I wonder how many of these companies you think are entering the space
just because it's hot and there's a lot of funding
versus the ones that will still be here, you know, like, two to five years later.
- Oh, 95% are going to die. - Yeah.
95%, they're going to die.
But, yeah.
There's also entertainment from watching companies die too.
At least you get to learn from it, right?
How did TerraUSD lose its peg?
And how did LUNA,
a coin that just a few months ago had over a $41 billion market cap,
fall to zero?
There are lots of theories floating around the internet,
and we're going to explore them today.
So let's start at the beginning.
Terraform Labs was founded by Do Kwon,
Stanford grad and former Microsoft software engineer,
and Daniel Shin,
who spent time consulting for McKinsey
after graduating from the Wharton School of Economics.
Fun fact,
Daniel was on the same Model UN team in high school
with Robinhood CEO Vlad Tenev,
who was also one of Terraform's original seed investors.
These guys look kind of like the guys you trust with your money, right?
Am I right?
After their initial coin offering for Terra LUNA in 2018,
the team spent two years building a payment app called Chai.
Daniel stepped away from Terraform to go run that side of the business.
They expanded their LUNAtic community releasing Terra KRT,
which was pegged to the Korean won,
and [TerraMNT] pegged to Mongolian currency,
and TerraUSD pegged to the US dollar.
Touting the ease of operability to transfer funds between nations,
Terra stablecoin and its payment app Chai were quickly adopted by Korea's top 14 banks,
No. 1 convenience store and largest game developer, just to name a few.
That's over 2 million users spending over a billion dollars using Terra KRT
according to the Terra website.
And in the great US of A, millions of users were soon using TerraUSD
to invest in synthetic assets on Mirror Protocol
and earning an insanely high yield of 20% on Anchor Protocol
when they launched in 2020 and 2021, respectively.
All the Terra stablecoins are algorithmic.
Whenever LUNA is swapped for UST,
part of the LUNA is burned,
decreasing the supply of LUNA.
If UST falls below $1,
LUNA holders are supposedly incentivized to swap UST for a dollar's worth of LUNA,
therefore making a profit.
This is, of course, predicated on the belief that LUNA has long-term value.
More on that later.
Soon, the buzz was getting undeniable
as the Terraform began to attract more and more investment money.
After the May 2021 crash,
the price of LUNA was trading around $5.
Over the next year, it pumped to over $116.
The LUNAtic community was going nuts,
hypothesizing higher and higher price predictions.
Terraform signed a 5-year $40 million deal with the Washington Nationals
which allowed fans to make purchases with UST.
Mike Novogratz of Galaxy Digital even got a tattoo of LUNA on his arm.
I guess millions of dollars wasn't enough for Mike.
He had to invest a little blood into the project as well.
But while diamond hands were tweeting they'd never sell their LUNA bags,
some were worried that Terra's algorithmic stablecoins weren't exactly stable.
Various experts across the crypto ecosystem were "terra-fied"
See what I did there?
about red flags in the ecosystem.
First, two-thirds of the demand for UST was coming from Anchor Protocol.
And remember, that's their in-house lending platform.
And lending demand was way higher than borrowing demand,
which means that lots of people wanted to lend out their UST and earn those sick 20% returns,
but not that many wanted to actually borrow UST.
There were concerns another borrowing protocol could take away liquidity from Anchor
or the reserves might not be sufficient enough to defend the peg.
And the reserves weren't originally part of the plan, guys.
That was something Terra added after the fact,
which suggested that their original ecosystem maybe wasn't sufficient enough to defend the peg.
Not good.
Many were concerned, what would happen if there was a run on LUNA?
Especially since Do Kwon had an evil genius plan
to try to eventually hold $10 billion worth of Bitcoin in the reserves,
saying that then the failure of UST is equivalent to the failure of crypto itself.
Basically, Do Kwon wanted to take all of crypto hostage
to support the UST peg.
But instead of listening to these valid concerns,
Do Kwon actively mocked anyone who doubted him
despite the fact that it later came to light
that Do Kwon already tanked a failed stablecoin back in 2020.
So really he should have been asking for all the help he could get.
So we set the scene for you, guys.
The end of March of 2022,
the Luna Foundation Guard begins.
So he starts buying Bitcoin to fund the reserves to back UST.
And on April 1, Terraform announced a partnership with Frax Finance,
creating a Curve stablecoin pool called 4pool.
