Kinda like how we are still baffled and left to wonder what the fuck was Bill Hwangs exit plan in the end. There really didn't see any except for an obvious blow-up for Archegos. Kinda like getting your hedge fund in a gamma-squeeze with no way to go but fall/shoot closer to insta-certain death.
The Anchor DeFi ponzi collapse journal
- Thread starter Pekelo
- Start date
Kinda like how we are still baffled and left to wonder what the fuck was Bill Hwangs exit plan in the end. There really didn't see any except for an obvious blow-up for Archegos. Kinda like getting your hedge fund in a gamma-squeeze with no way to go but fall/shoot closer to insta-certain death.
'Everything broke’: Terra goes from DeFi darling to death spiral
Emily Nicolle May 12, 2022
https://www.afr.com/markets/currenc...-defi-darling-to-death-spiral-20220512-p5akkg
A celebrated experiment that combined math and software to get a digital currency to behave like a dollar is crashing in dramatic fashion, posing the biggest test yet to decentralised finance and the will of its backers to defend it.
TerraUSD, or UST, is an algorithmic stablecoin, meaning it uses a complex combination of code, trader incentives, smart contracts and no small amount of faith to maintain its peg of one-to-one to the dollar. It does this by working with a crypto token in the same ecosystem, Luna, which can be swapped for UST and vice versa by traders to keep the price of UST where it should be.
“Many people were caught off guard,” said Nikita Fadeev, partner and head of crypto fund Fasanara Digital, which de-risked its position in advance of the crash. “Everything broke there. It is full capitulation.” Bloomberg
The point of projects like UST is to enable crypto traders to make transactions easily and quickly without needing to leave the digital asset ecosystem, rely on intermediaries or worry about the value of their coins going up and down.
By using software programs to manage the token’s volatility, the opportunities for profiting off arbitrage are even greater — DeFi lender Anchor Protocol was known for offering market-beating rates of up to 20 per cent to traders willing to deposit UST on its platform. In summary, it’s the crypto dream.
A month ago, the future looked bright for Terra and its main backer Do Kwon: a consortium called the Luna Foundation Guard aimed at providing collateral for Luna — then at an all-time high value of $US119 — had bought more than $US1.5 billion in bitcoin to shore up UST’s peg, with its members reading like a Who’s Who of crypto.
But on Monday, all of the mechanisms that were supposed to keep UST stable, weren’t — it fell to a low of 60 cents on that day, and reached a further low of around 20 cents in another crash on Wednesday, taking its market value down from $US18.4 billion to $US5 billion. Luna also fell considerably, dropping to as low as $US2.35.
‘Full capitulation’
“Many people were caught off guard,” said Nikita Fadeev, partner and head of crypto fund Fasanara Digital, which de-risked its position in advance of the crash. “Everything broke there. It is full capitulation.”
Exactly why all of Terra’s carefully-planned mechanisms failed to do their job remains unclear, and conspiracy theories abound about shadowy actors with untold wealth to play with. But one thing’s for certain: Kwon isn’t going down without a fight.
He’s now attempting to raise $US1.5 billion from new and old investors alike to provide more collateral to UST, hoping to rebuild the token’s liquidity after it virtually disappeared from order books overnight. Some suspect that $US1.5 billion won’t even be enough, and it could take days, if not weeks, for UST to re-peg to the dollar.
“Once liquidity evaporated, this perpetuated the collapse of the stablecoin,” said Clara Medalie, research director at Kaiko, in an email. In order for UST to re-peg, she said, buy orders from crypto traders will need to consume all of the asking price’s liquidity to get it up to $US1. “This morning, there is virtually nothing left.”
Terraform Labs, which powers the Terra blockchain, is backed by firms including Galaxy Digital, Pantera Capital and other players in crypto.
Among the firms that were approached via a round robin in the latest financing attempt were Nexo and crypto banking app Cashaa, which declined to participate. Meanwhile, crypto firm Celsius said it “was not and is not involved” in any Luna bailout.
