5 ms·

I publicly called out LUNA/UST on Twitter a few times a few months before the collapse [0] [1]. Just stating this so it's clear that I don't have any interest d

by josu 4y ago

I publicly called out LUNA/UST on Twitter a few times a few months before the collapse [0] [1]. Just stating this so it's clear that I don't have any interest defending them. That being said, calling these platforms "ponzis" isn't correct, the most you can say is that they were front ends for a ponzi. It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. I'm not saying that it is a legitimate business, just not a ponzi. And I'm not defending these companies either, a very light DD [2] made it obvious that the LUNA-UST mechanism was broken and the collapse was inevitable. It's really messed up that they put clients' money at risk, and that they lost it. I also think that YC is somewhat responsible for this. What makes the situation even worse is that the collapse didn't happen from one day to the next, they actually had time to pull the money out at a 0.5%-5% loss, but they still decided to wait and see if it would repeg. [0] https://twitter.com/josusanmartin/status/1478185473499615233 https://twitter.com/josusanmartin/status/1478185473499615233 [1] https://twitter.com/josusanmartin/status/1478188494463848448 https://twitter.com/josusanmartin/status/1478188494463848448 [2] This DD took me less than 1 hour: https://twitter.com/josusanmartin/status/1524323026942242818 https://twitter.com/josusanmartin/status/1524323026942242818

