Ethereum’s Vitalik Buterin Speaks on How Terra Collapse Brings Setback to Crypto Decentralization

Vitalik Buterin, the Ethereum (ETH) co-creator has aired his opinion on the topic related to decentralization and centralization in the cryptocurrency industry, citing that decentralized projects are likely safer than the ones where governance is centered on an entity.  

Although the idea of decentralization has gained greater utilization in the industry, recent happenings have triggered concerns about some decentralized ecosystems.

In a recent interview with the New York Times, the popular crypto founder stated that the implosion of Terra in May, which was created by Do Kwon, was a huge setback to the decentralization of crypto. 

He said in response to a question asked by the interviewer, Ezra Klein; “The times when it hasn’t improved things, probably the biggest one was the Terra Luna collapse of a few months ago, which was interesting because I think there was a combination of two causes. One of them was that the mechanism behind Terra Luna was just fundamentally bad economics.”

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“Lots of smart people were saying, hey, this is fundamentally bad. And it’s basically a Ponzi and it’s going to break at some point. But then the other part of it was there was this reserve in Bitcoin. This wasn’t Bitcoin, right? And Bitcoin, the blockchain does not have this whole smart contract stuff. And so if you’re holding Bitcoin, the asset, that means there is like an actual person or institution that’s holding Bitcoin, the asset.”

“And nobody knows what the Luna Terra team were doing with Bitcoin or the asset. And they made a lot of promises. And look, they really tried hard at making these kind of very centralized efforts to manipulate the market and prop up their coin. But it ended up eventually failing, right? So I think that story is instructive because it shows like to some extent, decentralization by itself doesn’t solve every problem.”

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In particular, the idea of centering governance and security of a crypto exchange on a single entity began when top centralized exchanges like Mount Gox and Bitfinex got hacked. 

Vitalik Buterin said, “So back in 2014, the Mount Gox collapse, where Mount Gox got hacked for about $400 million, at a time when $400 million was a huge chunk of the entire crypto market cap. That was a centralized exchange that got hacked and then two years later, Bitfinex got hacked.”

The Ethereum co-founder further stated that these early incidents motivated the inventions of the many DEXes in existence today, adding that centralized intermediaries are not needed to hold things on the cryptocurrency side.

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