The co-founder of Ethereum (ETH) says the implosion of stablecoin issuer Terra (LUNA) earlier this year dealt a big blow to the decentralization of crypto.
In an interview with The New York Times, Vitalik Buterin says decentralization in the crypto space has been progressing in the right direction since the epic collapse of defunct digital asset exchange Mt. Gox in 2014.
According to Buterin, hacks involving centralized intermediaries spurred people to move toward a decentralized model when buying and selling crypto, which he notes was going well until the meltdown of Terra in May.
“And so you don’t need centralized intermediaries to hold things on the cryptocurrency side. And I think that actually has improved things. The times when it hasn’t improved things, probably the biggest one was the Terra LUNA collapse of a few months ago, which was interesting because I think there was a combination of two causes. One of them was that the mechanism behind Terra LUNA was just fundamentally bad economics.”
The Ethereum creator says that while Terra’s blockchain is decentralized, the team behind it had too much control behind the scenes. Buterin points at Terra’s efforts to accumulate Bitcoin to support its algorithmic stablecoin UST.
“And nobody knows what the LUNA Terra team were doing with Bitcoin or the asset. And they made a lot of promises. And look, they really tried hard at making these kind of very centralized efforts to manipulate the market and prop up their coin. But it ended up eventually failing, right? So I think that story is instructive, because it shows like to some extent, decentralization by itself doesn’t solve every problem.”
Regardless of what the Terra team did in the shadows, Buterin highlights that blockchain’s transparent nature allowed some people to predict the crypto asset’s demise.
“Because if the algorithm is bad, then even a fully open and transparent implementation of a bad algorithm is going to break. But at the same time, it does still show the difference between the decentralized and trustless part of the ecosystem, where lots of people were able to see ahead of time what was going on. And lots of people were able to warn about what could happen.”
You can read the full interview here.
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