The collapse of the Terra/Luna blockchain (now known as Terra Classic) is a watershed moment for the digital assets industry and warrants level-headed reflection about the future of “stablecoin” products. Given the uptick in negative sentiment, this paper dispels harmful myths about the many promising varieties of stablecoins while acknowledging the specific weaknesses of the Terra/Luna protocol and its related UST “algorithmic” stablecoin. To respond to increased scrutiny around stablecoins in the wake of UST’s collapse, we recommend policies such as Self-Regulatory Organizations (SROs), Model Risk Management (MRM) discipline, and Sarbanes-Oxley-style certification for those stablecoins secured with high-quality reserve assets. We believe that this will improve information availability and transparency and therefore reduce, if not completely eliminate, the fear of any “run“ or “contagion“ on stablecoin assets.
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