‘Death spiral’
Anchor, now a shadow of its former self as the main driver of demand for UST on the Terra network, has proposed temporarily cutting its interest rate to a minimum of 3.5 per cent. While its total amount deposited sat as high as $US14 billion on Monday, it had around $US3.6 billion in UST still on its books by mid-afternoon in London on Wednesday.
Already, comparisons with the 2008 financial crisis have started to roll in. Hallmarks of shadow banking, such as circular market mechanics and extremely high leverage, are readily visible among Terra’s ecosystem, something that academics fear could create a second, digital wave of failed lenders and wiped-out savings.
“It will get worse before it will get better — way too much UST is looking to exit, and the death spiral is very reflexive at these levels,” added Fadeev. “It’s a long road ahead.”
Bloomberg
Emily Nicolle May 12, 2022
https://www.afr.com/markets/currenc...-defi-darling-to-death-spiral-20220512-p5akkg
A celebrated experiment that combined math and software to get a digital currency to behave like a dollar is crashing in dramatic fashion, posing the biggest test yet to decentralised finance and the will of its backers to defend it.
TerraUSD, or UST, is an algorithmic stablecoin, meaning it uses a complex combination of code, trader incentives, smart contracts and no small amount of faith to maintain its peg of one-to-one to the dollar. It does this by working with a crypto token in the same ecosystem, Luna, which can be swapped for UST and vice versa by traders to keep the price of UST where it should be.
“Many people were caught off guard,” said Nikita Fadeev, partner and head of crypto fund Fasanara Digital, which de-risked its position in advance of the crash. “Everything broke there. It is full capitulation.” Bloomberg
The point of projects like UST is to enable crypto traders to make transactions easily and quickly without needing to leave the digital asset ecosystem, rely on intermediaries or worry about the value of their coins going up and down.
By using software programs to manage the token’s volatility, the opportunities for profiting off arbitrage are even greater — DeFi lender Anchor Protocol was known for offering market-beating rates of up to 20 per cent to traders willing to deposit UST on its platform. In summary, it’s the crypto dream.
A month ago, the future looked bright for Terra and its main backer Do Kwon: a consortium called the Luna Foundation Guard aimed at providing collateral for Luna — then at an all-time high value of $US119 — had bought more than $US1.5 billion in bitcoin to shore up UST’s peg, with its members reading like a Who’s Who of crypto.
But on Monday, all of the mechanisms that were supposed to keep UST stable, weren’t — it fell to a low of 60 cents on that day, and reached a further low of around 20 cents in another crash on Wednesday, taking its market value down from $US18.4 billion to $US5 billion. Luna also fell considerably, dropping to as low as $US2.35.
‘Full capitulation’
“Many people were caught off guard,” said Nikita Fadeev, partner and head of crypto fund Fasanara Digital, which de-risked its position in advance of the crash. “Everything broke there. It is full capitulation.”
Exactly why all of Terra’s carefully-planned mechanisms failed to do their job remains unclear, and conspiracy theories abound about shadowy actors with untold wealth to play with. But one thing’s for certain: Kwon isn’t going down without a fight.
He’s now attempting to raise $US1.5 billion from new and old investors alike to provide more collateral to UST, hoping to rebuild the token’s liquidity after it virtually disappeared from order books overnight. Some suspect that $US1.5 billion won’t even be enough, and it could take days, if not weeks, for UST to re-peg to the dollar.
“Once liquidity evaporated, this perpetuated the collapse of the stablecoin,” said Clara Medalie, research director at Kaiko, in an email. In order for UST to re-peg, she said, buy orders from crypto traders will need to consume all of the asking price’s liquidity to get it up to $US1. “This morning, there is virtually nothing left.”
Terraform Labs, which powers the Terra blockchain, is backed by firms including Galaxy Digital, Pantera Capital and other players in crypto.
Among the firms that were approached via a round robin in the latest financing attempt were Nexo and crypto banking app Cashaa, which declined to participate. Meanwhile, crypto firm Celsius said it “was not and is not involved” in any Luna bailout.
‘Death spiral’
Anchor, now a shadow of its former self as the main driver of demand for UST on the Terra network, has proposed temporarily cutting its interest rate to a minimum of 3.5 per cent. While its total amount deposited sat as high as $US14 billion on Monday, it had around $US3.6 billion in UST still on its books by mid-afternoon in London on Wednesday.
