Changpeng Zhao(CZ) the CEO of Binance, believes that crypto projects must learn to always communicate with their communities, especially during times of crisis. Following the crash of TerraForm Labs’ LUNA and UST coins, the largest crypto exchange by trading volume has come out to share a few crypto lessons.
CZ stated in a blog post on May 20 that the UST/LUNA incident was regrettable and affected many people. While he stated that Binance seeks to protect its users, he admitted that the exchange lacked great solutions other than those proposed in the community, which had flaws of their own.
He went on to say that Binance offered to let TerraForm Labs first focus on compensating retail investors. Even so, he stated that Terra’s dying left the cryptocurrency industry with a lot to learn.
“Theoretically speaking, when you peg to one asset using a different asset as collateral, there will always be a chance for under collateralization or depegging. Even if it is over collateralized by 10x, the collateral asset can crash more than 10x. Nothing is 100% stable (relative to something else) in this world.”
He went on to say that the most terrible decision a project can make is to believe that create more of an asset will increase its total value. CZ explained that issuing new more LUNA only disturbed the situation because this solution diluted the value for existing token holders.
CZ objected to the use of overly aggressive incentives in addition to minting more LUNA. He cited the example of Anchor Protocol, which offered a 20% APY to encourage in-organic growth.
Incentives, according to CZ, can entice investors. However, in order to maintain their user bases, projects must generate value.
CZ also stated that, while Terra had an ecosystem with some use cases, the network’s growth did not keep pace with the incentives it used to attract new users. He also observed Terra’s growth to be hollow, and the bubble eventually burst.
To read our blog on “Top Terra Whales Speak Out on Network Collapse,” click here
