By Chris Matthews
The collapse of the stablecoin TerraUSD was a bittersweet vindication for Rune Christensen, CEO cofounder of the decentralized crypto project MakerDao, as he had a long track record of arguing that Terra’s model was fundamentally flawed from the beginning.
TerraUSD is an algorithmic stablecoin whose value was pegged at $1. In order to defend that peg, users of TerraUSD were always able to exchange 1 TerraUSD for $1 worth of an associated cryptocurrency, LUNA. But there was nothing that guaranteed LUNA’s /zigman2/quotes/232264652/realtime LUNAUSD +0.35% value beyond the collective confidence of its holders, a confidence that vanished in short order earlier this month.
Founder Do Kwon last week on Twitter said he was ”heartbroken” following Terra’s crash.
Kwon announced what he said is a plan to “rebirth a new Terra blockchain and LUNA” on Twitter Wednesday.
MakerDao, built on the ethereum /zigman2/quotes/108573964/realtime ETHUSD +1.93% blockchain, issues the Dai stablecoin that is backed by a diverse pool of crypto assets. It is known as “overcollateralized” because users have to post more than $1 worth of crypto assets to get back $1 worth of Dai /zigman2/quotes/226472465/realtime DAIUSD -0.0010% .
MarketWatch caught up with Christensen over video conference Thursday to get his take on the crypto landscape in the wake of the Terra drama and a broader decline in the crypto market. The interview has been edited.
What’s your take on what happened to Terra?
The model that Luna and Terra used, which is nowadays called the algorithmic stablecoin, was invented all the way back in 2014. It was sort of a theoretical idea that everyone could just tell by looking at it that it wasn’t going to work.
During the bull market we just went through, these types of stablecoins started popping up. Terra somehow managed to have more legitimacy and more momentum and actually grow to this massive size.
But it was still obvious that these models didn’t work. It was completely clear. You can’t create money out of thin air. You can’t back something with itself and expect it to remain stable.
It was long overdue to collapse, and it was a tragedy that it was allowed to get so big, in part because it had a lot of major backers who created more legitimacy for it.
Why do you think sophisticated investors were drawn to this model?
Greed allows people to pretend that 1 plus 1 doesn’t equal 2. The promise of being able to print free money is just so strong.
They probably believed there was a chance it could work. There are also some really hardcore public figures that supported Luna and have gained credibility because they actually lost everything. So some of them truly believed that it worked and held on to the end and lost everything.
But there were others…[who] may also have been smart enough to understand that it was basically a ride you only want to take on the way up.
The appeal of Terra was in part because it was decentralized, and there’s a lot of debate as to whether Dai can credibly be called decentralized. What are your thoughts on this discussion?
The Luna community in particular liked to attack Dai, saying it’s not decentralized because it uses USDC /zigman2/quotes/226472410/realtime USDCUSD +0.01% , a centralized stablecoin, as part of its collateral.