Already, comparisons with the 2008 financial crisis have started to roll in. Hallmarks of shadow banking, such as circular market mechanics and extremely high leverage, are readily visible among Terra’s ecosystem, something that academics fear could create a second, digital wave of failed lenders and wiped-out savings.
“It will get worse before it will get better — way too much UST is looking to exit, and the death spiral is very reflexive at these levels,” added Fadeev. “It’s a long road ahead.”
Bloomberg
They should have pegged it to 2.95 British Pounds! Should have called it GBT!
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'Evil genius' may have caused Terra and Luna cryptocurrencies to crash in a 'death spiral'
How did the 'evil genius' plot unfold?
Nobody knows who caused the price of Terra and Luna to crash.
But many on social media are pointing the blame at the big US hedge funds, given the massive trades involved. Two firms, Citadel Securities and BlackRock, have already issued statements denying any involvement in Terra's crash.
"We don't know if the momentum was created by collusion [between hedge funds]," said Lisa Wade, the CEO of blockchain company DigitalX.
"Conspiracy theorists would say 'yes', because it's a massive trade. I mean, in all of my career, it's one of the biggest trades that I've seen," she told ABC's The Business.
"It's almost like an evil genius plot, because there are a lot of steps to it."
Ms Wade said, as part of this complex plot, the buyers appear to have purchased around $1 billion worth of UST stablecoins, while "shorting" bitcoin (which is a risky way to make money, by betting on the price of an asset falling — instead of rising).
"What they did next was they timed the market.
"So obviously we're in a really volatile risk-off stage of the market — because of everything that's been happening with the [US] Fed and the macro environment.
"They waited until a Saturday night when [trading] volumes were very low, and there were no bids.
"And then they went into a trading pool and started selling UST in massive volumes, which then triggered all of the subsequent selling in a low-volume market that broke the [US dollar] peg.
"Inside the algorithm was what our team had identified as a 'death spiral' ... the selling starts to feed on itself from the mechanics of the algorithm.
"So when the death spiral kicked in ... the algorithm started selling Bitcoin and Avalanche [another cryptocurrency], which triggers more selling.
"Luna was impacted because it's the underlying [backer] of the UST. So every time a UST [token] is bought, a Luna [token] is burnt, which means there's less tokens in supply, so the Luna price goes up.
"The reverse applies when people start selling. So every time someone sells a UST, they mint a Luna, which means there's more volume.
"And if there's no buyers and the price goes down, then it starts to feed on itself, because people start panicking and selling Luna.
"This was an exploitative trade that took advantage of the fact that markets are weaker. The perfect storm was nobody stepping up to buy the bitcoin and the UST".
'I lost all my life savings'
Unfortunately, there is a human cost to the failure of the Terra stablecoin.
A long list of suicide prevention hotlines can be seen at the top of the TerraLuna Reddit page — including Australia's LifeLine, and similar organisations from the United States, Britain, Spain, China, Sweden, and 90 other countries.
Many Reddit users have also posted stories about the consequences of losing their money from their Terra and Luna cryptocurrency investments.
"I lost all my life savings," one user wrote. "Had bought Luna at $85, not sure what to do."
"I should've cashed out when it was $100, then I would have been up $25,000," Reddit user No-Forever wrote.
"But I got greedy hoping to get more money so I can at least afford a downpayment for a house for my family. I guess no house and savings then."
What next for crypto markets?
"What upsets me is that I can look at it through a trader's lens and be clinical and analyse the trade," Ms Wade said.
"However, on the other side of that are mums and dads.
"The reason why UST was worth $US18 billion was because it was backed by a savings pool.
"That savings pool was offering 20 per cent returns. So lots of innocent people had their money saved up in their thinking they were getting risk-free deposits."
While Ms Wade said this kind of trading wasn't illegal, the ethics of it were "questionable", and she believes it will likely lead to regulation in the crypto markets being fast-tracked.
