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TerraUSD is supposedly stable only when people want Luna. But who the hell wants Luna? The whole idea failed at its very premise from the beginning.

dcolkitt 4y ago
The theory was that Luna would hold intrinsic value from demand for blockspace on the Luna blockchain. Analogous to how Ether is derives value from demand for Ethereum blockspace. So the idea was that the Luna token would stabilize the peg for the UST stablecoin. In turn the UST stablecoin would drive demand for Luna blockspace giving the Luna token its underlying value. To Terra’s credit they did make fairly serious efforts to spread a UST payments system. This got a fair bit of traction particularly in South Korea. The idea being that every time you paid for a cup of coffee from your UST wallet, the transaction fee would bid up Luna blockspace and help stabilize the peg.
- w_TF 4y ago
  Luna/UST was a completely degenerate & risky design; they were allowing 1:1 redemptions between the value of Luna in USD & the UST stablecoin. As the market cap of Luna skyrocketed it allowed for the minting of massive quantities of UST, and then as the price of Luna declined the value of the tokens backing UST was less than what was in circulation and contributed to the death spiral. No amount of demand for Luna block space was ever going to keep this thing pegged. The only thing defending it was open market moves from extremely well capitalized trading desks which is uh decidedly not "algorithmic" nor "decentralized". There's other stable coins with similar mechanisms like Synthetix / SUSD which are also risky, but AT LEAST in their case they require 400% overcollateralization in SNX to mint SUSD. What's shocking is how many people, who ostensibly should be in the top 1% in terms of finance IQ, (e.g., Mike Novogratz, Raoul Pal, etc.) were seemingly unaware of these risks and never examined how it worked while shilling it to retail investors.
  - fjkdlsjflkds 4y ago
    > There's other stable coins with similar mechanisms like Synthetix / SUSD which are also risky, but AT LEAST in their case they require 400% overcollateralization in SNX to mint SUSD. Apples and oranges, really. There is no redemption mechanism in sUSD that results in uncontrolled printing (i.e. devaluing) of SNX (the underlying collateral), unlike UST/LUNA. sUSD is more akin to DAI (i.e., over-collateralized debt-based stablecoins) than to UST.
  - oefrha 4y ago
    > What's shocking is how many people, who ostensibly should be in the top 1% in terms of finance IQ, (e.g., Mike Novogratz, Raoul Pal, etc.) were seemingly unaware of these risks and never examined how it worked while shilling it to retail investors. Not shocking at all, it’s answered in TFA: > Many of the large firms that invested in and marketed this coin were able to exit before the crash occurred, escaping with massive profits. Strangely, some of these whales felt the need to share this in their comments following the crash. Pantera Capital CIO Joey Krug admitted that they had sold 80% of their Luna position before the crash. Furthermore, Pantera Capital partner, Paul Veradittakit, seemingly bragged that they had turned their $1.7 million dollar Luna investment into around $170 million dollars. Galaxy Digital CEO, Mike Novogratz, wrote in a letter that Galaxy had “booked profits along the way” before the Luna collapse happened.
lalaland1125 4y ago
> But who the hell wants Luna? In theory, people would want Luna to get the 20% returns through Anchor. Of course, that assumes the 20% returns would continue forever (which a bunch of crypto people foolishly believed) ...
- shawabawa3 4y ago
  Luna had nothing to do with 20% returns TerraUSD yielded 20% returns on anchor Luna gave staking yield. It received a portion of transaction fees off the Terra network, that was what created demand for Luna - if you thought transactions on Terra were going to increase and therefore give increase yield in the future Of course there simply wasn't enough demand to offset the terrible peg mechanism
  - lalaland1125 4y ago
    And where do you think the TerraUSD invested in anchor came from? That TerraUSD all came from people buying Luna and converting it to TerraUSD. The root of demand for the Luna ecosystem was the 20% returns.
- TedShiller 4y ago
  If 20% returns lasted forever, we would all be trillionaires
  - nikanj 4y ago
    WAGMI ( https://www.urbandictionary.com/define.php?term=wagmi https://www.urbandictionary.com/define.php?term=wagmi ) is a popular rallying cry in the crypto circles. XYZ coin is headed to the moon, and buying in today is like buying into bitcoin in 2009. The people don’t believe we can all be trillionaires, they just believe everyone who believed and HODLled their savings into XYZ is going to be one.
- smcl 4y ago
  Wait what are those 20% returns denominated in?
lottin 4y ago
The same is true of every single crypto token though. The entire value proposition of the crypto-currency industry is like "I will create this virtual token out of thin air and people will pay real money for it because.... reasons".

