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The Depegging of UST
- FIFA-LEGEND 4y agoThis is probably the best thing I have worked with!
- deleted 4y ago[deleted]
- TameAntelope 4y agoSo is this presented as "evidence" to suggest there was an attack on Luna, that its depegging into a death spiral was intentional by some person or group of people?
- greatpostman 4y agoYeah someone found a flaw and took it down
- Kiro 4y agoThat's probably what happened and not a conspiracy theory but that doesn't make Luna or algorithmic stablecoins less bad. If they are vulnerable to attacks, then they're not stable.
- wmf 4y agoI don't see any attack. It looks like a bank run caused by people exiting crypto. It has been known for years that algorithmic stablecoins cannot survive a bank run so maybe Wallet A knew that their withdrawals had a probability of triggering collapse, but I still wouldn't blame them.
- chii 4y agoWhat i want to know is who benefited from the crypto-run on luna. The run is indeed a self-fulfilling and a positive feedback loop, since a small disturbance in price could trigger some of the conservatives to withdraw at a tiny loss, and this could snowball. But it is also possible that someone intentionally did it, like soros did for the english pound back when it got depegged. But i imagine you'd have to be able to borrow large amounts of luna and/or UST, sell it short, then trigger this run, in order to make profit. Is there any evidence that someone did such a large borrow?
- xwolfi 4y agoDo Kwon benefitted, everyone else was conned. The depeg of UST is more akin to a short of Herbalife than the Soros GBP attack. Remember the weakness of Terra was orders of magnitude easier to expose than that of a national currency.
- dragontamer 4y ago> What i want to know is who benefited from the crypto-run on luna. Literally everyone who sold first, that is, the $hundreds of $millions of dollars that were sold on Saturday, May 7th, as described in this article. That's the thing about bank-runs. The *first* person to sell benefits. As the whole community slowly realizes what is going on, they all rush to sell at the same time. This causes the death spiral.
- thematrixturtle 4y ago"Benefiting" is only relative: people who managed to exit UST at $1 didn't make a profit, they just avoided being left holding the bag. The people who actually benefited were those who earned the 18% interest from Anchor, which was funded by the suckers whose "investments" went to zero.
- chii 4y ago> The people who actually benefited were those who earned the 18% interest from Anchor These people would have been better served if the whole scheme continued rather than killing it by a run.
- dragontamer 4y agoThis was a zero-sum game. The loss of the masses who invested into 18% APY accounts is equivalent to the profits that Anchor made from this scheme.
- dragontamer 4y ago> "Benefiting" is only relative: people who managed to exit UST at $1 didn't make a profit, they just avoided being left holding the bag. That confuses the issue somewhat. 5 years ago, UST didn't exist. Sometime in the last 2 or 3 years, Do Kwon started to sell millions, maybe billions, of UST to people, 1 UST for $1 USD. In fact, maybe he sold them for less than $1 USD, maybe he sold UST for 80-cents (to fund over a year's worth of time of 18% APY promises). Everyone who sold UST, over the past 2 years for real USD, got to keep the dollars. The UST bag holders are... well... the bagholders. They have nearly nothing left now. Even those who sold UST at 80-cents or 60-cents last year or two years ago benefits by selling before everyone else did. > The people who actually benefited were those who earned the 18% interest from Anchor, which was funded by the suckers whose "investments" went to zero. The opposite. A bunch of people sold UST to a bunch of others for 82-cents, maybe 90-cents (since it took less than a year for a UST to disappear). Thanks for your dollars, here's a bunch of UST that soon became worthless.
- Fargoan 4y agoIt was a Soros style attack
- 3np 4y agoWhat makes you draw that conclusion? With publicly available evidence, this is not clear. If not, please present your thought-process.
- social_quotient 4y agoMaybe from this article https://beincrypto.com/terras-ust-de-pegging-a-brilliant-soros-style-attack-claims-analyst/ https://beincrypto.com/terras-ust-de-pegging-a-brilliant-sor...
