Terra LUNA Is Worthless, Binance Boss Reveals His Mistake

Jakarta, CNBC Indonesia – In recent times, Terra Luna’s slump has become a hot topic of discussion. Binance’s boss, Changpeng Zhao, also opened up about this and revealed the Luna team’s mistake.

Zhao admits there is no great solution and pleases everyone. There are many suggestions but all have their drawbacks.

“Unfortunately there is no great solution here that can please everyone. Many proposals are discussed in the community. Unfortunately, all have drawbacks,” Zhao wrote in website Binance official, quoted Monday (23/5/2022).

One of the design flaws he described was what he called the dumbest, namely that issuing more assets would increase the total value or market capitalization.

According to him, printing more tokens will not create value, but will actually weaken the value of crypto assets in the hands of existing holders. “Printing Luna exponentially makes matters much worse. Whoever designed this should be brain checked,” he said.

Another weakness of Luna, according to Zhao, is the incentive that is too aggressive, namely the APY (Annual Percentage Yield) remains at 20% of the Anchor to encourage growth. He said incentives can be used to attract users, but in the end need to earn return to maintain business.

However Zhao explained the concept of “return” or the earnings were messed up because the Terra Luna project team probably entered its own tokens as ‘earnings’, and it’s called flawed.

“Even though Terra has an ecosystem with several use cases, the speed of the ecosystem’s growth is not commensurate with the speed with which the incentives are used to attract new users. The growth is hollow, until the bubble bursts,” he explained.

Zhao also assessed that the Terra team was late in using the reserves to restore the crypto asset price to a target of at least US$1. This mess could have been avoided if they had used the current reserve from–peg (the difference between the token value on the market and the US dollar value) is at the level of 5%. Once the value is down 99%, trying to use $3 billion for rescue won’t work.

In the post, Zhao also revealed how to avoid this risk in the future. Here are the tips:

1. As an investor, diversify your portfolio. Don’t keep your entire savings in one coin as it offers high APY.

2. Stay away from super high APY investments, as they hardly last long. High APY = high risk.

3. Most importantly educate yourself. Learn about financial literacy every day.

[Gambas:Video CNBC]