Changpeng Zhao questions Terra hard fork viability

A Terra blockchain hard fork, with a rollback to the moment before the collapse of LUNA and UST, will not work, because the new chain would have no value. This was stated by Changpeng Zhao, head of the cryptocurrency exchange Binance.

Personal opinion. NFA.

This won’t work.
— forking does not give the new fork any value. That’s wishful thinking.
— one cannot void all transactions after an old snapshot, both on-chain and off-chain (exchanges).

Where is all the BTC that was supposed to be used as reserves? https://t.co/9pvLOTlCYf

— CZ 🔶 Binance (@cz_binance) May 14, 2022

After Terra’s ecosystem collapse, the project’s community proposed a hard fork and the issuance of a new token. The distribution of the latter could be conducted according to the network snapshot taken before the market crash.

The initiative also envisions a new governance mechanism for the blockchain and the creation of a pool to redeem the algorithmic stablecoin UST.

“A fork won’t give the new chain any value. It’s wishful thinking. You can’t void all transactions after an old snapshot, both on-chain and off-chain (exchanges),” Zhao wrote.

The head of Binance questioned the use of Bitcoin reserve at the Luna Foundation Guard (LFG). According to him, the assets should have been used to redeem UST, but they were not.

According to analytics firm Elliptic, LFG had about $3.5 billion in BTC. When the algorithmic stablecoin lost its peg to the US dollar, these funds were moved to Binance and Gemini platforms, complicating further tracing of transactions.

Following the collapse of Terra’s UST stablecoin, we trace the $3.5 billion in bitcoin held in reserve to help prevent exactly such an outcomehttps://t.co/rTvpB7PLQn

— elliptic (@elliptic) May 13, 2022

“Bitcoin reserves were quickly moved to two cryptocurrency exchanges, but it is unclear whether they were sold, moved to other wallets, or remained on the platforms,” the analysts wrote.

The Block analyst Larry Cermak wrote on Twitter that Zhao pays a lot of attention to LUNA, because in 2019 Binance led the seed round for Terraform Labs, and also invested $300 million in the company in 2021.

The head of Binance refuted this information, after which Cermak deleted the tweet.

According to Zhao, Binance did not participate in the second round of Terraform Labs funding. The head of the company explained that he was simply “pointing out potential problems” in the ecosystem.

3/ Binance did not participate in the 2nd round of Luna’s fund raising nor did we acquire any UST.

Binance Labs invested $3m USD in Terra (the layer 0 blockchain) in 2018. UST came much later after our initial investment.

— CZ 🔶 Binance (@cz_binance) May 15, 2022

“Coin issuance and forks do not create value. Buybacks and burning do that, but they require funding—funding that the project team may not have. […] I am not always right, but my position is this: failures happen. But when this happens, transparency, rapid communication with the community, and accountability to it are extremely important,” he wrote.

Earlier, Zhao said that he was “disappointed” by the Terra ecosystem team. In his view, the developers endangered investors and did not take responsibility.