FTX CEO Sam Bankman-Fried Predicted The Downfall Of Terra (Luna): What Investors Need To Know

The tipping point for the crypto markets was the collapse of TerraUSD UST/USD. This stablecoin was supposed to remain at $1, however, Terra lost its peg to the U.S. dollar and fell sharply, bringing the rest of the crypto market down with it. 

Sam Bankman-Fried, founder and CEO of cryptocurrency exchange FTX, forecasted the downfall, although he didn't correctly calculate the magnitude of the collapse, he said Thursday during a presentation at Piper Sandler's "Global Exchange & Brokerage Conference."

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"I knew that there was going to be a potential problem. I didn't necessarily know it was going to end this badly," Bankman-Fried said.

What To Know: He suggested that stablecoin did not aptly describe Terra. A stablecoin is designed to be stable, he said.

"The cleanest example is there should be a bank account with as many dollars as there are tokens in circulation," the FTX CEO said.

The other defining feature of stablecoins is transparency, he said, adding people should know exactly what they are buying.

"But what it definitely shouldn't be ... is something with a volatile cryptocurrency backing it," Bankman-Fried said.

He explained users could acquire TerraUSD by burning $1 worth of the Terra LUNA/USD token, which would then allow an individual to mint one TerraUSD. 

"So what was actually backing the 20 billion UST that were in circulation was the ability of the market to bear a lot of new minting of Luna tokens and pay up for them. And that's a volatile thing," Bankman-Fried said.

"There's sort of an interesting economic dynamic between these two tokens. Call it what you want, but stable is not the right word."

See Also: Is Terra (Luna) Dead?

Photo: Screenshot of FTX video via YouTube