saalweachter 4y ago
> That being said, calling these platforms "ponzis" isn't correct I feel like "ponzi" has become the "magazine/clip" derailer of crypto discussions.
- xnorswap 4y ago
  Some very smart people mistake being pedantic for being smart. It's very easy to join a "conversation" by picking up a pedantic point. Compare that to arguing over the fundamentals which actually requires some knowledge and experience. By being pedantic it's very easy to "win" an argument, you're entering with a position you consider factually correct. It's not at all productive as you indicate, and actually harms more productive conversation by de-railing the conversation.
- CPLX 4y ago
  A ponzi is when an investment that supposedly produces a return actually pays the funds needed to deliver that return from new entrants to the scheme rather than productive enterprise. Given that there’s literally no productive return-producing enterprise underpinning any of this it’s totally fine to consider the word ponzi at least loosely applicable to the entire concept of cryptocurrency as practiced.
  - daanlo 4y ago
    By this definition most crypto wouldn‘t be a ponzi. E.g. bitcoin doesn‘t claim that funds are invested in productive entreprise. It is clear that it is only a value store (like gold). Whether it is any good at storing value long term, we will see.
    - spankalee 4y ago
      Bitcoin proponents definitely (for a time) claimed that it was Bitcoin's utility as a currency that gave it value in the first place. That everyone would need some because everyone would use it to transact. That's a claim of an inherent investment value that didn't actually exist, making Bitcoin exactly like a distributed Ponzi scheme.
      - andirk 4y ago
        It was originally created to be a form of non-fiat democratized currency. It is exactly that even though it's not its most popular use which is as a store of value. I don't see how that makes it a Ponzi scheme. I buy things with it a few times per year and do my degenerate sports gambling with it all the time. It works within seconds for almost no cost.
matthewdgreen 4y ago
The front-end is the ponzi. The whole point of the ponzi is that there is no investment activity happening beyond tricking customers into depositing funds. So being the front-end for a ponzi (even unwittingly) means you’re an integral part of the scheme.
yunohn 4y ago
> It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. I'm not saying it's a legitimate business, just not a ponzi. So, it’s neither legitimate nor a Ponzi. Cool, what is it then?
- dropnerd 4y ago
  it's fraud
  - Agamus 4y ago
    The whole thing reminds me of something more like baseball cards or other collectibles, where the monetary value rests in a collective belief in the inherent value. How much of the real value of cryptocurrency is not monetary? How much of the value is in the existential value of participation, e.g. Dogecoin?
    - dropnerd 4y ago
      networks derive their value from participation. ex. if the us government held 100% of dollars or berkeley had 100% of internet connected devices or jack had 100% of twitter accounts, these dollars or devices or accounts wouldn't be very useful
    - ChainOfFools 4y ago
      You're pretty much exactly right with this intuition. The infamous MTGox exchange, the grandaddy of all rug pull Bitcoin / crypto disasters, started out life as a platform for magic the gathering trading cards. Recognizing an overlap in both the mechanism and the type of motivation driving both types of trading activity.
- josu 4y ago
  IANAL, but anything between fraud and gross negligence I guess.
  - yunohn 4y ago
logifail 4y ago
> I'm not saying it's a legitimate business Umm, once it's not a legitimate business, it's fraudulent. Exactly what type of fraudulent is a somewhat secondary issue. [of Boiler Room scams of old] "... often rely on high-pressure sales tactics, such as aggressive cold-calling, misinformation, and extravagant promises to assure buyers that they are buying "a sure thing." [..] The SEC requires brokers to adhere to strict standards when selling securities. Brokers may not misinform or omit material facts when selling securities; nor can they exaggerate their own track records. They are also required to have a “reasonable basis to believe that a recommended transaction or investment strategy is suitable for a customer.”"[0] Ring any bells? Do we think customers are really giving informed consent before putting their savings into these platforms? [0] https://www.investopedia.com/terms/b/boilerroom.asp https://www.investopedia.com/terms/b/boilerroom.asp
- paulgb 4y ago
  josu didn’t say it wasn’t fraudulent, just that it wasn’t a Ponzi scheme, which is a particular type of fraud. (I agree)
  - josu 4y ago
    Bad grammar on my end, just edited the comment to clarify that I was indeed saying that I don't see it as a legitimate business.
  - adrr 4y ago
    So how is the 20% interest created? Excuse my ignorance on crypto. I don’t understand how UST can drop 90% when I assume it required some sort payment of some other currency/coins to get mint them. I heard it was tens billions of UST was minted. So what happened to these coins? Were they used to pay out the interest?
    - josu 4y ago
      Read Matt Levine's columns on Luna, or listen to the most recent podcast from Odd Lots with Galois Capital. They answer all your question and are much more cohesive than anything I could type here.
rsynnott 4y ago
> the most you can say is that they were front ends for a ponzi. It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. This was absolutely a thing; most large Ponzi schemes have feeder funds. https://www.reuters.com/article/us-pwc-madoff-settlement-idUSKBN0UL03N20160107 https://www.reuters.com/article/us-pwc-madoff-settlement-idU...
- josu 4y ago
  Interesting. I had no idea, but it definitely makes sense. Thanks for sharing.
- gitfan86 4y ago
  Indirection seems to be very valuable with scams. The 2008 housing crash had a lot of layers: 1. Loan Application (Borrower Lying about income) 2. Mortgage Originator ( Not validating loan application ) 3. Mortgage Back Security Creators ( Obfuscate what is in the security ) 4. Ratings Agencies ( Not being honest that step 3 happened ) 5. Sellers of MBS ( Not being honest that steps 1-4 exist ) I don't know enough about crypto to list out all the layers but I'm pretty sure I understand the first step: 1. Claim that underlying technology will be revolutionary just like the internet in a vague way that cannot be validated.
  - disiplus 4y ago
    im pretty sure at this point everybody knows there is nothing behind it, at least 80% people that invest in something like this, so like Ponzi they hope that enough people will come in that they can cash out before everything falls out.
    - deleted 4y ago
      [deleted]
  - RandomLensman 4y ago
    6. Buyer not caring about any of this
compsciphd 4y ago
> That being said, calling these platforms "ponzis" isn't correct, the most you can say is that they were front ends for a ponzi. It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. I'm not saying that it is a legitimate business, just not a ponzi. Something like this happened with Madoff in a very similar manner to what you describe. Madoff was a board member on one the schools at Yeshiva University. J. Ezra Merkin was on Yeshiva University's investment committee. Merkin funneled some of the University's money directly into his own fund which turned out to be 100% invested in Madoff. Now, in some ways this is an even bigger ethical breach. lets say Merkin didn't know that Madoff was sketchy, why does he have to use his fund as a middle man for the University's funds when Madoff is on the board so he presumably can invest the funds directly with Madoff. The only reason is to skim off the top. For others, who didn't have an entry into Madoff's funds themselves, perhaps the middleman has value (assuming the middleman really believes in the underlying investment, if they are just there to skim off the top, the I would say they are not fundamentally different than ponzi themselves, as they are just pulling a Sgt Shultz, "I see nothing, I hear nothing, I know nothing")
kgwgk 4y ago
It wasn’t so obvious for some people… https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248 https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248 https://medium.com/terra-money/have-you-met-marco-216ca2a8b944 https://medium.com/terra-money/have-you-met-marco-216ca2a8b9... https://assets.website-files.com/611153e7af981472d8da199c/618b02d13e938ae1f8ad1e45_Terra_White_paper.pdf https://assets.website-files.com/611153e7af981472d8da199c/61... https://cdck-file-uploads-global.s3.dualstack.us-west-2.amazonaws.com/terra/original/1X/3c90dafa541dc05c51618de36060407d3b986b7b.pdf https://cdck-file-uploads-global.s3.dualstack.us-west-2.amaz... Why did you decide to join Terra? I thought Terra provided the perfect environment to apply what I learned in my research. Ensuring the stability of a digital currency closely resembled the issues faced by central banks in deciding monetary policy measures, while the lessons learned in studying trading in the equity and bond markets are crucial in guarding against potential manipulation by malicious market participants. What do you think are Terra’s strengths compared to other blockchain projects or potential competitors? There are several, but I will mention just three. First, there is no improvisation. In fact, our strong research team stays grounded and informed by the latest research in economics and finance, devoting a lot of attention in making sure that Terra’s ecosystem remains stable. Second, top eCommerce companies in Asia are pushing for Terra’s adoption, ensuring that Terra will be widely used from the start. Finally, the team is composed by a diverse and uniquely qualified set of people that are excited to collaborate in solving one of the most exciting challenges of our time.
- IMTDb 4y ago
  Those 3 reasons can be summarised as : "We are a bunch of excited 20yo who think they know better than everyone else and we have received pinky swear promises from shady asian websites, so we are definitely going to be rich, trust us ! xoxo"
  - kgwgk 4y ago
    That guy is at least 35 but he surely compensates the old age with lots of enthusiasm. After all, you don’t get a chair of royal garments innovation by pointing out that the king is naked.
nullc 4y ago
Feeder funds are a normal part of the structure of modern ponzis, Madoff had them too. Pirate40 had them. They're ubiquitous and an important part of scaling up these fraudulent operations. Essentially all HYIPs have them. Not only do feeders increase the sales force the reduction in yield by the feeder's profit margin actually helps hit more of the potential market: People hear 20% apy and assume it's a scam... but 15% apy? 10% apy? -- starts just sounding like a good deal.
dragonwriter 4y ago
> That being said, calling these platforms "ponzis" isn't correct, the most you can say is that they were front ends for a ponzi. “Its not a Ponzi, it's just paper thin layer of indirection on top of a Ponzi, which is often how most victims of a Ponzi scheme are brought in” is maybe not as important of a distinction as you are making it out to be.
moneywoes 4y ago
Great insight. Unrelated but what is the sortino achieved with your delta neutral strategies? If it possible for a regular joe to get in?

