief executive officer at Gauntlet, said that if you really want to make these things, you have to have this really sharp technical ability but also this crazy gaze in your eyes.

There is a new kind of bank run revealed by the $60 billion collapse of the criptocurrency.

Terra's failure shows the flaw of stable coins, but also gives an opportunity for new projects to adjust, according to Sun. To defend its peg,USDD wants to raise $10 billion through the TRON DAO Reserve, which it calls an alliance of market participants. That is a similar setup to Terra, which is a Singapore-based non-profit.

Sun said that a stable coin is not free from anyone.

Stable coins are a source of risk in the financial system. US Treasury Secretary Janet Yellen said recently that the need for guardrails is urgent and that it would be appropriate for lawmakers to act this year.

The 20% yields offered on Terra are not the only promotional high returns offered by USDD. Huobi has already launched high yield products. Sun said the outsize yields would be reviewed on a monthly basis and that the number would be adjusted based on market conditions. Not everyone is convinced that the entire sector will avoid the same fate as UST.

Ryan Watkins, co- founder of Pangea Fund Management, thinks the sector is done.