This was Do Kwon's attempt to disrupt the Dai stablecoin
by moving activity away from another Curve stablecoin pool called 3pool.
This is important
because about a month later,
on the infamous day of March 8,
the Luna Foundation Guard moves $150 million worth of UST into 4pool,
thereby majorly decreasing the liquidity in 3pool,
leaving the vulnerability and leaving themselves open to attack.
Meanwhile, an unknown attacker, more on that later,
had borrowed 100,000 Bitcoin from Gemini,
something that of course Gemini has denied,
despite the transaction being in their order books.
But they were quietly swapping a quarter of that Bitcoin for UST.
Many are speculating that the attacker sold some of the borrowed Bitcoin to Do Kwon
in exchange for UST,
but this is not 100% confirmed.
When the Luna Foundation Guard pulled the liquidity,
the attacker used part of their billion-dollar position in UST
to drain the Curve liquidity,
starting to depeg UST,
which hits about $0.972.
Not completely depegged, but enough to rattle the community.
The Luna Foundation Guard started selling their Bitcoin to defend the peg.
And then the attacker sells the rest of their UST on Binance,
causing everyone to panic sell their remaining UST.
The whole chain gets congested,
and the centralized exchanges suspend withdrawals of UST.
But this just turns the panic selling into a full on bank run.
But now we have Bitcoin free falling 25%,
and the panic gets more and more intense.
People are liquidated.
UST completely loses its peg,
and LUNA swan dives off a cliff,
eventually going to zero.
After days of silence,
Do Kwon finally made a statement basically confirming UST has lost confidence and is dead.
But he still thinks there's an opportunity to repair the LUNA community,
plans to reimburse holders of LUNA and UST.
Hopefully, he won't be reimbursing them with another algorithmic stablecoin.
But all jokes aside, here's the thing, guys.
I know it's fun to sit here and go through all the drama,
especially if you weren't holding LUNA or UST the last couple of days.
But people's lives were ruined in a week.
There's been reports of suicide.
Do Kwon's wife had to ask for police protection because people have been showing up at their house.
This is nuts.
It must end.
Now, we're still not 100% sure who took advantage of this situation.
Some have suggested it was Justin Sun.
Because he put out a slightly sketchy tweet just a few days before.
But that doesn't really make sense because he's launching his own algorithmic stablecoin.
So why would he do something that could potentially delegitimize algorithmic stablecoins
right before his launch?
He wouldn't do that.
It could have been a whale who didn't like Do Kwon's evil genius plans to hoard Bitcoin.
But I think the only people ruthless enough to take down an entire blockchain ecosystem
and ruin millions of people's lives in the process are BlackRock and Citadel.
Now, they've of course denied that they were involved.
But I keep telling you guys,
these hedge funds don't care how much irreparable damage they do to ordinary people.
As long as they make a profit,
they'll be laughing all the way to themselves--
I mean, the bank,
while you struggle to pay your mortgage, feed your family.
They are vampires on the world's economy, and they must be stopped.
You know the Fed is just going to use this as another excuse to regulate stablecoins.
On Thursday, Janet "Felon" Yellen asked lawmakers
for a consistent federal framework on stablecoins to address risks.
Pretty convenient timing.
The Fed has been chomping at the bit to regulate stables.
They already cracked down on BlockFi and Celsius.
Now, the third largest stablecoin gets sabotaged in a week.
Then, on Thursday, Tether momentarily dipped as well.
Nobody panicked.
It very quickly regained its peg. Nothing to actually worry about there.
But it just seems like there are a lot of people behind the scenes
working together to instill fear into the crypto community
and make billions of dollars at the same time.
They may be laughing now,
but when people finally get fed up and start showing up to their offices
asking what happened to their money,
it won't be quite so funny.
Anyway, both LUNA and UST prices have recovered slightly over the last week.
By slightly, I mean, LUNA is basically a memecoin right now.
It's nowhere near the all-time high.
But Binance and FTX did relist LUNA, and the hopium seems to be alive on Twitter.
Do you think people are just playing with LUNA's corpse to make a quick buck?
Or could LUNA recover?
Who do you think attacked LUNA and UST?
Leave your comments down below and tell us what you think
about this crazy roller coaster over the last couple of weeks.
And as always, don't forget to like and hit subscribe to the channel
because that's the only way we're going to get this information out to the people who need it.
That's all I got.
Be blessed.
BitBoy out.