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Patrick Boyle argues fairly convincingly in my mind that the problem with this was the design of Luna itself[1]. TL;DW TerraUSD maintains its price by minting $

Patrick Boyle argues fairly convincingly in my mind that the problem with this was the design of Luna itself[1]. TL;DW TerraUSD maintains its price by minting $1 worth of Luna in exchange for one TerraUSD coin. But this assumes that there are always going to be willing buyers for Luna, even if its price is in free-fall. When the price of Luna drops suddenly, desire to hold Luna decreases, causing TerraUSD to lose its peg, causing confidence in Luna to drop further, leading to the death spiral we currently observe. [1] https://youtu.be/iisPX_xVMV8 https://youtu.be/iisPX_xVMV8

smrtinsert 4y ago
Seems like something that should be so easy to catch in a simulation/test
- JumpCrisscross 4y ago
  > Seems like something that should be so easy to catch in a simulation/test The system has two stable equilibria, one and zero. If we assume zero is virtually permanent, the system always ends there. But it's highly sensitive to a volatility assumption. Ex ante there is no way to precisely estimate that.
- px43 4y ago
  A simulation? This flaw should be obvious to anyone who took 10 minutes to read how the system works. Synthetics backed by a 1:1 mint/burn are always going to crash and burn the same way. It's happened before, and it will probably happen again. High profile people have been shouting from the rooftops about this exact issue since launch. I have some friends who lost everything in this, and it sucks. I did my best to explain this exact scenario to people who would listen, and ended up getting some pretty high praise this week from people I saved, but you can't save everyone. We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do. The metaphorical sea levels on global finance are rising rapidly. Learning to swim now isn't just a recreational activity, it's a survival skill.
  - zucker42 4y ago
    > We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do. Are the people who "read the instructions" really the ones who benefited here? The main winners here, as far as I can tell, are the employees and creators of Terraform Labs—who benefited from people investing in a project that was doomed to fail—and the people who got in early and out early—who are probably more lucky than smart.
    - px43 4y ago
      It's still unclear who initiated the original attack which set this whole thing off, but whoever did that likely took home billions exactly because they understood how this system works. From the looks of it, there were at least two distinct events around 9am Pacific on Tuesday, and again on Wednesday, where someone very intentionally made massive moves to trigger cascading liquidations. The rest of the damage was caused by a significant loss of faith in the system, followed by a mad dash to the exits. The people running Terraform were doing a lot better before shit hit the fan. Maybe Do Kwon was looking for an exit or something, but I doubt it was an inside job. Maybe I'm wrong about that. I basically started ignoring Terra/UST the moment I realized how they were trying to back their stable coin. There are enough good projects in the space, wasting energy ruminating about obviously dumb concepts is a liability.
      - rocqua 4y ago
        I can't understand how an attacker could benefit from this without having short-sold Luna or Terra. I figured that would be hard to do. Am I wrong?
        can16358p 4y ago
        Their incentive might not be directly profiting. They might have wanted Luna ecosystem to collapse, for whatever reason. (Possibly a state actor or a competing entity)
  - binkHN 4y ago
- Tao332 4y ago
  I get the feeling even that wouldn't have made much difference https://twitter.com/stablekwon/status/1464897977793728514?ref_src=twsrc%5Etfw https://twitter.com/stablekwon/status/1464897977793728514?re...
- TechBro8615 4y ago
  That’s what this is. Nobody knows how, or if, any of this works. If people are putting money into it they can’t afford to lose, that’s their problem.
lamontcg 4y ago
It sounds like the fundamental problem with it is that it was founded on the idea that scarcity necessarily generates demand.
- vba616 4y ago
  Everybody makes mistakes. Everybody has to learn everything for the first time. I would suggest the fundamental problem is that nobody considered looking for counterexamples to assumptions in "legacy" financial markets. Like, how could people who are excited about reinventing finance not be interested in the odd corners of existing markets, like penny stocks and whether/how they go to zero? Or financial crises and panics. Sure, most people in the world couldn't care less, but by definition, if you are making cryptocurrencies, obscure aspects of finance are your idea of a good time!
  - 55555 4y ago
    Because the end users aren’t actually that interested in finance. They just want to get rich quickly without effort.
  - netheril96 4y ago
    One doesn’t need to look at traditional finance. A similar algorithmic “stable coin” Iron/Titan collapsed a year ago. The problem is with people not understanding anything before jumping in. On the other hand, jumping in without understanding is why a small fraction of people got ridiculously rich from SHIB.
cmckn 4y ago
> minting $1 worth of Luna One thing I’m not clear on: what oracle is deciding how much Luna is worth $1? How do you calculate a market price in a manner that the chain itself can rely on to function? I assume there is a smart contract doing this minting, but if that smart contract depends on an oracle…how smart is it, really?
- initplus 4y ago
  In this case the Oracle is a consensus protocol where community nodes report the LUNA/UST rate. But of course to make running such a node easy for users Terraform Labs distributes node software that reports a value chosen by Terraform. So in spite of the distributed consensus design the Oracle is just Terraform.

