At Finance Forward, fintech couldn’t avoid talking about Terra

Quick Take

  • At the Finance Foward Conference in Hamburg, Germany last week, fintech founders and CEOs waded into the fallout from the Terra blockchain collapse. 
  • While some were openly critical of UST, the algorithmic stablecoin on the Terra blockchain, others took a more cautiously optimistic approach saying it could foster innovation. 

At fintech conferences, payment firms, lenders, and neobanks often take center stage over their counterparts in crypto. 

But at Finance Foward in Hamburg last week, a conference set up by the eponymous German fintech publication, the fallout from the collapse of the stablecoin UST hung in the air. 

Just a week before the conference, the price of Luna (LUNA) and its related algorithmic stablecoin UST went into freefall as the latter de-pegged from its target price of $1. This led to its native blockchain, Terra, halting operations twice and early investors like Binance losing much of their gains — or worse, sustaining heavy losses. 

During a fireside chat, Binance CEO Changpeng Zhao acknowledged that the event is a calamity for the crypto industry, noting that many people suffered financial losses. 

“Having shocks like this is a strong reminder for people to learn about real projects, don’t chase high incentives, and understand that new projects are very risky,” he said. “Stablecoins should be scrutinized and we should look into more about what is backing them.” 

Conversations that The Block had on the ground with fintech founders exploring crypto products for the first time, however, suggest that opinions remain divided on algorithmic stablecoins.

Kristina Walcker-Mayer, CEO of Nuri, a neobank with a crypto wallet that boasts close to 500,000 users, believes that the UST crash will help foster innovation, noting that the early days of the internet were also tumultuous. 

“Everyone who probably had a stake in [Luna] is already a first mover and should probably be aware of the risk,” she said. “I would never say that there’ll never be an algorithmic stablecoin — we’ll see how innovation moves forward and what the new concepts coming that’ll take into consideration the mistakes that were made.” 

The neobank is currently readying a savings account on DeFi rails, which it says will be the first of its kind to be regulated by BaFin, the German regulatory body. 

Erik Pondzuweit founder and CEO of Scalable Capital, a neobroker and robo-advisor that added crypto exposure late last year, was outwardly critical, however. 

“I don’t believe in algorithmic stablecoins,” he said. “We’ve seen this before with constant proportion portfolio insurance (CPPI) in the traditional finance world,  they’re stable until they’re not anymore.” 

Instead, Pondzuweit favors those that are backed by dollar reserves such as USDC and USDT and says that the company is looking at a DeFi product using such a stablecoin for yield generation. 

Bitpanda CEO Eric Demuth was similarly critical, saying that he is personally skeptical about new projects with huge incentives such as Terra and Anchor Protocol, which at one time advertised interest rates of 20%. Instead, he favors investment in the most well-known cryptocurrencies such as BTC and ETH. 

“I personally never really invested in [Luna],” he said, likening it to the overly-hyped altcoins that eventually dropped in value. “And I don’t really get the algorithmic stablecoin, which is not really a stablecoin as it’s not privately backed.” 

The trading platform, however, continues to offer Luna on its platform with a staking option and currently has no plans to remove it. Demuth says that they are waiting it out to see how the token adapts in the coming months.

”It’s not a huge scam or something where you have to remove it,” he said. “It’s just a system that failed.” 

This differs from other fintech firms such as Revolut, which removed the wrapped version of Luna from its crypto offerings due to compliance issues according to founder Nik Storonsky. 

Every fintech founder that The Block spoke to, however, says that the effect on the market is a momentary stutter rather than a sign of the collapse of an entire industry. 

“I think people are more resilient in the crypto market than they are in the normal stock market,” said Scalable’s Pondzuweit. “It took over ten years for tech stocks to bounce back from the crash, but in the cryptocurrency world people stay with their investments.” 

Founder of banking-as-a-service fintech Solarisbank Roland Folz says that they’ll only start offering algorithmic stablecoins on the platform if one has the potential for mass adoption. 

“I’m old enough to have pretty much-seen everything,” said Folz. “But I'm young enough to be really excited about any of these future projects. Some of them will work out. Probably the majority won't.” 

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