The idea of an algorithmic stablecoin is genius, time will tell if it works. But overall Luna’s crash isn’t too damning of the idea, because the root cause was a Ponzi scheme. (Which was identified and advertised as dangerous within the crypto community.)
The ponzi part was not the root cause, it merely sped up asset accumulation until it became a ripe enough target.
The root cause was the flawed arbitrage mechanism. It relied on always being able to redeem 1 UST for $1 equivalent of LUNA, and that relied implicitly on LUNA having value. Without that, whenever somebody cashes out UST they also cash out LUNA causing both prices to enter a death spiral.
And what value did LUNA have? Nothing more than the promises of the development team that you were getting in early on a soon-to-be-burgeoning ecosystem. "Hundreds of developers! Amazing new protocols!" In other words, vaporware. Which during a bull market can work for a time.
I agree with you that a functioning algorithmic stablecoin would be "genius". However I prefer calling it the Holy Grail of stablecoins. Powerful, if it exists.
