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The idea of an algorithmic stablecoin is genius, time will tell if it works. But overall Luna’s crash isn’t too damning of the idea, because the root cause was
by gfodor 4y ago
The idea of an algorithmic stablecoin is genius, time will tell if it works. But overall Luna’s crash isn’t too damning of the idea, because the root cause was a Ponzi scheme. (Which was identified and advertised as dangerous within the crypto community.)
- audleman 4y agoThe ponzi part was not the root cause, it merely sped up asset accumulation until it became a ripe enough target. The root cause was the flawed arbitrage mechanism. It relied on always being able to redeem 1 UST for $1 equivalent of LUNA, and that relied implicitly on LUNA having value. Without that, whenever somebody cashes out UST they also cash out LUNA causing both prices to enter a death spiral. And what value did LUNA have? Nothing more than the promises of the development team that you were getting in early on a soon-to-be-burgeoning ecosystem. "Hundreds of developers! Amazing new protocols!" In other words, vaporware. Which during a bull market can work for a time. I agree with you that a functioning algorithmic stablecoin would be "genius". However I prefer calling it the Holy Grail of stablecoins. Powerful, if it exists.