If you ask Binance CEO Changpeng “CZ” Zhao, Do Kwon, the founder of Terra (LUNA), might have been right about his idea for an algorithmic stablecoin. We all know what eventually happened to Terra’s stablecoin, terrausd (UST), which imploded spectacularly in May 2022. However, according to CZ, the biggest risk to fiat-backed stablecoins is the banks.
Banks are a risk to fiat-backed stablecoins.
— CZ 🔶 Binance (@cz_binance) March 12, 2023
CZ over Terra and USDC
With his statement, Chanpeng Zhao refers to the problems surrounding Circle’s USD Coin (USDC). It was announced this week that Circle was in a hurry to raise about $40 billion in capital from beleaguered Silicon Valley Bank (SVB). It succeeded for the most part, but there is still $ 3.3 billion tied up with the American bank and that may well herald the end of USDC.
Do Kwon actually had the right idea, but just failed miserably on execution.
— CZ 🔶 Binance (@cz_binance) March 12, 2023
In response to Binance CEO’s tweet, a user called for crypto-backed stablecoins. To which Changpeng Zhao responded that Do Kwon had the right idea, but that he failed miserably in its implementation.
Not everyone agreed with that statement. For example, RyanLion says that in his opinion the whole idea of Terra’s stablecoin was flawed and that it had very little to do with the execution. “Building a $60 billion ecosystem doesn’t sound like failure to me. The flaw was that it was unsustainable and that it contained weaknesses that should have been eliminated in the early stages.” thus RyanLion.
Difficult situation for crypto and banks
The whole situation surrounding the floundering banking sector in the United States mainly shows that bitcoin (BTC) can be a very important asset. Where you can never be sure at the bank that you can always withdraw your credit, that problem does not apply to bitcoin. That is what Satoshi Nakamoto once invented bitcoin for.
In that sense, you can see bitcoin as a kind of stablecoin. Perhaps not based on the daily price, which can be extremely volatile, but in terms of the asset itself. Events like this prove that a stable asset, which you can always rely on, is much more important than a currency that is artificially held at a certain value.
Throughout the entire history of crypto, there has never been complete certainty about the safety of the so-called stablecoins. Anyone who parks a significant portion of their wealth in stablecoins will always have felt a little bit of fear about the scenario now threatening to unfold with USDC.