Read this like there’s no tomorrow, because if you owned Terra, that’s how it feels.
If you’re not reading this, contact me immediately.
September 14, 2022
Notable:
- South Korea has put out an arrest warrant for Do Kwon, the co-founder of Terraform Labs, for illegal activity behind the collapse of the stablecoin TerraUSD.
- Mortgage rates hit 6% for the first time since 2008 and applications are at a 23-year low.
- Google’s appeal against the EU antitrust ruling fails. Google fined $4.12B.
- Ukraine celebrates the retaking of Kharkiv.
Illuminating Context and Unrivaled Commentary:
Terra — Hopefully, everyone has heard of the crypto token Terra (UST) and the huge impact it had on the crypto market. If you haven’t, read on! UST was a stablecoin. That means it was supposed to be…stable at a value of $1 per coin. The reason people use stablecoins is because even though crypto enthusiasts sing paeans about Bitcoin and Ether, they still want to know how much their crypto is worth in $$$ because $$$ is the reserve currency of the world. (We’ll discuss what “reserve currency” means in a future update.)
For a stablecoin to be worth $1, you would think there would have to be a real dollar behind each coin. This is (sort of/maybe/kinda) the case behind the 2 biggest stablecoins Tether (USDT) and USD Coin (USDC). In contrast, UST was an algorithmic stablecoin. That means it used confusing software to create a pretend $1. Unfortunately, someone picked through the confusion and realized they could fiddle around and crash the token. Why be so mean? Short, short, short! Whoever crashed the token shorted it and made off like a bandit! (Seriously, a literal bandit since they manipulated the market to steal from people.)
Because stablecoins are an intermediary for trading many other tokens, when a stablecoin goes bad, it erodes trust in the entire crypto market. UST’s implosion was one of the major reasons the crypto market took a dive at the time and lost $300B in value.
Mortgage rates — As people will recall, 2008 was the height of the mortgage crisis in which unhappy property owners smashed holes in walls as they abandoned houses that were no longer worth the debt used to buy them. Is now a good time to buy a home? Hard to say. Maybe if they let you buy with UST?
Google’s antitrust suit — The EU ruled against Google (C’mon, only fin-geeks call it Alphabet.) in an antitrust suit that Google appealed back in 2015. Today it was announced that they lost and are being fined $4.12B. Wow, that’s a lot of searches! (Incidentally, since 2015 Google has made a total net profit of more than $228B.) Through our trust in [cynicism about] corporate good will, we can see that Google’s monumental fine [slap on the wrist] will certainly [not] pressure it to be honest and forthright in the future. Funny how when a big rich corporation stretches out government lawsuits over many years, they make a lot more money than they have to pay. What a coincidence. Btw, did I mention that the original fine was for $4.34B? Also, did I mention that $4.12B today is the same as $3.3B back in 2015? So Google is paying the equivalent of $1B less than originally fined. If you wonder why corporate law firms make a LOT more money than that unshaven guy in shorts with mustard stains on his t-shirt who’s suing your auto insurance company for whiplash, this is why.
Kharkiv — The Ukraine/Russia war has apparently been going well for the Ukraine recently. It has recovered thousands of square miles of territory and appears to have the solid backing of western nations. However, Dmitry Medvedev, the deputy chairman of the Russian Security Council, has said that if weapons keep getting sent to the Ukraine, “sooner or later, the military campaign will move to another level.” (i.e., weapons of mass destruction) It’s hard to predict whether that’s grandstanding or a real threat, but we shouldn’t discount it entirely just because none of us have seen a world war in our lifetimes. As the likelihood of such an event grows, the effects — politically, economically, otherwise — will also increase, exponentially if it gets close enough.
And now, for the cherry on top, Reserve Currency. Just kidding! We’ll save that scintillating discussion for sometime when you’re sleepy and I need something exciting to wake you up.
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