- Ygg2 4y agoSoros didn't attack. He shorted, betting against the pound. He's no more criminal than any other short seller.
- Terry_Roll 4y agoExactly, just like there are so many ways to legally kill people.
- Ygg2 4y agoSuch as?
- Terry_Roll 4y agoStart with, where is your evidence?
- Ygg2 4y agoThat Soros shorted the pound? It's well documented https://en.m.wikipedia.org/wiki/Black_Wednesday https://en.m.wikipedia.org/wiki/Black_Wednesday Shorting in itself isn't all evil. It prevents stock from ballooning too hard. It's very risky since in case you lose, your losses can be astronomical.
- adhesive_wombat 4y agoIf code is law and its all deliberately unregulated, is it an attack, or is it simply an innovative leveraging opportunity?
- wmf 4y agoI don't even see anything innovative here. People withdrew their money.
- adhesive_wombat 4y agoPerhaps, but I'd be entirely unsurprised if, if someone thought exiting the pool might destabilise it, that they might arrange some way to profit from that.
- yieldcrv 4y agoIts just a chronology with no conclusion Hoping to add more accuracy to the information available
- 3np 4y agoWhat gives you that impression?
- woodruffw 4y agoYour "attack" is someone else's "well-executed and informed financial strategy." Absent a central authority that determines legitimacy, it's not clear why we should simultaneously accept the cryptocurrency community's churlish attitude towards financial stability and the crocodile tears around being the victims of said volatility.
- mensetmanusman 4y agoPonzi schemes don’t need much of an attack to collapse
- TJSomething 4y agoMy read is that it's equally likely that it's an inexperienced retail investor who got spooked by the state of the global economy.
- yhat1136 4y agoIn the mid-2000s two employees from Citadel left for Jump Trading and took some source code. Jump then took this strategy, improved on it and destroyed Citadel's HFT revenue stream. We're talking about billions in lost revenue for Citadel. I don't have proof for these allegations, but it is an open secret in the industry. There was a lawsuit a few years ago, but Jump was able to convince the courts that they could not reveal their source code because it would damage their business. Citadel was never able to prove that their code was stolen. Ken Griffin could certainly be strongly motivated to employ such an attack. And if he did... you have to admit it was pretty brilliant. This is something straight out of "Billions".
- seibelj 4y agoFYI this is jump trading, probably the largest prop trader and market maker in crypto. I have heard they lost over $4 billion from the Luna / UST crash although their profits from the bull run were so high they are likely fine.
- iqkznnft 4y ago4 billion seems an enormous amount. Do you know how they trade it?
- seibelj 4y agoI don’t work in trading but everyone in trading knows jump. Likely they invest in a lot of altcoins in pre-sales at significant discounts. Also they were the ones that bailed out Wormhole when they got hacked, likely because the hundreds of millions lost was jump’s own money. They are heavily into solana like all big traders for whatever reason. I think solana is weak tech but there is tons of VC money behind it.
- iqkznnft 4y agoI work in trading and didn't hear $4bn, that's why I was asking.
- polygamous_bat 4y agoJump is into Solana because Solana is their baby; it's a centralized technology that they are behind. Source: was supposed to get in a call with a few people with @solana.com email addresses, got a calendar invite with same names @jumptrading.com addresses.
- favflam 4y agoInteresting. I heard someone from Solana labs describe write access to Solana as an oligopoly. But I don’t understand the play. Is it for Jump and retail investors to play in the same Dex derivative bath tub?
- 4y ago
- sydthrowaway 4y ago
- davewritescode 4y agoAlgorithmic stable coins have always been vulnerable to a run on the bank situation but it’s not limited to just algorithmic stable coins. Bitcoin itself is also vulnerable and due to it’s design, big investors will be able to attach much higher transaction fees to their transactions meaning they’ll get a chance to sell first.
- wmf 4y agoYou only have to worry about transaction fees if you're a sucker and actually use the blockchain. If your coins are already custodied at an exchange you can sell immediately.
- eli 4y agoNow you’ve introduced a whole other category of risks instead.
