The collapse of Terra’s ecosystem — namely, native coin LUNA and algorithmic stablecoin TerraUSD (UST) — rocked the wider blockchain and cryptocurrency ecosystem. Not only did Terra-ecosystem tokens (such as Anchor’s ANC) collapse in value, but the widespread fear, uncertainty and doubt sent market-leading cryptocurrencies Bitcoin (BTC) and Ether (ETH) below $27,000 and $1,800, respectively, on some exchanges.
As of the time that I’m writing this article, the cryptocurrency market still hasn’t recovered — even if Terra’s contagion has been mostly contained.
Releasing/unlocking investors’ UST from being staked via OKX Earn gave investors a chance to avoid further loss on their UST, which failed to maintain its peg to the dollar.
Why risk management matters in crypto
The Terra collapse and wider effects on the cryptocurrency market demonstrate why crypto exchanges need advanced risk management systems — especially when providing access to decentralized finance (DeFi) protocols offering favorable yields. The response of OKX’s risk management system, which gave traders a chance to be protected by the effects triggered by the severe volatility in the markets, highlights the benefits of using a centralized exchange platform for “doing DeFi.” Instead of “going it alone,” so to speak, and staking on Anchor or other protocols, utilizing a CEX’s offerings may offer user protection and risk mitigation if and when things go wrong for the protocol in question.
Of course, there must be a balance between the founding values of crypto — independence, decentralization, freedom, “trustless” security — and risk mitigation for people and companies who want to invest in, earn or trade crypto. At the end of the day, we all want everyone to have safe and independent access to the ever-growing world of crypto. However, not everyone is ready (or even wants) to take on all the risks themselves.
Centralized exchanges still have a major role to play in facilitating safer access to decentralized finance through advanced risk-mitigation systems. As more and more new people enter the exciting world offered by blockchain technology, we can provide guidance, expertise and risk-mitigations to help ensure that — at the end of the day — they stick around.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Lennix Lai is the managing director of OKX. He leads the business strategy and operations for OKX, internationally. Before joining OKX, Lennix served at JP Morgan, AIG and Cash Financial Services Group. With 15 years of experience in the worlds of financial services and fintech, Lennix plays a key role in OKX’s transformation from a standard centralized exchange into the largest hub for DeFi services, nonfungible tokens and blockchain gaming — as well as crypto trading.