Vitalik Buterin urges Terra to prioritise compensation for small investors

The plan to reimburse funds lost in the collapse of the Terra project should prioritise small investors. This opinion was voiced by Ethereum co-founder Vitalik Buterin.

Strongly support this. Coordinated sympathy and relief for the average UST smallholder who got told something dumb about \”20% interest rates on the US dollar\” by an influencer, personal responsibility and SFYL for the wealthy. https://t.co/YfNlpvAizg

— vitalik.eth (@VitalikButerin) May 14, 2022

On May 8, the algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar. This occurred amid asset outflows from the Anchor protocol due to a drop in deposit yields to 17.87%.

On May 10, the asset’s price fell below $0.62. The decline continued on May 11, after which the cryptocurrency used to mint UST, LUNA, collapsed to $0.30. As of writing, UST trades around $0.136, and LUNA at $0.0002 (CoinGecko).

Buterin supported the idea from a Twitter user named PersianCapital to compensate investors. The latter noted that 1,000 Anchor wallets (out of about 256,000 in total) hold 82% of the entire UST supply. The poorest of these addresses holds about 955,000 UST.

PersianCapital noted that on Terra’s official forum there is discussion of using a $1.5 billion reserve fund to restore users’ funds. A full compensation for all investors would not be enough. However, if focus is on the 99.6% of the \”poorest\” wallets, this would allow them to recover all losses, PersianCapital said.

\u201CI strongly support this. Coordinated sympathy and relief for the average and small UST holders who were told something foolish about \u201c20% interest rates on the US dollar\u201d by an influencer. For the wealthy — personal responsibility and SFYL for the losses,\u201D wrote Ethereum co-founder Vitalik Buterin.

In line with this, Buterin noted that a similar approach to compensation is implemented in the U.S. Federal Deposit Insurance Corporation (FDIC) system. In the event of bank failures, 100% compensation is guaranteed for deposits up to $250,000.

\u201CNot directly related, but Singaporean labour law is interesting: greater protection for low-paid workers and a stricter approach to the wealthy. In my view, such measures are good hybrid recipes,\u201D he added.

Earlier, CEO and co-founder Do Kwon presented a plan to resolve the situation around UST and LUNA.

The Binance head Changpeng Zhao criticised the Terra community’s idea of conducting a hard fork with the release of a new token.