The crypto market is still yet to recover from the menace of the Terra and FTX implosions. The two devastating crises took the industry by storm in 2022, leaving millions of investors in dilemma. Notably, the fact that these issues unfolded within the same year really hit the industry very hard, plummeting the largest crypto by market cap, Bitcoin to its lowest low and sending several vulnerable firms into extinction. Today, some of the firms with exposure to FTX or Terra are gone while a few others are still battling to keep their businesses alive.
Side Notes on Terra and FTX implosions
The Terra crisis was the first to hit the crypto town in 2022. Notably, the issue began to surface on May 7, 2022, after Curve Whale raised an alarm that 85 million UST was swapped for 84.5 million USDC. This revelation compelled LUNA to a 10% dip, which in turn, allowed UST to lose its peg. Shortly after, a separate report confirmed the unstaking of about $2 billion worth of UST from Anchor Protocol. Therefore, the stablecoin struggled. Its inability to regain the peg propelled investors to engage in a massive selloff. Without any doubt, the issue started to deteriorate, forcing Do Kwon and his team to halt the Terra blockchain. Eventually, the crisis wiped out not less than $40 billion in investment from the project.
Barely seven months after the Terra crisis plunged the crypto industry into a bear market, the FTX tsunami came knocking. The fallout complicated the downturn in the market. We can trace the genesis of the crisis to a report that exposed $8 billion in the balance sheet of Alameda Research. It is worthy of note that Alameda is the sister company of FTX. Both firms were established by Sam Bankman-fried.
Therefore, the report said Alameda Research tied billions of FTX’s FTT as collateral for its loans. Occasioned by this revelation, Binance resolved to liquidate its FTT holdings, worth $580 million at that time. Unfortunately, the liquidation resulted in the plummet of the token, thereby plunging FTX into a full-blown crisis. The implication of this crisis on the crypto market cannot be overestimated. However, both projects are trying to rebuild their lost reputation again by starting from the scratch. Should they still be trusted?
Do Terra and FTX deserve a second chance?
To a noticeable level, a second chance for both Terra and FTX will be to the benefit of investors. Emphasis on how affected users can be duly compensated underlines why the two projects deserve another opportunity. With affected investors at the losing end of their meltdown, rejuvenating the projects will provide an avenue for users to recover their losses. While considering the good sides of a possible relaunch, it is important to also consider the impact of their respective rebirth on the virtual assets market.
The opportunity to restore the old glories of the FTX and Terra projects is like a herculean task. How Terra 2.0 is struggling to maintain a balance indicates why the two projects may not get another chance. Furthermore, the process of regaining investors’ trust and confidence in the two projects is indeed a tough and challenging one. This is due to the severity of the financial losses and damaged reputation. To an extent, the collapse of the two projects affected individual and institutional investors, triggering a massive downturn in the price of virtual assets.
Due to that, investors will obviously have second thoughts before committing to any of the two projects. Considering the stringency of their collapse, it will require a transparent and consistent effort from a new leadership to resuscitate hope for a new beginning. With strategic roadmaps, rebranding, and due compensation for affected users both Terra and FTX can stand a second chance. Nevertheless, their damaged reputation could also set a precedent for bad actors. With such precedence, bad actors could easily inflict their predatory attacks with the hope of finding another pathway for a second chance.
FTX and Terra deserve “no second chance.” Instead, those with good faith behind their respective relaunching should focus on rewarding the affected users. With such focus, every affected user will regain a substantial part of their funds. Thus, igniting full confidence in investors about the good level of accountability in the crypto landscape. Likewise, such an effort will indicate a warning sign to bad actors to stay clear of the virtual assets industry.