Sunday, December 4, 2022

Sam Bankman-Fried: UST crash was ‘predictable’

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Sam Bankman-Fried, entrepreneur, founder and CEO of FTX crypto exchange, tweeted that the crash of Terra’s UST and LUNA was ‘predictable’, generating a Twitter thread that has since gone viral. He said:  

A good point someone brought up recently: ‘Stablecoin’ is used to mean multiple different things. Just as the outside view skeptics predicted, during a large market move a stablecoin blew out.  Just not the stablecoin they predicted. Which was predictable, if you knew the details. This isn’t a comment about good vs bad–it’s about how important it is to know the details! 

SBF’s take on algorithmic stablecoins before the crash

In a Bloomberg interview with Joe Weisenthal, co-host of the Odd Lots podcast, SBF was asked about his take on the rise of algorithmic, partially-backed stablecoins. Weisenthal inquired:

One of the most interesting phenomenon happening right now is the rise of Luna and UST. Luna has this Treasury Reserve consisting of a lot of Bitcoin, which seems a little dicey, but some people say any idea of an algorithmically-backed stablecoin is a perpetual motion machine – it’s only a matter of time before it fails. Do you believe there can be a truly decentralized stablecoin? What do you make of these projects?

SBF: 

I do have some sympathy to the perpetual motion machine crowd here. They can serve some useful purposes, but if you do zoom out, right, and you say, this is a stablecoin, backed by volatile assets, what’s gonna happen in a big market move. Right? Like, you know how this plays out.

The screenshot of this exchange, posted on Twitter, attracted all kinds of comments. Here is one seemingly reasonable suggestion:  

Has someone thought of minting a decentralized stablecoin backed by a basket of tokens tied to commodities and securities? If it were done right, it might be less volatile than a stablecoin backed by Bitcoin.



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