The collapse of the ecosystem of Terra- along with its coin and stablecoin- did shake the entire cryptocurrency ecosystem. Not only did the ecosystem tokens of this company collapse in their market value, but the widespread uncertainty, fear, and doubt also led the cryptocurrencies which were leading the market- Bitcoin and Ethereum- to fall below $27,000 and $1,800 respectively, on quite a few exchanges. Although the contagion of this failed protocol has been contained, the market of cryptocurrency hasn’t recovered yet.
Terra’s Collapse Is Being Used As An Example For Many
The participants in the crypto market, and especially those that were involved with Terra LUNA, were seemingly wiped out in the collapse that affected the assets of the protocol. For people who had been staking the apparently safe stablecoin which was pegged pretty strenuously to the dollar in order to earn interest- the death spiral of UST was absolutely brutal. Not just a couple of hedge funds, but most of the regular individuals too lost a great deal of money. In certain tragic situations, they also lost their entire life savings.
Most of the crypto regulators were pretty quick to highlight the dramatic unwinding of Terra as a major example of why the regulation of stablecoin was indeed required. Janet Yellen, the Secretary of the United States Treasury, stated that the lawmakers needed to develop a consistent federal framework that would be used by stablecoins in their bid to address most of the major risks. Yellen’s comments are still quite tame when one compares them to Senator Elizabeth Warren, who has been pretty vocal about how the decentralized finance industry was run by criminals and shadowy super coders.
Therefore, the collapse of Terra and the wide effects it has on the market does demonstrate the need for advanced risk management systems- especially when they yield favorable returns.