dcolkitt 4y ago

The theory was that Luna would hold intrinsic value from demand for blockspace on the Luna blockchain. Analogous to how Ether is derives value from demand for Ethereum blockspace. So the idea was that the Luna token would stabilize the peg for the UST stablecoin. In turn the UST stablecoin would drive demand for Luna blockspace giving the Luna token its underlying value. To Terra’s credit they did make fairly serious efforts to spread a UST payments system. This got a fair bit of traction particularly in South Korea. The idea being that every time you paid for a cup of coffee from your UST wallet, the transaction fee would bid up Luna blockspace and help stabilize the peg.

w_TF 4y ago
Luna/UST was a completely degenerate & risky design; they were allowing 1:1 redemptions between the value of Luna in USD & the UST stablecoin. As the market cap of Luna skyrocketed it allowed for the minting of massive quantities of UST, and then as the price of Luna declined the value of the tokens backing UST was less than what was in circulation and contributed to the death spiral. No amount of demand for Luna block space was ever going to keep this thing pegged. The only thing defending it was open market moves from extremely well capitalized trading desks which is uh decidedly not "algorithmic" nor "decentralized". There's other stable coins with similar mechanisms like Synthetix / SUSD which are also risky, but AT LEAST in their case they require 400% overcollateralization in SNX to mint SUSD. What's shocking is how many people, who ostensibly should be in the top 1% in terms of finance IQ, (e.g., Mike Novogratz, Raoul Pal, etc.) were seemingly unaware of these risks and never examined how it worked while shilling it to retail investors.
- fjkdlsjflkds 4y ago
  > There's other stable coins with similar mechanisms like Synthetix / SUSD which are also risky, but AT LEAST in their case they require 400% overcollateralization in SNX to mint SUSD. Apples and oranges, really. There is no redemption mechanism in sUSD that results in uncontrolled printing (i.e. devaluing) of SNX (the underlying collateral), unlike UST/LUNA. sUSD is more akin to DAI (i.e., over-collateralized debt-based stablecoins) than to UST.
- oefrha 4y ago
  > What's shocking is how many people, who ostensibly should be in the top 1% in terms of finance IQ, (e.g., Mike Novogratz, Raoul Pal, etc.) were seemingly unaware of these risks and never examined how it worked while shilling it to retail investors. Not shocking at all, it’s answered in TFA: > Many of the large firms that invested in and marketed this coin were able to exit before the crash occurred, escaping with massive profits. Strangely, some of these whales felt the need to share this in their comments following the crash. Pantera Capital CIO Joey Krug admitted that they had sold 80% of their Luna position before the crash. Furthermore, Pantera Capital partner, Paul Veradittakit, seemingly bragged that they had turned their $1.7 million dollar Luna investment into around $170 million dollars. Galaxy Digital CEO, Mike Novogratz, wrote in a letter that Galaxy had “booked profits along the way” before the Luna collapse happened.

lalaland1125 4y ago

> But who the hell wants Luna? In theory, people would want Luna to get the 20% returns through Anchor. Of course, that assumes the 20% returns would continue forever (which a bunch of crypto people foolishly believed) ...

shawabawa3 4y ago
Luna had nothing to do with 20% returns TerraUSD yielded 20% returns on anchor Luna gave staking yield. It received a portion of transaction fees off the Terra network, that was what created demand for Luna - if you thought transactions on Terra were going to increase and therefore give increase yield in the future Of course there simply wasn't enough demand to offset the terrible peg mechanism
- lalaland1125 4y ago
  And where do you think the TerraUSD invested in anchor came from? That TerraUSD all came from people buying Luna and converting it to TerraUSD. The root of demand for the Luna ecosystem was the 20% returns.
TedShiller 4y ago
If 20% returns lasted forever, we would all be trillionaires
- nikanj 4y ago
  WAGMI ( https://www.urbandictionary.com/define.php?term=wagmi https://www.urbandictionary.com/define.php?term=wagmi ) is a popular rallying cry in the crypto circles. XYZ coin is headed to the moon, and buying in today is like buying into bitcoin in 2009. The people don’t believe we can all be trillionaires, they just believe everyone who believed and HODLled their savings into XYZ is going to be one.
smcl 4y ago
Wait what are those 20% returns denominated in?

lottin 4y ago

The same is true of every single crypto token though. The entire value proposition of the crypto-currency industry is like "I will create this virtual token out of thin air and people will pay real money for it because.... reasons".