TerraUSD’s ‘Death Spiral’ Is Raising Alarms About Investor Protection

This week’s implosion of TerraUSD is once again shaking confidence in crypto markets, and raising alarms about investor protection.

Crypto insiders say they saw this coming. TerraUSD, or UST, is supposed to be a stablecoin — a type of cryptocurrency meant to be pegged to a stable asset — that should not fluctuate in price. UST was pegged to the dollar. To maintain their pegs, custodial stablecoins are backed by reserves like dollars, U.S. Treasury bonds or other traditional assets. UST, though, is based on an algorithm that encourages traders to maintain its value. But a big sell-off in Luna, a sister currency linked to UST, plunged UST yesterday to a low of 23 cents.

  • “Everyone knows that these algorithmic stablecoins aren’t safe,” said Ethan Buchman, a founder of Cosmos, a hub for blockchains, including Terra’s. “They have these downside dynamics. People call it ‘the death spiral.’”

Even Terra’s founder, Do Kwon, in a message to the “Terra Community” yesterday, pointed to an explanation of Luna “tokenomics” from a person who laid out a “death spiral” scenario in March, and suggested UST was vulnerable. “I understand the last 72 hours have been extremely tough on all of you – know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this,” Kwon tweeted.

There are signs that even more standard stablecoins are wobbly, too. Tether, or USDT, which is ostensibly backed by stable assets but has run into trouble over claims about its reserves, dropped to 96 cents overnight. This morning, Tether announced that it was performing a $1 billion “chain swap” with an undisclosed third party.

Investors have already lost billions. “For everyone panicking, here are some National helpline numbers,” the moderators of a Reddit Terra community wrote. Below that were posts from people who said their savings had been wiped out.

Will Washington act? Treasury Secretary Janet Yellen called for stablecoin rules, citing the Terra meltdown. And some industry insiders agree. “What’s happened with UST isn’t surprising and lends a sense of urgency for Congress to act decisively to set clear rules of the road for stablecoin issuers,” Jeremy Allaire, a founder and C.E.O. of Circle, which issues a reserves-backed stablecoin, told DealBook.

Senator Pat Toomey of Pennsylvania, a crypto champion and a ranking member of the banking committee who is drafting stablecoin legislation, said he also hoped Congress would act fast. But he added that he did not believe that algorithmic stablecoins, like UST, needed regulation because they are not tied to assets like cash, held in banks. “It does not seem to me that this introduces systemic risk,” he said. As for those who lost money, Toomey said, “It should be up to consumers — and by the way, failure should be an option.”

The S.E.C. is reportedly investigating Elon Musk’s belated disclosure of his Twitter stake. Regulators are said to be looking at Musk’s delayed submission last month of a form investors must file when they buy more than 5 percent of a company’s shares. The late disclosure allowed him to buy more stock without other shareholders knowing about his stake.

Disney+ adds more subscribers than expected. New releases like Pixar’s “Turning Red” helped the service surpass analyst estimates and add 7.9 million subscribers in the first quarter. Netflix said recently that it had lost 200,000 subscribers in the first three months of the year and that it expected to lose two million more this quarter.

SoftBank’s funds post a $27 billion loss for the year on plunging tech investments. Many of the major tech companies it invests in have struggled amid rising inflation and Covid lockdowns in China. The losses came just a year after SoftBank announced it had earned more money in one quarter than any Japanese company in history.

Families of the victims of the Surfside condo collapse reach a $997 million settlement. The settlement, which is pending final approval, includes insurance companies, developers of an adjacent building and other defendants in the extensive civil case. It comes weeks before the first anniversary of the deadly tragedy.

Saudi Aramco becomes the world’s most valuable company, surpassing Apple. As tech stocks lost value in recent days, the state-backed energy group Saudi Aramco, the world’s biggest crude exporter, took the top spot, lifted by rallying oil prices. Apple’s share price yesterday was at its lowest since November, with supply shortages and lockdowns in China weighing on the company’s outlook.

The Senate’s confirmation yesterday of Alvaro Bedoya, a Biden appointee, gives the Federal Trade Commission a Democratic majority, and with it more authority to the agency’s chair, Lina Khan. She is likely to pursue an aggressive effort to limit corporate power, write The Times’s David McCabe and Cecilia Kang.

Amazon could be a top target for Khan and her new commissioner. Khan, who wrote a student law review article in 2017 criticizing the company’s dominance, may now have the ability to pursue a legal case against the company. The agency had already considered blocking Amazon’s recent $8.5 billion ​​purchase of the movie studio Metro-Goldwyn-Mayer, but the vote to do so split along party lines and the merger was allowed to go through.

Apple, Alphabet, Meta and other large tech companies are also probably in Khan’s cross hairs. Khan and another top antitrust official, Jonathan Kanter at the Justice Department, have indicated they wanted to rewrite the merger guidelines. Antitrust regulators have traditionally stepped in only when they see the potential for consumer prices to rise unfairly. That yardstick looks outdated in the context of the modern tech industry, most notably free services like Google and Facebook.