by josu 4y ago

saalweachter 4y ago

> That being said, calling these platforms "ponzis" isn't correct I feel like "ponzi" has become the "magazine/clip" derailer of crypto discussions.

xnorswap 4y ago
Some very smart people mistake being pedantic for being smart. It's very easy to join a "conversation" by picking up a pedantic point. Compare that to arguing over the fundamentals which actually requires some knowledge and experience. By being pedantic it's very easy to "win" an argument, you're entering with a position you consider factually correct. It's not at all productive as you indicate, and actually harms more productive conversation by de-railing the conversation.
CPLX 4y ago
A ponzi is when an investment that supposedly produces a return actually pays the funds needed to deliver that return from new entrants to the scheme rather than productive enterprise. Given that there’s literally no productive return-producing enterprise underpinning any of this it’s totally fine to consider the word ponzi at least loosely applicable to the entire concept of cryptocurrency as practiced.
- daanlo 4y ago
  By this definition most crypto wouldn‘t be a ponzi. E.g. bitcoin doesn‘t claim that funds are invested in productive entreprise. It is clear that it is only a value store (like gold). Whether it is any good at storing value long term, we will see.
  - spankalee 4y ago
    Bitcoin proponents definitely (for a time) claimed that it was Bitcoin's utility as a currency that gave it value in the first place. That everyone would need some because everyone would use it to transact. That's a claim of an inherent investment value that didn't actually exist, making Bitcoin exactly like a distributed Ponzi scheme.
    - andirk 4y ago
      It was originally created to be a form of non-fiat democratized currency. It is exactly that even though it's not its most popular use which is as a store of value. I don't see how that makes it a Ponzi scheme. I buy things with it a few times per year and do my degenerate sports gambling with it all the time. It works within seconds for almost no cost.

