As the fall of Terra (LUNA) and TerraUSD (UST) may have a noticeable short-term impact on the decision-making of both retail and institutional investors, it doesn’t pose a risk to the larger crypto ecosystem, according to Jun Du, co-founder of Huobi Global.
In an interview with Cointelegraph, Du explained that the collapse of Terra will affect the ecosystem by slowing down investor interest in crypto as an asset class. However, Du noted that this will only be a short-term effect. In the long term, the exchange co-founder explained that crypto like Bitcoin’s (BTC) demand as a hedge against fiat inflation will grow along with the advent of new applications for blockchain:
“In the long term, demand for cryptocurrencies as a hedge against fiat inflation will continue to grow, as well as for applications of blockchain technology.”
When asked about critics who are using the Terra collapse as an opportunity to take a dig at the entire crypto market, Du highlighted that crashes like Terra also happen in many other industries.
“Market crashes and coordinated attacks are not unique to crypto,” said Du. Citing the Lehman Brothers collapse and the housing market crash, Du mentioned that “every industry will see its fair share of toppled players.” He further explained that the long-term endurance of an industry always depends on the demand for its services:
“Crypto as a technology and asset class introduces value and innovation that are unique and irreplaceable, and we believe that one bad apple in the short run will not affect long-term demand for crypto assets and the industry as a whole.”
Du is also optimistic and believes that when the price of BTC recovers, confidence in the market will return and it will lead to more investments coming into the space. Despite the bumps in the road, the co-founder of Huobi trusts that the broader crypto industry will grow continuously.
Also, Du noted that there are flaws exposed by the Terra crash. “The takeaway is that in the future, stablecoins should be backed by less volatile tokens,” he said. He underscored that collateral must be “rebalanced with less volatile tokens.”
Lastly, the Huobi Global co-founder said that in summary that “decentralized stablecoins are vital to the development of the entire cryptocurrency ecosystem.” He shared that the community can turn this loss into a win by innovating so that tragic incidents like the Terra crash do not repeat.
Earlier this month, the UST dollar peg crumbled as a whale started to dump UST. This lowered LUNA’s price by 20% only one day after the initial dump. The event then snowballed even as Terra founder Do Kwon shared plans for Terra’s recovery. In the end, the Terra debacle became one of the biggest price meltdowns in the history of crypto.