smrtinsert 4y ago

Seems like something that should be so easy to catch in a simulation/test

JumpCrisscross 4y ago
> Seems like something that should be so easy to catch in a simulation/test The system has two stable equilibria, one and zero. If we assume zero is virtually permanent, the system always ends there. But it's highly sensitive to a volatility assumption. Ex ante there is no way to precisely estimate that.
px43 4y ago
A simulation? This flaw should be obvious to anyone who took 10 minutes to read how the system works. Synthetics backed by a 1:1 mint/burn are always going to crash and burn the same way. It's happened before, and it will probably happen again. High profile people have been shouting from the rooftops about this exact issue since launch. I have some friends who lost everything in this, and it sucks. I did my best to explain this exact scenario to people who would listen, and ended up getting some pretty high praise this week from people I saved, but you can't save everyone. We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do. The metaphorical sea levels on global finance are rising rapidly. Learning to swim now isn't just a recreational activity, it's a survival skill.
- zucker42 4y ago
  > We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do. Are the people who "read the instructions" really the ones who benefited here? The main winners here, as far as I can tell, are the employees and creators of Terraform Labs—who benefited from people investing in a project that was doomed to fail—and the people who got in early and out early—who are probably more lucky than smart.
  - px43 4y ago
    It's still unclear who initiated the original attack which set this whole thing off, but whoever did that likely took home billions exactly because they understood how this system works. From the looks of it, there were at least two distinct events around 9am Pacific on Tuesday, and again on Wednesday, where someone very intentionally made massive moves to trigger cascading liquidations. The rest of the damage was caused by a significant loss of faith in the system, followed by a mad dash to the exits. The people running Terraform were doing a lot better before shit hit the fan. Maybe Do Kwon was looking for an exit or something, but I doubt it was an inside job. Maybe I'm wrong about that. I basically started ignoring Terra/UST the moment I realized how they were trying to back their stable coin. There are enough good projects in the space, wasting energy ruminating about obviously dumb concepts is a liability.
    - rocqua 4y ago
      I can't understand how an attacker could benefit from this without having short-sold Luna or Terra. I figured that would be hard to do. Am I wrong?
      - can16358p 4y ago
        Their incentive might not be directly profiting. They might have wanted Luna ecosystem to collapse, for whatever reason. (Possibly a state actor or a competing entity)
- binkHN 4y ago
Tao332 4y ago
I get the feeling even that wouldn't have made much difference https://twitter.com/stablekwon/status/1464897977793728514?ref_src=twsrc%5Etfw https://twitter.com/stablekwon/status/1464897977793728514?re...
TechBro8615 4y ago
That’s what this is. Nobody knows how, or if, any of this works. If people are putting money into it they can’t afford to lose, that’s their problem.

lamontcg 4y ago

It sounds like the fundamental problem with it is that it was founded on the idea that scarcity necessarily generates demand.

vba616 4y ago
Everybody makes mistakes. Everybody has to learn everything for the first time. I would suggest the fundamental problem is that nobody considered looking for counterexamples to assumptions in "legacy" financial markets. Like, how could people who are excited about reinventing finance not be interested in the odd corners of existing markets, like penny stocks and whether/how they go to zero? Or financial crises and panics. Sure, most people in the world couldn't care less, but by definition, if you are making cryptocurrencies, obscure aspects of finance are your idea of a good time!
- 55555 4y ago
  Because the end users aren’t actually that interested in finance. They just want to get rich quickly without effort.
- netheril96 4y ago
  One doesn’t need to look at traditional finance. A similar algorithmic “stable coin” Iron/Titan collapsed a year ago. The problem is with people not understanding anything before jumping in. On the other hand, jumping in without understanding is why a small fraction of people got ridiculously rich from SHIB.

cmckn 4y ago

> minting $1 worth of Luna One thing I’m not clear on: what oracle is deciding how much Luna is worth $1? How do you calculate a market price in a manner that the chain itself can rely on to function? I assume there is a smart contract doing this minting, but if that smart contract depends on an oracle…how smart is it, really?

initplus 4y ago
In this case the Oracle is a consensus protocol where community nodes report the LUNA/UST rate. But of course to make running such a node easy for users Terraform Labs distributes node software that reports a value chosen by Terraform. So in spite of the distributed consensus design the Oracle is just Terraform.