• Ethereum’s Vitalik Buterin has emphasized the importance of double-checking DeFi systems before making investments.
• The programmer notes that a project’s current success does not automatically mean secure future returns on its investment.

Following the Terra (LUNA) catastrophe, Ethereum co-founder Vitalik Buterin has criticized the decentralized finance (DeFi) industry. Referencing Terra’s collapse, the programmer said the industry is deficient and no real investments offer 20 percent annual returns.

The Terra fiasco has triggered a crypto blood bath, having instilled fear and uncertainty in many investors’ hearts. Terra investors saw losses of more than $60 billion. Meanwhile, the rest of the crypto sector has seen a similarly harsh slash. Bitcoin (BTC) itself trades at $28,799, while major altcoins like Ethereum (ETH), Cardano (ADA), and Solana (SOL) see 24-hour losses spanning 9-12 percent.

Speaking to Bloomberg, Buterin called for a “greater level of scrutiny” in the DeFi sector. Projects that need this the most, he says, are “those that try very hard to optimize ‘capital efficiency.’”

Learn from Terra and stay away from algorithmic stablecoins: Buterin

Even more, he stressed that acknowledging the industry’s faults is just as crucial. Here, he notes that present success does not guarantee good returns in the future. The same also goes for a project’s stability: good performance is not a promise of a “lack-of-total collapse.”

As a precautionary measure, Buterin urged all to counter-check systems’ performance in both their stable and extreme states. Conditions such as pessimism among investors bring out the resilience of a project in the face of adversity. After all, it is the stormy days that determine the real strength of a structure.

Other than Terra, another failed crypto project that began on a high note is EOS. The network raised over $4B in its initial coin offering (ICO) – the largest yet in crypto’s history. However, challenges soon came in the way of alleged wash trading and slow developments. In the latest update, the EOS community sued EOS founding company Block.one, seeking $4.1B in damages.

In relation to the stablecoin UST, Buterin warned of technical glitches associated with automated or algorithmic stablecoins. Here, stablecoins such as Tether (USDT) and USDC have rushed to distance themselves from UST after its dramatic down spiral. 

Revival attempts

In the early hours of UST’s de-pegging from the dollar, traders exploited discrepancies in LUNA price feeds. The result was staggering losses for DeFi projects. Venus protocol, for instance, lost a whopping $11 million.

Terra’s community passed a proposal for the launch of a completely new blockchain – Terra 2.0. The network will be “fully community-owned,” doing away with the Terraform Labs (TFL) and Terra founder Do Kwon. The new blockchain’s future performance remains to be seen, with its reputation in the mud and investors still recovering.