Terra's catastrophic collapse was the result of the downward pressure on reserve assets coupled with UST withdrawals. That's what Mike Novogratz, the CEO of Galaxy Digital, told shareholders and partners in a special letter.
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Novogratz wrote that a series of consequences triggered a stress scenario akin to a "run on the bank," and UST's reserves weren't prepared to prevent the collapse. He added:
"With hindsight things always look clearer. My tattoo will be a constant reminder that venture investing requires humility."
For Galaxy Digital, Terra's spectacular downfall was palpable as the venture firm is reportedly preparing for a loss of $300 million in net comprehensive income this quarter. Although Novogratz reassured that the firm remains in a "strong capital and liquidity position," he admitted that the collapse "dented confidence in crypto and DeFi."
The move comes after terraUSD (UST), an algorithmic stablecoin on the Terra blockchain, de-pegged from the US dollar, dropping to $0.15. Amid price fluctuations, Terraform Labs, the company behind Terra, several times suspended block generation to prevent governance attacks following severe LUNA inflation.
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