Vitalik Buterin Shares 'Important Lesson' To Save Yourself From Crypto Ponzi Schemes

Ethereum ETH/USD creator Vitalik Buterin cautioned his Twitter followers against investing in cryptocurrency projects that offer farfetched returns. 

What Happened: In a tweet on Wednesday, Buterin said that an “important lesson for the crypto space” was knowing that if a protocol offers a 20% annual percentage rate (APR) for staking cryptocurrency, then it is likely to be a Ponzi.

Also an important lesson for the crypto space. Way too much mental gymnastics goes into defending things that a 12 year old applying a simple unnuanced "if it offers 20% APR it's a Ponzi" rule would correctly reject every time.

— vitalik.eth (@VitalikButerin) July 27, 2022

“We can't lock out baddies with hard power, so we have to guard against them with our soft power,” said Buterin on Twitter.

Why It Matters: While not all cryptocurrency investors were in agreement, arguing that the yield offered largely depends on how the project itself functions, it is worth noting that Terra’s LUNA/USD Anchor Protocol offered investors a 20% APR.

When  the ecosystem was thriving, more than 70% of TerraUSD UST/USD holders had deposited their assets into the DeFi platform. At one point in time, Anchor had $17.15 billion worth of Total Value Locked (TVL) on its platform – something that came crashing down overnight when the algorithmic stablecoin UST lots its peg.

The Terra ecosystem’s collapse had cascading effects through the entire crypto industry. Bitcoin BTC/USD, Ethereum and the wider crypto market saw sharp declines following the event, while a number of crypto lenders and funds filed for bankruptcy.

Price Action:According to data from Benzinga Pro, at press time, BTC was trading at $22,765, up 7.32% and ETH was trading at $1,612, up 12% over 24 hours.