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September 02, 2022

The Brutal Similarities Between The Demise of the Roman Empire and the Collapse of Terra - By Rubén M. (Ember User)

Commodus became Emperor following Marcus Aurelius’ death. The succession ushered in the beginning of the decline of the Roman Empire. A few months ago, we witnessed the collapse of Terra. Terra was a blockchain empire that went from a market capitalization of +$30bn to $0 in a few days.

Below are the four similarities shared by the collapses of both empires:

1. Monetary policy:

The Roman Empire required massive funding to finance wars and expansion. Instead of increasing collection and/or lowering spending, Roman Emperors resorted to currency debasing. This technique reduced the amount of collateral (i.e. noble metals) that sustained the value of the Roman currency. Terra consisted of two cryptocurrencies: TerraUST (a stablecoin pegged 1:1 to the US dollar) and LUNA (a cryptocurrency whose value fluctuated). There was an algorithmic mechanism regulating the supply and demand of TerraUST and LUNA so that the 1:1 peg between TerraUST and the US Dollar was maintained. But the value of TerraUST was not collateralized to sustain its value. In other words, TerraUST and LUNA were conjured out of thin air.

2. Insider attack:

To increase the collection of taxes the Roman Empire granted Roman citizenship to barbarians. Those barbarians were conquered following border expansions. Barbarians were responsible for weakening the Empire from the inside. Finally, Odoacer, a barbarian leader, deposed the last Roman Emperor in 476 AD.

The collapse of Terra started when an attacker shorted several hundred million of TerraUST. This trigger event caused TerraUST to depeg from the US Dollar, creating panic in the market and a bank run of people selling their UST. The panic led to a death spiral that drove the value of TerraUST and LUNA to zero. It was an attack led by someone who preyed on the internal weakness of the algorithmic mechanism that sustained TerraUST value.

3. Arrogance:

Roman Emperors were quite arrogant and even considered themselves Gods. The phrase “Memento Mori (Remember that you will die)” is well known. This phrase was repeated to marching generals by accompanying slaves after war triumphs as a reminder of the inevitability of death.

Do Kwon, Terra’s founder shrugged off the possibility of attacks that might have caused the TerraUST-USD to depeg. He mocked those who warned him of stability threats to the blockchain. There are even quotes of him encouraging billionaires to attempt an attack on Terra to prove its solidity.

4. Extinction:

Following the overthrown of Romulus Augustulus, the last Emperor, the Roman Empire ceased to exist. It never had the strength to rise again. Terra developers have published several proposals to create a new blockchain upon the ashes of the old. It might prove challenging for a Terra_v2 blockchain however to regain credibility again. Investors have lost confidence in the ecosystem. It will take much time until they come back after having suffered massive losses.

Conclusion:

It is common knowledge that the study of history might prove helpful to avoid repeating past mistakes. Several millenniums separate the demise of the Roman Empire from the collapse of the Terra blockchain. It is yet an interesting thought experiment to find the similarities behind the fall of both giants. It might help understand the reasons that led to the collapse of Terra.

Rubén M.

Ember User


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