- sgarman 4y agoExchanges stop / block / pause transactions all the time though? That's what everyone was so mad at robinhood about. No difference in crypto exchanges.
- Barrin92 4y ago> if you're a sucker and actually use the blockchain "Abstract. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required[...]" so much for the whitepaper I suppose
- sanderjd 4y agoCorrect. It seems to me that nobody has been trying to realize the vision from that whitepaper for like a decade.
- zarzavat 4y ago
- myaccount2020 4y ago
- denvercoder904 4y agoI find the concept of Curve pools (liquidity pools) like UST/3CRV, dual token systems, algorithmic pegged stablecoins, and services like Achor very complicated to follow. Is there any good literature that I can read the help understand the relationship between these components. Do they map existing components in traditional finance?
- dsr_ 4y agoYes. There is extensive literature on bank runs and similar failures caused by fractional or fraudulent reserves and lack of confidence, insurance, and regulation.
- mhluongo 4y agoEh, Curve pools and other invariant-based AMMs have some interesting properties outside traditional finance, bank runs, etc. I'd read up on the Uniswap constant product invariant (xy=k) and consider reading the Uniswap v2 code (it's a pleasure to read) [0]. Then check out the StableSwap paper by Curve founder Michael Egorov [1] Finally if you want a well-documented implementation to read in Solidity, check out Saddle [2]. Disclaimer, I helped write the first iteration. [0] https://github.com/Uniswap/v2-core https://github.com/Uniswap/v2-core [1] https://curve.fi/files/stableswap-paper.pdf https://curve.fi/files/stableswap-paper.pdf [2] https://github.com/saddle-finance/saddle-contract/blob/master/contracts/Swap.sol https://github.com/saddle-finance/saddle-contract/blob/maste...
- igorkraw 4y agoCan you please go into more detail on these "interesting properties"? I fail to see anything in terms of real analysis in the links you gave, simply descriptions of automated trading rules simple enough to be understood, but mathy enough to sell to the marks if cryptocurrencies, backtested on the growth stage of a bubble.
- carnitine 4y agoIt solves the problem of decentralised liquidity. An order book with traditional market makers is inherently centralised, here we have incredibly simple algorithms for trading between two assets with no intermediary, and the complicated, HFT market makers of traditional finance are replaced by passive liquidity providers. Not sure why you mention backtesting, or how that would really apply.
- jshaqaw 4y agoThe number of brain cells and compute cycles being wasted on this nonsense is staggering.
- bogota 4y agoIm sure this has been said about all early technologies at some point. If you are right or wrong only time will tell though.
- woodruffw 4y agoThey laughed at Columbus, they laughed at Fulton, they laughed at the Wright Brothers. But they also laughed at Bozo the Clown.
- Dylan16807 4y agoThough it's worth noting that Columbus was wrong but got lucky.
- xwolfi 4y agoBut there's nothing early abt crypto. My mom in Normandy sends me carbon copies of bitcoin article in the local newspaper (God knows why, all I told them was to never ever listen to anyone telling them to put their retirement in crypto lol). It's everywhere, everyone can get some, work in a crypto place, accept crypto in their store, convert their entire salary. What is so wrong about it that we call this 14 year old dinosaur tech "early". We've seen it, we don't want it, time to try someth else.
- RcouF1uZ4gsC 4y agoWhen you start seeing Super Bowl ads for it, you can describe it as "early"
- xwolfi 4y agoYeah we dont have super bowl in France or China where I leave now. I dont think it means early to have ads for, it seems to mean peak bubbles instead. And it could just be the beginning of the end.
- stevebmark 4y ago"Depegging" is an interesting term. A scam, bolstered by lies and fraud, fell apart. A made up claim that they could financially match a useless asset to a useful fiat currency.
- chrischen 4y agoYou’re giving them too much credit. A lot of crypto are just incompetence and failed startups. Not everything is a scam just because it didn’t work. Some were just misguided attempts (in hindsight).
