After Terra Collapse, Ethereum’s Vitalik Buterin Demands Greater Scrutiny in DeFi Sector

Ethereum co-founder Vitalik Buterin has come out in the open criticizing the current state of the DeFi market. While analyzing the collapse of the Terra ecosystem, Buterin said that there’s no real investment in the world that can deliver 20% returns per year.

The Terra implosion has triggered a major sell-off in the crypto sector, especially in the decentralized finance (DeFi) market. The TerraUSD (UST) stablecoin lost its dollar peg very fast and reduced to zero in a matter of a week. This led to a major sell-off in LUNA wiping out over $60 billion of investors’ wealth.

Looking at the current episode, Vitalik Buterin has demanded greater scrutiny in the DeFi space. In a statement to Bloomberg, Buterin said:

The greater level of scrutiny on defi financial mechanisms, especially those that try very hard to optimize for ‘capital efficiency’, is highly welcome. The greater acknowledgment that present performance is no guarantee of future returns (or even future lack-of-total-collapse) is even more welcome.

The Ethereum co-founder also stressed evaluating the safety of the systems in their stable state. However, he added that one must monitor their performance in an extreme state or under pessimistic conditions and whether they can strongly withstand the turbulence. Buterin also cited some obstacles with automated and algorithmic stablecoins such as technical glitches.

Impact of Terra Collapse on DeFi Space

The impact of the Terra collapse has led to a major dent in the decentralized finance (DeFi) space. Bloomberg reports:

DeFi developers are dusting themselves off after Terra’s collapse halved the sector’s total value, and dampened markets aren’t going to help in convincing them that now’s the time to get back in the game.

In the last 24-hours, altcoins linked to the DeFi ecosystem have collapsed the most. Top Defi altcoins like ETH, SOL, AVAX, DOT, have corrected anywhere between 10-20%.