What does UST’s depegging mean for crypto? An Expert’s view

An eventful week this was in crypto matters, with the highlight of the pain being the collapse of Terra’s LUNA and algorithmic stablecoin TerraUSD (UST). The token’s crash, which has LUNA virtually at zero and UST clinging on after depegging violently from the dollar, has the market irked, sad and in utter disbelief.

What and how it happened – the collapse of the multi-billion-dollar cryptocurrency that was Terra (LUNA) and TerraUSD – is almost water under the bridge now. 

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

BUT what does this episode, which Nexo co-founder Antoni Trenchev said would not amount to a ‘Lehman moment,’ mean in terms of the regulatory and future outlook for the industry? 

Expert sees increased regulatory attention

According to one expert, its simple: Terra’s turmoil has the potential to “disrupt the entire DeFi industry and increase scrutiny from regulators.”

Chase Coleman is a Data Science and Economics Lead at  UMA, an optimistic oracle used to build decentralized applications in DeFi and Web3. Here’s what else he said of this week’s events:

We have seen smaller stablecoins depeg and go to 0 in the past, but this is certainly the largest stablecoin that we’ve observed depeg and it has already drawn the attention of government officials and regulators.

He notes that although the US government has previously indicated the need to approach crypto regulation in a “thoughtful and deliberate” manner, what just happened could help speed up ‘movement’ on that front.

But heightened regulatory attention could include a silver lining for crypto. In comments shared with Invezz, Coleman said:

While the results of increased US government regulation have yet to unfold, more regulation would likely help to set the table for more clarity, predictability, security and stability for decentralized finance and crypto

What does this mean for Bitcoin, stablecoins and DeFi?

According to Coleman, it’s not yet clear exactly what Terra’s collapse portends for Bitcoin and the broader crypto market. However, one thing is clear: “this technology is inevitable and capricious markets do not change that.”

Coleman also believes it’s time DeFi developers and teams fully accounted for their economic incentives whenever they look to launch a protocol. Some projects have exploited the “good market conditions” and “exuberance” over the past few years to not be so serious with what they build, he noted.

Can the events hurt the entire stablecoin market? Coleman thinks it’s possible but says the unfortunate scenario is “part of the growing pains” crypto has to go through.

He also says that while the present looks bleak, the future of crypto (and DeFi) is bright. And as part of that future, should be well-designed stablecoins.

Yet, “Some inventions will survive, and some will not,” he opined.

Terra’s LUNA, at -100% this past week according to data from CoinGecko, might be lucky not to count among those that could not to make it.