Bill Ackman calls for crypto self-regulation after Terra (LUNA)’s “pyramid scheme”

Rick Steves

The cryptocurrency industry is still digesting the rise and fall of network token Terra (LUNA) and stablecoin TerraUSD (UST) developed by Singapore-based Terraform Labs, led by South Korean developer Do Kwon.

Much has been said already about the project design, namely its allegedly flawed algorithm, following the sudden collapse of nearly $45 billion of market capitalisation over the course of a week.

The latest industry figure to share his thoughts on the matter is Bill Ackman, the American billionaire investor and hedge fund manager who is the founder and CEO of Pershing Square Capital Management.

Crypto version of a pyramid scheme

Ackman’s take on pyramid schemes is well known. He famously held a US$1 billion short against the nutrition company Herbalife, from 2012 to 2018, under the claim the firm is a pyramid scheme designed as a multi-level marketing firm.

Today, Bill Ackman addressed the Terra (UST) scandal and called for the digital asset industry to self-regulate in order to protect itself from future incidents, otherwise, regulators may cripple the whole ecosystem.

“When I read about the ‘algorithm’ of @terra_money it sounds just like a crypto version of a pyramid scheme. Investors were promised 20% returns backed by a token whose value is driven only by demand from new investors in the token. There is no fundamental underlying business. Luna appreciated by attracting more followers and by limiting the supply of tokens through a vesting schedule. It collapsed once the supply of sellers of Luna overwhelmed the buyers.

Self-regulate away other crypto projects with no underlying business models

“The digitization of the Luna scheme and the hype about crypto enabled it to achieve enormous scale quickly. Blockchain is a brilliant technology with enormous potential. Schemes like Luna threaten the entire crypto ecosystem. The crypto industry should self-regulate away other crypto projects with no underlying business models before crippling regulation shuts down the good and the bad. Hyping tokens that are not supported by businesses that create value will destroy the entire crypto industry”, he said on Twitter.

The price of Terra’s token, which ranked among the top 10 most valuable cryptocurrencies, has been all but wiped out in the space of a few days. The meltdown has shaken confidence in other stablecoins, and the broader cryptocurrency markets miserably collapsed.

The Terra blockchain has officially stopped mining new blocks as the network validators halted the network to come up with a plan to reconstitute the blockchain.

Founder and CEO Changpeng  Zhao tweeted that trading in LUNA has since been resumed. In explaining the reasons for Binance’s initial suspension, CZ said “An exponential amount of new LUNA was minted due to flaws in the design of the Terra protocol. Their validators have suspended their entire network, resulting in no deposits or withdrawals possible to or from any exchange.”

Binance CEO further warned that some of our users, unaware of the large amounts of newly minted LUNA outside the exchange, started to buy the token again, without understanding that as soon as deposits are allowed, the price will likely crash further.

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