Ethereum (CRYPTO: ETH) creator Vitalik Buterin doesn’t believe the entire category of pure-crypto stablecoins should be dismissed after the collapse of Terra’s (CRYPTO: LUNA) stablecoin TerraUSD (CRYPTO: UST).
What Happened: In a recent blog evaluating the automated stablecoins, Buterin laid out principles for evaluating whether or not a stablecoin is “a truly stable one” with two thought experiments.
“The recent LUNA crash, which led to tens of billions of dollars of losses, has led to a storm of criticism of "algorithmic stablecoins as a category, with many considering them to be a "fundamentally flawed product," wrote Buterin.
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“Where the sentiment goes very wrong, however, is in painting all automated pure-crypto stablecoins with the same brush, and dismissing the entire category.”
While Buterin said a greater level of scrutiny on DeFi financial mechanisms is “highly welcome” the dismissal of all stablecoins is not.
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See Also: IS TERRA (LUNA) DEAD?
After examining the case of why Terra’s ecosystem collapsed, the Ethereum creator concluded that the crypto industry should move away from the attitude that it's okay to achieve safety by relying on endless growth.
“Instead, while we certainly should hope for growth, we should evaluate how safe systems are by looking at their steady state, and even the pessimistic state of how they would fare under extreme conditions and ultimately whether or not they can safely wind down,” he said.
“If a system passes this test, that does not mean it's safe; it could still be fragile for other reasons or have bugs or governance vulnerabilities.”
Terra plans to launch a new blockchain called Terra 2.0 without the use of an algorithmic stablecoin. The native tokens corresponding to the new chain would be airdropped to users this weekend.