Ethereum founder Buterin blasts DeFi model in Terra critique

ETHEREUM founder Vitalik Buterin said there is no genuine investment that can get anywhere close to 20 per cent returns per year while analysing the implosion of the Terra blockchain which sent the crypto market into freefall earlier this month.

The algorithmic stablecoin TerraUSD and its sister coin LUNA have been the major catalysts for the bear market, dropping to nearly zero dollars over the course of a few days and wiping out US$60 billion in Terra coins alone.

One of the stablecoin's main attractions for investors had been its promised interest rate, set as high as 20 per cent for UST deposits in the Terra blockchain-based lending project Anchor.

"The greater level of scrutiny on defi financial mechanisms, especially those that try very hard to optimise for 'capital efficiency', is highly welcome," Buterin said in a statement Thursday (May 26). "The greater acknowledgement that present performance is no guarantee of future returns (or even future lack-of-total-collapse) is even more welcome."

The high-profile developer also explores viable mechanisms to maintain automated pure-crypto stablecoins' pegs while appealing not to dismiss the entire category. He defines automated stablecoins by characteristics such as a completely decentralised targeting mechanism that tracks a price index, and unlike Tether and USDC does not rely on any asset custodians.

Buterin also suggests more rigorously evaluating how safe systems are by looking at their steady state, as well as their pessimistic state to see how they perform under extreme conditions and whether they can safely wind down. He also warns of other risks associated with automated stablecoins such as technical glitches. BLOOMBERG

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