Terra's backers are currently trying to raise about $US1.5 billion to boost the value of the stablecoin, and restore its parity with the US dollar — with little success so far.
But the concern amongst anxious investors is that: if the value of a supposedly "stable" digital asset can be wiped out so easily in a few days, who else is next in the crypto firing line?
How did the 'evil genius' plot unfold?
Nobody knows who caused the price of Terra and Luna to crash.
But many on social media are pointing the blame at the big US hedge funds, given the massive trades involved. Two firms, Citadel Securities and BlackRock, have already issued statements denying any involvement in Terra's crash.
"We don't know if the momentum was created by collusion [between hedge funds]," said Lisa Wade, the CEO of blockchain company DigitalX.
"Conspiracy theorists would say 'yes', because it's a massive trade. I mean, in all of my career, it's one of the biggest trades that I've seen," she told ABC's The Business.
"It's almost like an evil genius plot, because there are a lot of steps to it."
Ms Wade said, as part of this complex plot, the buyers appear to have purchased around $1 billion worth of UST stablecoins, while "shorting" bitcoin (which is a risky way to make money, by betting on the price of an asset falling — instead of rising).
"What they did next was they timed the market.
"So obviously we're in a really volatile risk-off stage of the market — because of everything that's been happening with the [US] Fed and the macro environment.
"They waited until a Saturday night when [trading] volumes were very low, and there were no bids.
"And then they went into a trading pool and started selling UST in massive volumes, which then triggered all of the subsequent selling in a low-volume market that broke the [US dollar] peg.
"Inside the algorithm was what our team had identified as a 'death spiral' ... the selling starts to feed on itself from the mechanics of the algorithm.
"So when the death spiral kicked in ... the algorithm started selling Bitcoin and Avalanche [another cryptocurrency], which triggers more selling.
"Luna was impacted because it's the underlying [backer] of the UST. So every time a UST [token] is bought, a Luna [token] is burnt, which means there's less tokens in supply, so the Luna price goes up.
"The reverse applies when people start selling. So every time someone sells a UST, they mint a Luna, which means there's more volume.
"And if there's no buyers and the price goes down, then it starts to feed on itself, because people start panicking and selling Luna.
"This was an exploitative trade that took advantage of the fact that markets are weaker. The perfect storm was nobody stepping up to buy the bitcoin and the UST".
'I lost all my life savings'
Unfortunately, there is a human cost to the failure of the Terra stablecoin.
A long list of suicide prevention hotlines can be seen at the top of the TerraLuna Reddit page — including Australia's LifeLine, and similar organisations from the United States, Britain, Spain, China, Sweden, and 90 other countries.
Many Reddit users have also posted stories about the consequences of losing their money from their Terra and Luna cryptocurrency investments.
"I lost all my life savings," one user wrote. "Had bought Luna at $85, not sure what to do."
"I should've cashed out when it was $100, then I would have been up $25,000," Reddit user No-Forever wrote.
"But I got greedy hoping to get more money so I can at least afford a downpayment for a house for my family. I guess no house and savings then."
What next for crypto markets?
"What upsets me is that I can look at it through a trader's lens and be clinical and analyse the trade," Ms Wade said.
"However, on the other side of that are mums and dads.
"The reason why UST was worth $US18 billion was because it was backed by a savings pool.
"That savings pool was offering 20 per cent returns. So lots of innocent people had their money saved up in their thinking they were getting risk-free deposits."
While Ms Wade said this kind of trading wasn't illegal, the ethics of it were "questionable", and she believes it will likely lead to regulation in the crypto markets being fast-tracked.
Terra's backers are currently trying to raise about $US1.5 billion to boost the value of the stablecoin, and restore its parity with the US dollar — with little success so far.
But the concern amongst anxious investors is that: if the value of a supposedly "stable" digital asset can be wiped out so easily in a few days, who else is next in the crypto firing line?
I confess I know nothing about this . did i miss another golden opportunity to not be poor ?
I'm not so sure. You'd have to reach zero first, and even the smartest calculator fucks up when you divide by zero.
20% risk-free?
I guess 20% sounds conservative in the crypto world, leading people into a false sense of security.