Moonfall š
Apparently, WNAGMI
I never said I knew everything. In fact, I frequently say the complete opposite. And this is why.
I took a capital L buying LUNA dips and walked away when it was in the low $40s. I held on to one coin at the time, just in case the Luna Foundation Guard came to the rescue.
Now that one token is so cheap when denominated in dollars that it makes more sense to just call it, as of this writing, about 10 SHIB.
The fallout from LUNAās fall from grace was massive, causing a 40% peak-to-trough total crypto market cap meltdown over the last week and a half or so.
Many investors got thoroughly rekt, some even completely broke and suicidal. Many others are angry, and the largest scapegoat seems to be . . . Terraform Labs cofounder Do Kwon?
What?
Schadenfreude (like so many other awesome German words) is universal, but that doesnāt make LUNA a ponzi.
Ponzis collapse under the weight of their own lies.
LUNA fell, alright ā but it was pushed.
As the movie All The Presidentās Men said: Follow the money. Since this happened on-chain, we can do that:
You read right: someone was shorting about FOUR BILLION DOLLARSā worth of Bitcoin. It almost seems trivial to add that they had simultaneously bought $1 billion of UST, Terraās stablecoin.
Unlike other stablecoins which are backed by collateral, UST was designed to be algorithmic, which means the equilibrium to keep it pegged to $1 was provided by itself. LUNA was (technically still is) that floating mechanism. Every time someone mints UST, they burn LUNA and vice-versa.
The attackers waited until precisely the right time, when millions of UST was in transit on Curve Protocol. They then dumped their UST, flooding the market and causing it to be devalued, or ādepeggedā from $1. UST had survived significant depeggings before, most recently in January when Wonderland imploded. In those cases, arbitrageurs rushed in to buy UST when it was under $1, burned it to mint $1 of LUNA, then sold the LUNA to realize an instant profit. So while UST rose back to $1 due to its fresh demand, new LUNA was being minted and sold. Following Wonderlandās demise, the deluge of supply caused LUNA to crash by more than half over the next month:
LUNA crashing was, in essence, exactly what it was meant to do. But this threat was much larger and more sophisticated, and it took advantage of one crucial new element: the fear instilled by this previous depegging event.
The UST/LUNA mechanism only works if there is demand for UST. While you could use it at some retail outlets, especially in Korea, the biggest demand for UST was Anchor Protocol, a decentralized-finance app that paid nearly 20% annual interest.
But in the aftermath of the January depegging, Anchor decided to introduce a dynamic interest rate to act as a shock absorber for significant moves within UST. By itself, this made a lot of sense. But johnny-come-lately layer-1 algostables jumped into the arena to steal some of USTās thunder. One even promised a 30% return.
With new competition for the interest-earning dollar, the May attack triggered a liquidation cascade as UST holders fled Anchor en masse.
As Do Kwon famously bought more than $1 billion of bitcoin to backstop the UST peg, the Luna Foundation Guard started selling it in a desperate attempt to hold the line. But all that did was force the tanking of BTC as well.
Call me crazy, but I think that was the real goal. Itās one thing to make money shorting LUNA, but in the end thatās only going to double your investment if it goes to zero (unless you use leverage, but this attack already required $5 billion).
The real real win? Short $4 billion worth of BTC, use it to rek UST/LUNA, the resulting dominoes crash BTC, then buy it back both to cover the short and then leg into a long position at what figures to be a generational bottom. And if Michael Saylor gets liquidated in the bargain, so much the better.
And all you have to do is destroy a $60 billion asset and forcibly bankrupt thousands of people to do it.
The difference between heroes and villains in these morality plays tends to depend mostly on who one simply personally likes and dislikes. George Soros didnāt do anything that Michael Burry didnāt also do, but for mostly political reasons Soros is āthe man who broke the British poundā and Burry is the eccentric maverick who got to be played by Christian Bale in The Big Short.
We have no idea who crashed the Terra ecosystem, but we know Do Kwon, and general consensus seems to be, well . . .
I mean, yeah, Do Kwon talked trash to critics, demonstrated a hubris tailor-made to be brought low, and made so many enemies that itās tough to single out any one suspect. But thereās a difference between being served humble pie and having the brakes cut on your car. So Do acted like a pompous ass, shilled his bags and sh*tposted . . . on Twitter? Well, I never! The audacity! Surely nobody else in the Twitter cryptospace would act so arrogantly.
The other complaint about Do is that he built an algorithmic stablecoin using a system that had already failed on multiple occasions ā in fact, he even co-created one. In order to keep the Terra party going he continually inflated the Anchor Protocol bubble to get people to lock in UST for the fat yield so that the stablecoin would be so āmightyā that it would withstand depeggings. While the situation was obviously far more risky than he had ever let on ā the illusion of safety was part of USTās/LUNAās/Anchorās appeal, after all ā he might just have pulled it off if he was able to get UST into Curve. He was potentially two steps from the finish line and someone whacked him in the Achillesā heel.
Some very smart people in the crypto space believe algorithmic stablecoins are necessary because otherwise there will always be a point of centralization. (Besides, itās not like people donāt have pointed questions about the other stables.) And one can believe that itās absurd to create an asset that can only be pushed along by blowing its own sail, but thatās kind of the point of a lot of altcoins. There are many projects that used and continue to use unsustainable promises to keep the ruse going, up to and including the U.S. dollar.
Might Do Kwon have flown too close to the sun eventually? Possibly. But weāll never know. Instead, thousands of people are broke. And while one can say that they should have been more diversified ā and they should have been more diversified ā thereās nothing like some financially ruined citizens to give bureaucrats the jones to go sticking their noses into places they donāt belong and barely understand.
So while you can ask Do Kwon how he feels about building an empire thatās in ruins, one should also ask the hitmen who intentionally wobbled Terra on the precipice how they feel about allowing governments to impose CBDCs for our own good.
But thatās all the future. In the present, we can only try to learn. For the record, while I was never a card-carrying LUNAtic, I should have been more skeptical. While I agreed with critics that the death spiral risk was real, I dismissed them mostly because I wanted Do to win and take Bitcoin up with it. And for the last two months I have included a LUNA clone in my top 10 coins. If you listened to me, youād be out $22. Iād refund that, but honestly, in the last two months youāve probably spent that much on streaming services you didnāt watch. Besides, IANAFAā¢.
Here are some more lessons, given by people who are much smarter than me.
And in the meantime, remember, thereās more to life than money, and more money where that came from. Stay alive, figuratively and literally. If you feel out of options, donāt go it alone. In the U.S., the lifeline is (800) 273ā8255.
The moon might have fallen, but the sun will rise.
Youāre going to make it.
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