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The 20% interest was just a short-term user acquisition scheme, funded by some of the initial LUNA tokens. I don't think anyone claimed that it was sustainable.

The 20% interest was just a short-term user acquisition scheme, funded by some of the initial LUNA tokens. I don't think anyone claimed that it was sustainable. A Ponzi would be if Anchor used users' deposits to pay out the 20% rewards, which isn't what happened here.

vkou 4y ago
> funded by some of the initial LUNA tokens. Which were bought by users in a zero sum-game. A ponzi is a zero-sum game where new entrants finance old exits. Just because the funding for the ponzi is done in a different currency doesn't mean it's not one. You can't create a closed system that generates wealth, and when you're growth hacking with your users' money, you are running a fraud.
- dlubarov 4y ago
  Anchor protocol always retained the full amount of each UST deposit, plus additional rewards (whose funding was external to Anchor), so clearly Anchor is not a Ponzi, as I thought you were implying originally. Would you assert that any undercollateralized currency is a Ponzi? (Seems like stretching the definition to me.) Or that any system with unsustainable rewards is a Ponzi, even if there was no expectation that they were sustainable?
  - vkou 4y ago
    You have the look at the system as whole, not just the UST side of it. The system as a whole was not doing anything that generated value, and could only pay yield as long as people were paying money into it. This was the major innovation of UST. A ponzi that's sufficiently obfuscated that if you look at any part of the system in isolation, it seems fine. You can have an uncollateralized currency - like baseball cards, but that's not what UST was. It made additional promices (like being a stablecoin, and offering yield). You maybe even theoretically can create an uncollateralized stablecoin (that remains stable) but you're not going to attract $XY billion into your stablecoin without dangling a carrot to convince the greedy to invest. Investing into a stablecoin is stupid[1], because its price can't go up - so in this case, the carrot was fraudulent yield. UST only had value because it was backed by Luna, and it only had demand for it because of the promises of yield. Luna was backed by nothing but speculation, driven by demand for UST. Once net money stopped flowing into the Luna ecosystem, the whole thing collapsed. Any system that only works as long as net value flows into it, but produces no value of its own, but promises yields is a ponzi. [1] Yes, there are use cases for it that don't involve speculation, but those use cases aren't going to see the market cap explode at the rate Tera/Luna did.
  - seoaeu 4y ago
    The details of the protocol are just obfuscation. The 10,000 ft view is that people converted USD to tokens so they could earn 20% interest. As the dust settles, we can see the outcome looks exactly like a Ponzi: (1) The folks running the scheme walked away with a couple billion dollars (2) Those who cashed out early got back their original investment plus interest (3) Everyone else lost all/most of their investment Notably, all the extra money received by groups (1) and (2) came from (3).
    - dlubarov 4y ago
      Companies which IPO (or cryptocurrencies which ICO) and later fail have those same outcomes. Surely they're not all Ponzis?
      - vkou 4y ago
        Any company whose business plan for repaying early investors consists of bilking later investors, while producing nothing isn't going to get to IPO. But you are right, this sort of thing is incredibly common in the ICO world.
        jimmydorry 4y ago
        If the value of Uber went to zero overnight, would that be a Ponzi? People put money into it, and that money was used to subsidize user rides. If it went to zero, then all those investors would have nothing to show for their investment...
        vkou 4y ago
        Uber has a multi-billion dollar business selling taxi rides. They may not be running that business well, but it's a business. They have a roadmap for turning those rides profitable, that they may or may not be able to execute on. If you invest in their business, you have the ability to steer it, by using your shares to vote. The fact that they produce something is the difference between it and a ponzi. The tera business model was 'sell tokens to people who want to get in on the 20% yield, and pay the yield with the profits of these sales.' And also skim 3 billion for the founder. It's completely circular.
tempnow987 4y ago
A ponzi is if there is not actual asset backing the ponzi "values". Ie, the "stablecoin" will not actually hold value. Wasn't Cashberry or something like this? Russian based? Ultimately no assets behind it, so when the music stopped they couldn't redeem the values.
- gamblor956 4y ago
  No, a ponzi scheme is very specifically defined as an "investment fraud that pays existing investors with funds collected from new investors." (https://www.investor.gov/introduction-investing/investing-basics/glossary/ponzi-schemes https://www.investor.gov/introduction-investing/investing-ba...) A common part of the scheme is to promise high returns with little to no risk.