matthewdgreen 4y ago

The front-end is the ponzi. The whole point of the ponzi is that there is no investment activity happening beyond tricking customers into depositing funds. So being the front-end for a ponzi (even unwittingly) means you’re an integral part of the scheme.

yunohn 4y ago

> It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. I'm not saying it's a legitimate business, just not a ponzi. So, it’s neither legitimate nor a Ponzi. Cool, what is it then?

dropnerd 4y ago
it's fraud
- Agamus 4y ago
  The whole thing reminds me of something more like baseball cards or other collectibles, where the monetary value rests in a collective belief in the inherent value. How much of the real value of cryptocurrency is not monetary? How much of the value is in the existential value of participation, e.g. Dogecoin?
  - dropnerd 4y ago
    networks derive their value from participation. ex. if the us government held 100% of dollars or berkeley had 100% of internet connected devices or jack had 100% of twitter accounts, these dollars or devices or accounts wouldn't be very useful
  - ChainOfFools 4y ago
    You're pretty much exactly right with this intuition. The infamous MTGox exchange, the grandaddy of all rug pull Bitcoin / crypto disasters, started out life as a platform for magic the gathering trading cards. Recognizing an overlap in both the mechanism and the type of motivation driving both types of trading activity.
josu 4y ago
IANAL, but anything between fraud and gross negligence I guess.
- yunohn 4y ago

logifail 4y ago

> I'm not saying it's a legitimate business Umm, once it's not a legitimate business, it's fraudulent. Exactly what type of fraudulent is a somewhat secondary issue. [of Boiler Room scams of old] "... often rely on high-pressure sales tactics, such as aggressive cold-calling, misinformation, and extravagant promises to assure buyers that they are buying "a sure thing." [..] The SEC requires brokers to adhere to strict standards when selling securities. Brokers may not misinform or omit material facts when selling securities; nor can they exaggerate their own track records. They are also required to have a “reasonable basis to believe that a recommended transaction or investment strategy is suitable for a customer.”"[0] Ring any bells? Do we think customers are really giving informed consent before putting their savings into these platforms? [0] https://www.investopedia.com/terms/b/boilerroom.asp https://www.investopedia.com/terms/b/boilerroom.asp

paulgb 4y ago
josu didn’t say it wasn’t fraudulent, just that it wasn’t a Ponzi scheme, which is a particular type of fraud. (I agree)
- josu 4y ago
  Bad grammar on my end, just edited the comment to clarify that I was indeed saying that I don't see it as a legitimate business.
- adrr 4y ago
  So how is the 20% interest created? Excuse my ignorance on crypto. I don’t understand how UST can drop 90% when I assume it required some sort payment of some other currency/coins to get mint them. I heard it was tens billions of UST was minted. So what happened to these coins? Were they used to pay out the interest?
  - josu 4y ago
    Read Matt Levine's columns on Luna, or listen to the most recent podcast from Odd Lots with Galois Capital. They answer all your question and are much more cohesive than anything I could type here.

rsynnott 4y ago

> the most you can say is that they were front ends for a ponzi. It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. This was absolutely a thing; most large Ponzi schemes have feeder funds. https://www.reuters.com/article/us-pwc-madoff-settlement-idUSKBN0UL03N20160107 https://www.reuters.com/article/us-pwc-madoff-settlement-idU...

josu 4y ago
Interesting. I had no idea, but it definitely makes sense. Thanks for sharing.
gitfan86 4y ago
Indirection seems to be very valuable with scams. The 2008 housing crash had a lot of layers: 1. Loan Application (Borrower Lying about income) 2. Mortgage Originator ( Not validating loan application ) 3. Mortgage Back Security Creators ( Obfuscate what is in the security ) 4. Ratings Agencies ( Not being honest that step 3 happened ) 5. Sellers of MBS ( Not being honest that steps 1-4 exist ) I don't know enough about crypto to list out all the layers but I'm pretty sure I understand the first step: 1. Claim that underlying technology will be revolutionary just like the internet in a vague way that cannot be validated.
- disiplus 4y ago
  im pretty sure at this point everybody knows there is nothing behind it, at least 80% people that invest in something like this, so like Ponzi they hope that enough people will come in that they can cash out before everything falls out.
  - deleted 4y ago
    [deleted]
- RandomLensman 4y ago
  6. Buyer not caring about any of this

