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Was Terra (LUNA) A Pyramid Scheme? Here's What Bill Ackman Says

The collapse of cryptocurrency Terra has been one of the most talked-about topics in the crypto world over the past few weeks. A famous hedge fund manager weighed in with his take on the situation and offered up a harsh comparison.

What Happened: Blockchain protocol Terra has a token called Terra (CRYPTO: LUNA) and a stablecoin called TerraUSD (CRYPTO: UST). The two assets are linked together with users able to stake their tokens for liquidity. The stablecoin is backed by the cryptocurrency and both ultimately fell sharply recently.

Hedge fund manager Bill Ackman, who leads Pershing Square Capital Management, took to Twitter Inc (NYSE:TWTR) on Tuesday to share his thoughts about Terra.

“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 underlying business,” Ackman tweeted.

The connection between the two assets being linked together led to the huge collapse, with most stablecoins pegged to the U.S. dollar to prevent what happened from happening.

“It collapsed once the supply of sellers of Luna overwhelmed the buyers.”

Ackman linked to a Bloomberg Law story that he said explained what happened as well.

Related Link: Is Terra (LUNA) Dead? 

Why It’s Important: The collapse of Terra sent the price of other large cryptocurrencies down along with it including Bitcoin (CRYPTO: BTC), which hit prices last seen in July 2021.

“Blockchain is a brilliant technology with enormous potential. Schemes like Luna threaten the entire crypto ecosystem,” Ackman said.

Ackman calls for self-regulation by the cryptocurrency industry to prevent things like this from happening in the future and to eliminate crypto projects with “no underlying business models.”

Otherwise, Ackman said that regulation could shut down the good and bad elements of the blockchain.

“Hyping tokens that are not supported by businesses that create value will destroy the entire crypto industry.”

Ackman is one of many who have spoken out about Terra and how the collapse is harming the overall crypto market. The promised gains from the token could have predicted the potential negatives of Terra and the TerraUSD stablecoin.

LUNA Price Action: Terra is trading at $0.0001732 Wednesday morning after trading as high as $119.18 over the past year.

Photo: Eugene Tkachenko on Unsplash