Billionaire Bill Ackman compared Terra’s collapse to the collapse of a pyramid scheme

What’s new? Bill Ackman, the head of Pershing Square Capital Management, compared the collapse of the Terra blockchain ecosystem to the collapse of a pyramid scheme. Ackman explained that the price of the native token LUNA was supported only by demand from new investors and the limited supply of available coins. The ecosystem of the network collapsed when the number of token sellers exceeded the number of buyers, the billionaire writes on Twitter.

When I read about the ‘algorithm’ of @terra_money it sounds just like a crypto version of a pyramid scheme. Investors were promised 20% returns backed by a token whose value is driven only by demand from new investors in the token. There is no fundamental underlying business.— Bill Ackman (@BillAckman) May 17, 2022

What else did Ackman add? In his view, the network’s algorithm and the hype around cryptocurrencies allowed Terra to reach significant heights. However, the billionaire noted that such projects threaten the entire crypto industry.

“The crypto industry should self-regulate away other crypto projects with no underlying business models before crippling regulation shuts down the good and the bad. Hyping tokens that are not supported by businesses that create value will destroy the entire crypto industry,” Ackman writes.

Who is Bill Ackman? He is an American entrepreneur and founder of Pershing Square Capital Management, a hedge fund manager. According to Forbes, Ackman has a net worth of $2,9 billion.

What happened before? The TerraUSD (UST) stablecoin rate began to decline on May 8, after losing its peg to the US dollar. The price of its backing token LUNA also fell to almost zero. As of May 19, 10:30 Moscow time, UST is trading at $0,08 and LUNA at $0,00014 (according to Binance).

On May 17, during a preliminary vote, the blockchain community did not support a proposal by Terraform Labs CEO Do Kwon to conduct a hard fork of the network. Previously, Do Kwon also proposed the idea of restoring the ecosystem by restarting the network with 1 billion tokens airdropped to LUNA and UST holders, as well as a community pool to fund future development.

Also, the Luna Foundation Guard (LFG), a non-profit organization sold $2,3 billion worth of bitcoins to support UST. The remaining funds will be used to compensate investors.

South Korean authorities called on Do Kwon to explain the reasons behind the rate collapse of LUNA and UST at a parliamentary hearing, where measures to protect investors would be developed. South Korean law firm LKB & Partners intends to file a lawsuit against Do Kwon, drawing up a class action on behalf of retail investors.