vkou 4y ago

> funded by some of the initial LUNA tokens. Which were bought by users in a zero sum-game. A ponzi is a zero-sum game where new entrants finance old exits. Just because the funding for the ponzi is done in a different currency doesn't mean it's not one. You can't create a closed system that generates wealth, and when you're growth hacking with your users' money, you are running a fraud.

dlubarov 4y ago
Anchor protocol always retained the full amount of each UST deposit, plus additional rewards (whose funding was external to Anchor), so clearly Anchor is not a Ponzi, as I thought you were implying originally. Would you assert that any undercollateralized currency is a Ponzi? (Seems like stretching the definition to me.) Or that any system with unsustainable rewards is a Ponzi, even if there was no expectation that they were sustainable?
- vkou 4y ago
  You have the look at the system as whole, not just the UST side of it. The system as a whole was not doing anything that generated value, and could only pay yield as long as people were paying money into it. This was the major innovation of UST. A ponzi that's sufficiently obfuscated that if you look at any part of the system in isolation, it seems fine. You can have an uncollateralized currency - like baseball cards, but that's not what UST was. It made additional promices (like being a stablecoin, and offering yield). You maybe even theoretically can create an uncollateralized stablecoin (that remains stable) but you're not going to attract $XY billion into your stablecoin without dangling a carrot to convince the greedy to invest. Investing into a stablecoin is stupid[1], because its price can't go up - so in this case, the carrot was fraudulent yield. UST only had value because it was backed by Luna, and it only had demand for it because of the promises of yield. Luna was backed by nothing but speculation, driven by demand for UST. Once net money stopped flowing into the Luna ecosystem, the whole thing collapsed. Any system that only works as long as net value flows into it, but produces no value of its own, but promises yields is a ponzi. [1] Yes, there are use cases for it that don't involve speculation, but those use cases aren't going to see the market cap explode at the rate Tera/Luna did.
- seoaeu 4y ago
  The details of the protocol are just obfuscation. The 10,000 ft view is that people converted USD to tokens so they could earn 20% interest. As the dust settles, we can see the outcome looks exactly like a Ponzi: (1) The folks running the scheme walked away with a couple billion dollars (2) Those who cashed out early got back their original investment plus interest (3) Everyone else lost all/most of their investment Notably, all the extra money received by groups (1) and (2) came from (3).
  - dlubarov 4y ago
    Companies which IPO (or cryptocurrencies which ICO) and later fail have those same outcomes. Surely they're not all Ponzis?
    - vkou 4y ago
      Any company whose business plan for repaying early investors consists of bilking later investors, while producing nothing isn't going to get to IPO. But you are right, this sort of thing is incredibly common in the ICO world.
      - jimmydorry 4y ago
        If the value of Uber went to zero overnight, would that be a Ponzi? People put money into it, and that money was used to subsidize user rides. If it went to zero, then all those investors would have nothing to show for their investment...
        vkou 4y ago
        Uber has a multi-billion dollar business selling taxi rides. They may not be running that business well, but it's a business. They have a roadmap for turning those rides profitable, that they may or may not be able to execute on. If you invest in their business, you have the ability to steer it, by using your shares to vote. The fact that they produce something is the difference between it and a ponzi. The tera business model was 'sell tokens to people who want to get in on the 20% yield, and pay the yield with the profits of these sales.' And also skim 3 billion for the founder. It's completely circular.

tempnow987 4y ago

A ponzi is if there is not actual asset backing the ponzi "values". Ie, the "stablecoin" will not actually hold value. Wasn't Cashberry or something like this? Russian based? Ultimately no assets behind it, so when the music stopped they couldn't redeem the values.

gamblor956 4y ago
No, a ponzi scheme is very specifically defined as an "investment fraud that pays existing investors with funds collected from new investors." (https://www.investor.gov/introduction-investing/investing-basics/glossary/ponzi-schemes https://www.investor.gov/introduction-investing/investing-ba...) A common part of the scheme is to promise high returns with little to no risk.