- cuteboy19 4y agoThey were warned of this exact scenario multiple times
- chrischen 4y agoIf you’ve ever done a normal startup you’d know you constantly get bombarded with warnings of failure, and more often than not those warnings are right. And it’s not necessarily because people know something, but because most startups fail and you have more than a 50/50 chance of being right just by saying “you will fail.”
- cuteboy19 4y agoThat is fine if it is just a loss to you and your investors. Not to your customers. It is like Elizabeth Holmes being told that her tests were faulty and she still does not fix them.
- chrischen 4y agoThis is just a startup that happens to be able to skirt investment laws. This is a failing of regulations rather than necessarily outright scams. If people could invest in regular startups a lot of people would lose money too. Elizabeth Holmes didn't have faulty tests. She literally lied and defrauded investors about having the thing she was working on. That's actually a bad example to compare to the UST situation because that thing was out in the open, including how it worked. A scam requires some deliberate deception or lying. A bad idea is not necessarily a scam, and dumb people knowingly pouring money into a bad idea is also not a scam. If it was a scam in any way, it was a failing of governments of wherever you lived letting you invest in this.
- futevolei 4y ago
- seanhunter 4y agoThis is an interesting analysis. Setting aside for the moment the basic question of whether UST was structurally unsound, I've thought for a while now that the slowness of on-chain transactions coupled with lack of liquidity are two of the most important differences between cryptos and real FX markets. This paper just shows how chronic this problem is. > During a seventy-five minute span on Saturday, May 7, a series of critical transactions first pushed UST off the peg. > At 21:44 GMT, Terraform Labs (TFL) withdrew $150 million in UST liquidity. > At 21:57, a relatively-inactive account ("Wallet A") swapped $85 million UST for USDC in this pool. (This was the largest swap transaction in that particular Curve pool ever.) > From 22:32 - 22:38, another account ("Wallet B") swapped $75 million UST in the pool across three transactions. By this point, the pool was severely imbalanced. > At 22:52, Terraform Labs withdrew another $100 million in UST liquidity. This made the pool slightly more balanced, but it was still heavily imbalanced and — more critically — tiny at this point, leaving it vulnerable to even small transactions. > At 22:59, Wallet B swapped another $25 million UST in the pool. So over 75 minutes, the curve pool wasn't able to absorb $435M of transactions. To put this in context a major FX cross eg (USD/GBP) will have trillions of dollars of liquidity at the touch (ie for immediate trading), with FX marketmakers responding in milliseconds to price movements. That liquidity has the effect of absorbing the market impact of trades so you would have to trade probably 10000x larger in size in order to make any kind of meaningful dent in the liquidity and even then the market would reach equilibrium again in milliseconds rather than hours/days/never as happened here.
- Terry_Roll 4y ago> So over 75 minutes, the curve pool wasn't able to absorb $435M of transactions. Looks like someone found a financial zero day and exploited it! Now who would benefit from crypto's crashing? https://www.coindesk.com/policy/2022/02/09/russia-to-license-crypto-exchanges-tax-large-transactions/ https://www.coindesk.com/policy/2022/02/09/russia-to-license... https://money.usnews.com/investing/news/articles/2022-05-31/russias-central-bank-sees-space-for-crypto-in-international-trade https://money.usnews.com/investing/news/articles/2022-05-31/...
- SilasX 4y agoSo this article includes a background on the algorithmic stabilizing mechanism. >If UST’s market value was well above peg, say $1.10, an arbitrageur could purchase $1.00 worth of LUNA and swap into UST via the on-chain mechanism — providing the $1.00 of LUNA in exchange for one newly minted UST, worth $1.10. ... >In the inverse scenario where UST’s market value was below peg, say $0.90, an arbitrageur could purchase the discounted UST and swap into LUNA via the on-chain mechanism. Am I reading that right? That sounds like the LUNA protocol is effectively writing two options: to convert 1 UST to $1 worth of LUNA at current market price, and vice versa. But writing an option inherently means exposure to a risk of significant loss from high volatility? I don't know where I'm going with this but it seems like writing those two options in any other context would be insane.