Algorithmic Stablecoins Are Not ‘Stable’ Coins: Sam Bankman-Fried

Sam Bankman-Fried, the founder and CEO of leading crypto derivatives exchange FTX, recently opined in an interview that Terra’s cataclysmic collapse is evidence that algorithmic stablecoins are not true stablecoins.

Terra Was Doomed to Fail From the Beginning

In a new interview with the Unchained Podcast host, Laura Shin, Bankman-Fried pointed out that Terra’s algorithmic stablecoin, UST, which had catalyzed the latest crypto market crash, was a walking red flag from the beginning.

He noted that the token’s relationship with Terra’s native token, LUNA, and its overall mechanism posed numerous risks, making it too volatile to be considered a stablecoin. He said, “To say that it’s volatile is an understatement. That is the kind of thing that will go down to zero, not like 20% or something like that in a crash, and that is in fact what happened.”

Bankman-Fried also hinted at the negligence of Terra’s executives and their lack of transparency about the level of risks investors face with the stablecoin.

“At the very least, such a thing should be backed by a really extreme number of disclaimers and you really have to be holding yourself to a high esteem to think that that’s the kind of thing that customers should understand… As a backdrop, Luna was always at risk of hyperinflation and it’s not what people were expecting.”

In response to Shin’s questions regarding his thoughts on algorithmic stablecoins in general, Bankman-Fried said,

“It was like a cool concept but it’s super risky and I think it’s always going to be super risky. You’re not going to escape that part of it. I just won’t think of it as a stablecoin. If you wanted it to exist, it would have to exist in such a way that it would not be branded as a stablecoin. It would have to be branded as an algorithmic weird kind of thingamajigger.”

Since the crash, Bankman-Fried has turned into a crypto white knight, rescuing struggling crypto companies affected by the debacle. Just a few weeks ago, he stated that FTX still has a few billion to support struggling firms. 

Crypto Market Stabilizes as Regulatory Activity Increases

While the wider crypto market has remained choppy over the past few weeks, Bankman-Fried says that he is starting to see some stability in the market. 

“We’re not seeing any sort of continuous outflows. We’re not seeing acute pain in the same way that we were for the week to month after Terra LUNA and the Three Arrows incident. Things are in a little of a holding pattern.”

The FTX boss added that the crypto market could see a major breakout as the industry continues to experience increased regulatory activities in recent times. Bankman-Fried believes this big breakout could take place soon.

“I think the thing that I could potentially see on the horizon that would have the biggest impact would be if we saw regulatory clarity, particularly in the United States… that’s been the biggest white whale for years, and I think we might be close.”

Earlier in September, SEC chair, Gary Gensler said that he would support the crypto regulation proposal by the Commodities Futures Trading Commission (CFTC).

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