The cryptocurrency industry is currently digesting the rise and fall of Singapore-based Terraform Labs’ network token Terra (LUNA) and stablecoin TerraUSD (UST).

Following the unexpected collapse of almost $45 billion in market value over the course of a week, much has been made about the project’s architecture, namely its supposedly defective algorithm, which was led by South Korean programmer Do Kwon.

Bill Ackman, the American billionaire investor, founder and chief executive officer of Pershing Square Capital Management, is the most recent industry figure to comment on the contentious issue.

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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 fundamental underlying business.

— Bill Ackman (@BillAckman) May 17, 2022

The hedge fund manager referred to the demise of stablecoins as “the crypto equivalent of a pyramid scheme” and stated that its collapse could impact the entire cryptocurrency ecosystem.

Ackman said in a tweet:

Ackman’s comments follow last week’s crypto massacre, in which cryptocurrencies worth hundreds of billions of dollars were wiped away.

The crash was caused in part by the collapse of the dollar-pegged Terra currency. After being “depegged” from the U.S. dollar, the “stablecoin” plummeted to as low as $0.30 on Wednesday.

In what market observers have termed a “death spiral,” the value of Terra’s free-floating sibling coin, LUNA, has likewise disintegrated by more than 98 percent.

As more investors purchased the digital asset, Ackman stated that the quantity of LUNA tokens was restricted by a vesting schedule.

After sellers had surpassed purchasers by a significant amount, LUNA sank. According to Ackman, this is indicative of a Ponzi scheme. Because to the scheme’s digitization and the crypto market’s extraordinary frenzy, it was able to survive and prosper in its initial phase.

His views on pyramid schemes are widely established. From 2012 through 2018, he carried a $1 billion short position against the nutrition company Herbalife on the grounds that it is a pyramid scheme disguised as a multi-level marketing company.

Ackman went on to praise blockchain technology, describing it as “brilliant” with “enormous potential.”

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However, if the sector does not operate as planned, he added, this opportunity may be lost.

LUNA’s decline precipitated a crisis of faith in the $1.2 trillion crypto sector, leaving investors in a dangerous position as the crypto bear market sapped their hope.

Some members of the cryptocurrency community believe that the collapse of the LUNA ecosystem is beneficial because it warns investors, especially novices, that the market can be extremely risky.

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