After eight consecutive weeks of burning red candles, signs of recovery are beginning to appear.
Bitcoin prices soared 7.8% last week. XRP is up 3.1%, Cardano is up 27.4% and Dogecoin is up 3.5%. Meanwhile, Ethereum and BNB prices have fallen by a few basis points.Solana
But this sparkle of hope may be the calm before the storm.
Last Wednesday, Ethereum co-founder Vitalik Buterin talked about the collapse of Terra’s UST.
In an essay entitled “Two Thoughts to Evaluate Automatic Stablecoin,” Buterin states that many crypto assets are built with the expectation of irrational and harmful continuous and infinite growth. Suggested.
As an example, Buterin proposed a thought experiment related to the algorithm Stablecoin. He proposes a fictitious stablecoin that consistently tracks indexes that generate 20% annual revenue.
“Beyond the crazy hypothesis of building stablecoin to track the Pongee index, stablecoin must somehow be able to handle situations where the demand for holdings exceeds the demand for borrowing, even at zero interest rates. No, “he writes. “Otherwise, prices will exceed the pegs and Stablecoin will be vulnerable to totally unpredictable bidirectional price fluctuations.”
“So what happens when the expected future activity drops to near zero,” he asks. “Market capitalization of Volcoin [a volatile coin used to counteract changes in a stablecoin’s price] It drops until it is much smaller than Stablecoin. At that point, the system becomes very vulnerable. Only a slight downward shock to the demand for stablecoin can lead to a targeting mechanism that prints large volumes of volcoins. This causes Volcoin to over-expand, at which point Stablecoin loses its value. “”
In other words, ironically, such stablecoins are not stable. If they are not growing, they are dying for the most part.
[Ed note: Investing in crypto is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Buterin’s essay is a reaction to Terra’s collapse of UST Stablecoin earlier this month. As I wrote last week, it was the biggest cryptocurrency crash ever that wiped out about $ 40 billion in capital.
To prevent this from happening in the future, developers and investors are strongly encouraged to “break away from the willingness to rely on unlimited growth to ensure safety.”
Buterin said investors “evaluate the safety of the system by looking at steady-state, and even pessimistic fare conditions under extreme conditions, and ultimately whether it can be safely stopped.” Suggests.
He said that developers should expect infinite growth, but relying on it can make Stablecoin fragile, saying, “Steady state and extreme health are always our first. It must be one of the things to check. “
The end of Terra reveals that many cryptocurrencies and their derivatives, like the Ponzi scheme, rely on unsustainable growth-very much in the event of a sudden or persistent recession. Make it vulnerable.
Therefore, more implosion may occur in the future unless investors quickly regain their risk cravings. This is a good thing. Think of it as a “detox diet” that cleanses the market for dangerous and unsustainable assets.
As Elon Musk said, the market “has been raining money on fools for a long time.”
Anticipate crypto trends On the other hand, in the market …
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