Terra, Web 3 and Acceptable Risk in Innovation

Garbage Day newsletter author Ryan Broderick is skeptical about what comes after Web 2. There are challenges and opportunities ahead.

By Daniel KuhnLayer 2
May 12, 2022 at 4:26 p.m. UTC
By Daniel KuhnLayer 2
May 12, 2022 at 4:26 p.m. UTC

Daniel Kuhn is a features reporter and assistant opinion editor for CoinDesk's Layer 2. He owns BTC and ETH.

As the process of price discovery continues, and traders of bitcoin (BTC) and other crypto assets are trying to find where these markets will bottom out, it’s worth taking a moment to ask why you’re still in the game. Presuming you haven’t been liquidated.

The UST-LUNA situation will almost certainly end up in the cannon of financial history. Terra’s UST was a breakout success for algorithmic stablecoins – a type of financial asset that seeks to create a bridge to the U.S. dollar-based economy while maintaining the precepts of decentralization and tech-reliance in crypto – but has stumbled spectacularly.

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There are a lot of things that factor into the rise of the Terra network – prominent backers, a convincing leader, the larger crypto market bullrun. But perhaps most significantly was its central promise. Do Kwon, the founder of UST builders Terraform Labs, was constructing a galaxy of financial applications built around his stablecoin – picking and choosing ideas from both traditional and decentralized finance.

It was the whole package: a “stable” asset, a bevy of lending and savings technologies and even a stock exchange. Most, if not all, of this activity was playing on the riskier side of legality. But the dangers were worth it for Kwon, who wants finance to be freely accessible – bucking the constraints of the law and, as it turns out, blockchain technology.

It’s reasonable to look at this situation as representative of crypto. The current crisis with UST, even if it recovers, will be a stain on pure algos. Others might ask something broader, which is where is all of the experimentation leading? Should we pack up our bags?

The story is still unfolding about how or why Terra’s cosmos imploded – it could have been an orchestrated attack that exploited known issues with the network or a collapse of faith in the community after facing slight pressure. But it’s clear enough that if this could happen to Terra, other decentralized networks might be similarly exposed.

So if decentralized networks face natural limits (and they do), and may be open to economic exploitation (and they are, by design), are the risks worth it?

Ryan Broderick, a Boston-based blogger who writes about internet ephemera, raised a similar question in a recent essay about Web 2. The argument in this piece, “No ads, no games, no gimmicks, no money,” is that there’s a contradiction in the web as we know it.

The internet is best because it is open and free. But the internet also requires architecture to be built and maintained; so far, the only way we’ve reliably found to fund that activity is through applications that make the internet less open and less free, Broderick argues.

He’s talking about the Web Giants – Google, Facebook, Amazon and the like – that create the tools we use most. These applications are not free, of course, even if there isn’t always a price tag attached. We pay for robust internet services with hidden costs: data mining, social strife … you know the argument.

Broderick also argues that some of Web 2’s success comes from masses of people sorta misusing the platforms or finding use that wasn’t by design. He called TikTok a “free Adobe Premiere for your phone” and YouTube “the main hub for cultural criticism on the internet,” rather than social media services.

“Web 2.0 apps don’t even know what they’re actually being used for half the time,” he argued. That’s a powerful idea that speaks to the internet’s value because it is open and free and open to experimentation, even when that comes at a cost.

The reason Broderick writes is because he thinks this model – call it surveillance capitalism meets unintentional design – is unsustainable. There’s also something on the horizon that worries him, though he never names it.

Web 3 promises an alternative to the extractive model of the web – one where users don’t have to rely on the good graces of well-heeled corporations to build or not destroy the platforms we use – because it’s said to be “community owned.”

Its benefit, if you believe the Web 3 developers and funders, is that it can ensure the internet remains open. It may not be “free,” but its costs might be explicit. That is, if it doesn’t explode.

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Daniel Kuhn is a features reporter and assistant opinion editor for CoinDesk's Layer 2. He owns BTC and ETH.

Daniel Kuhn is a features reporter and assistant opinion editor for CoinDesk's Layer 2. He owns BTC and ETH.

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