President Biden last year encouraged federal agencies, including the F.T.C., to more closely scrutinize the tech industry. The president has also said he believes noncompete agreements, which employers have used to limit their workers’ ability to quit for better jobs, in all industries are a type of monopoly power.

Even with a Democratic majority, Khan faces challenges. The creation of privacy regulations, for instance, could take years, said Daniel Kaufman, a former deputy head of the agency’s consumer protection bureau. Businesses are likely to challenge rules in court that don’t fit into the F.T.C.’s mandate to protect consumers from deceptive and unfair practices. “The F.T.C.’s rule-making abilities are not designed to tackle behavioral advertising,” said Kaufman, who is a partner at the law firm BakerHostetler. “So I’ve been telling my clients the agency could kick something off with a lot of press, but it’s unclear where it will go.”

— Google’s marketing slogan for its new hardware products. At a conference yesterday, the company’s vision of the future seemed less wondrous and more pragmatic. Executives used the words “help,” “helping” or “helpful” more than 50 times in two hours.

In the race to dominate the electric vehicle market, General Motors is falling further and further behind.

Yesterday, Rivian, the electric vehicle start-up backed by Amazon and Ford, announced that it had produced 5,000 E.V.s and was on track to meet its production goal of 25,000 by the end of the year. It’s the latest E.V. maker to announce rising production numbers this year. Tesla, the E.V. leader, sold more than 300,000 E.V.s worldwide in the first quarter. Ford has started production of an electric F-150 pickup, and it already has orders for 200,000 of them.

G.M. is the big laggard. The largest U.S.-based car manufacturer sold fewer than 500 E.V.s in the first quarter. Last year, G.M. announced a big bet on electric vehicles, saying it planned to phase out production of gas-powered cars by 2035. The company said the shift, along with some other moves, could start to bolster its revenue by 2030. But G.M. is taking longer than its rivals to get production up and running.

Mary Barra, G.M.’s chief executive, says it is playing the long game. In a new interview, Barra tells The Times’s Neal Boudette that she’s not worried about her company’s back-of-the-pack performance. One reason for the delays is because G.M., unlike rivals, is building a modular battery that can fit into its future vehicles, from compact cars to four-door pickups. It has been in the works for five years, but none of the company’s four proposed battery-making facilities have begun production yet. One is scheduled to start later this year.

The big equalizer is cost. Barra says G.M.’s modular batteries will allow it to not only ramp up production faster (eventually), but also to bring down the cost of production, which she says is key to selling more E.V.s. Lower prices, she says, will allow G.M. to quickly move ahead of competitors in just a few years. Some analysts are skeptical about how much cost advantage G.M. will have, and question its plan to sacrifice sales now for efficiency later. “Right now seems to be the moment we customers are taking an interest in electric trucks,” said Sam Abuelsamid, an analyst at Guidehouse Insights.


  • The Trump family completed the sale of its Washington hotel to a Miami investor group. (NYT)

  • The private equity firm KKR is reportedly considering a joint bid with Blackstone for Toshiba. (FT)

  • Duke Realty rejected the warehousing company Prologis’s nearly $24 billion buyout offer. (WSJ)

  • The grocery delivery firm Instacart will test the waters for a public offering. (NYT)

  • DigitalBridge is acquiring the data-center company Switch for $11 billion. (WSJ)

Russia-Ukraine war

  • Shell is selling its Russian retail operations, including 411 gas stations, to the Russian oil company Lukoil. (Reuters)

  • Finland’s leaders say the country should apply to join NATO “without delay.” (NYT)

  • The E.U. expects to spend over $200 billion in the next five years to free itself from reliance on Russian energy, draft proposals show. (FT)


  • A Texas law allowing lawsuits against social networks that are seen as censoring users can go into effect, a federal appeals court ruled. (Protocol)

  • Why has the union campaign at Starbucks spread so much further than the one at Amazon? (NYT)

  • A bill that would prohibit some government contracts with businesses that are said to “discriminate” against the gun industry is headed for Louisiana’s Senate. (Bloomberg)

  • Philip Jefferson, a Biden nominee, was confirmed to the Federal Reserve’s Board of Governors, and Lorie Logan was announced as the next leader of the Dallas Fed. (NYT)

Best of the rest

  • The vaccine maker Moderna ousted its new finance chief in his first week on the job. (WSJ)

  • What happens after a Wall Street firm moves 1,000 jobs to Nashville? (Bloomberg)

  • A look at very early computer games that were simulations for executives and business school students. (Aaron A. Reed)

We’d like your feedback! Please email thoughts and suggestions to dealbook@nytimes.com.

Leave a Reply

Your email address will not be published.

Previous Story

Fed Chair Powell says getting inflation down will cause ‘some pain.’

Next Story

New Data Show Few Black Economists at the Fed

Latest from Business