compsciphd 4y ago

> That being said, calling these platforms "ponzis" isn't correct, the most you can say is that they were front ends for a ponzi. It would be like setting up a front-end to receive investments, and then depositing the money with Madoff. I'm not saying that it is a legitimate business, just not a ponzi. Something like this happened with Madoff in a very similar manner to what you describe. Madoff was a board member on one the schools at Yeshiva University. J. Ezra Merkin was on Yeshiva University's investment committee. Merkin funneled some of the University's money directly into his own fund which turned out to be 100% invested in Madoff. Now, in some ways this is an even bigger ethical breach. lets say Merkin didn't know that Madoff was sketchy, why does he have to use his fund as a middle man for the University's funds when Madoff is on the board so he presumably can invest the funds directly with Madoff. The only reason is to skim off the top. For others, who didn't have an entry into Madoff's funds themselves, perhaps the middleman has value (assuming the middleman really believes in the underlying investment, if they are just there to skim off the top, the I would say they are not fundamentally different than ponzi themselves, as they are just pulling a Sgt Shultz, "I see nothing, I hear nothing, I know nothing")

kgwgk 4y ago

It wasn’t so obvious for some people… https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248 https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248 https://medium.com/terra-money/have-you-met-marco-216ca2a8b944 https://medium.com/terra-money/have-you-met-marco-216ca2a8b9... https://assets.website-files.com/611153e7af981472d8da199c/618b02d13e938ae1f8ad1e45_Terra_White_paper.pdf https://assets.website-files.com/611153e7af981472d8da199c/61... https://cdck-file-uploads-global.s3.dualstack.us-west-2.amazonaws.com/terra/original/1X/3c90dafa541dc05c51618de36060407d3b986b7b.pdf https://cdck-file-uploads-global.s3.dualstack.us-west-2.amaz... Why did you decide to join Terra? I thought Terra provided the perfect environment to apply what I learned in my research. Ensuring the stability of a digital currency closely resembled the issues faced by central banks in deciding monetary policy measures, while the lessons learned in studying trading in the equity and bond markets are crucial in guarding against potential manipulation by malicious market participants. What do you think are Terra’s strengths compared to other blockchain projects or potential competitors? There are several, but I will mention just three. First, there is no improvisation. In fact, our strong research team stays grounded and informed by the latest research in economics and finance, devoting a lot of attention in making sure that Terra’s ecosystem remains stable. Second, top eCommerce companies in Asia are pushing for Terra’s adoption, ensuring that Terra will be widely used from the start. Finally, the team is composed by a diverse and uniquely qualified set of people that are excited to collaborate in solving one of the most exciting challenges of our time.

IMTDb 4y ago
Those 3 reasons can be summarised as : "We are a bunch of excited 20yo who think they know better than everyone else and we have received pinky swear promises from shady asian websites, so we are definitely going to be rich, trust us ! xoxo"
- kgwgk 4y ago
  That guy is at least 35 but he surely compensates the old age with lots of enthusiasm. After all, you don’t get a chair of royal garments innovation by pointing out that the king is naked.

nullc 4y ago

Feeder funds are a normal part of the structure of modern ponzis, Madoff had them too. Pirate40 had them. They're ubiquitous and an important part of scaling up these fraudulent operations. Essentially all HYIPs have them. Not only do feeders increase the sales force the reduction in yield by the feeder's profit margin actually helps hit more of the potential market: People hear 20% apy and assume it's a scam... but 15% apy? 10% apy? -- starts just sounding like a good deal.

dragonwriter 4y ago

> That being said, calling these platforms "ponzis" isn't correct, the most you can say is that they were front ends for a ponzi. “Its not a Ponzi, it's just paper thin layer of indirection on top of a Ponzi, which is often how most victims of a Ponzi scheme are brought in” is maybe not as important of a distinction as you are making it out to be.

moneywoes 4y ago

Great insight. Unrelated but what is the sortino achieved with your delta neutral strategies? If it possible for a regular joe to get in?