$50 billion burned – Liberation

The cryptocurrency sector has experienced a major earthquake this week: two cryptocurrencies, Terra (although they were supposed to be pegged to the dollar) and Luna, lost most of their capitalization. Clouds gather around the ecosystem.

This week, two cryptocurrencies spun, the cost of one of them even fell to zero. Cryptocurrency, unlike stocks, as a rule, does not have an underlying asset (for example, company shares). Unlike traditional currency, it is also unsuitable for everyday transactions. El Salvador recently tried to make the cryptocurrency the national currency, but the experiment failed. In general, the cryptocurrency has no other use than speculation and depends solely on the trust of its holders in it and their belief that they will get rich quick. If this confidence is completely dissipated, its value will tend to zero. This happened with Luna, whose capitalization at the beginning of May was about $40 billion.

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A stablecoin is a special type of cryptocurrency. It is assumed that its value does not fluctuate at all (or hardly fluctuates) against the base currency (usually the dollar). Arbitration mechanisms must return it to its original course every time. A stablecoin usually serves as a reference currency for transactions with other cryptocurrencies. If the crypto market displays values ​​in dollars, in reality, transactions are most of the time between a stablecoin (which should be worth a dollar) and a cryptocurrency. Typically, stablecoin managers must have a dollar equivalent of all issued stablecoins: if all investors wanted to convert their stablecoins into dollars, there would have to be enough dollars to redeem them. This is far from the case, as evidenced by the fall of Terra, a Luna-related stablecoin that has lost nearly 90% of its value. Although it has been pegged to the dollar throughout its existence so far, it was worth about 12 cents on Friday. There, ten billion capitalizations evaporated.

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In the crypto market, Terra was the third largest stablecoin. The most important of these is Tether, which should also be worth a dollar. It is used for transactions in major cryptocurrencies (Bitcoin, Ethereum). A failure in Tether could cripple, or at least lead to great difficulty, the entire crypto ecosystem. However, Terra’s case showed the building’s fragility. Question Financial Times about the composition of their portfolio of counterparties that were supposed to protect it from such a fall, Tether managers refused to disclose it, stating that “Trade secret” (secret sauce). Knowing that Bitcoin has already lost 56% of its capitalization (i.e. $1,000 billion) in the past six months, an event of this nature is unlikely to restore investor confidence.

The discrediting of cryptocurrencies and their underlying blockchain technology is not only from a financial point of view: they are also causing growing hatred from a large number of researchers and developers in the field of computer science. Computer science professor Jorge Stolfi gained notoriety when he tweeted last week that “Cryptocurrencies are completely non-working payment systems, and “blockchain technology” […] is a technological scam.”

Many other experts have followed suit, pointing out that the ecosystem is not innovative, has led to an astronomical waste of resources, and has in fact only served to create a new form of deregulated finance. Historical foundations such as Mozilla or Wikimedia (respectively operating Firefox and Wikipedia), for their part, have decided to refuse any donations in cryptocurrency. The founder of Python, one of the most widely used computer languages, expressed the wish that “Web 3” (all technologies related to cryptography and blockchain).die in a fireball».

In fact, the performance of the cryptocurrency ecosystem seems to be largely sub-optimal, both in terms of its (bottomless) power consumption and its serious security flaws. Many fraudulent activities have been rampant in this sector, usually with irreversible consequences: the basic principle behind cryptography, “The code is the law” in other words, the code (computer program) acts like a law. If a crypto wallet is hacked due to a security hole, there is usually no way to seek help. Many players took advantage of the lack of rules in this sector for all sorts of manipulations in the market.

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