I've slept about 5 hours in the last two
days and haven't showered, so apologize for that.
But I felt a need to talk
about Luna and especially the UST collapse.
What happened?
How I personally incurred crazy losses and the rumors
swirling around that this is some kind of intentional
market manipulation and also have an announcement to make
at the end of this video.
So stick around.
This event has ruined tons of people's lives
and undoubtedly hurt the entire crypto market.
And you'll see what I mean in a minute.
I really don't even want to be recording this video.
So let me just give you the essentials first.
So UST, it's a stablecoin.
It's supposed to be pegged to the US dollar.
This happens through arbitrage trading where investors essentially
trade UST for Luna or vice versa to
keep that price right at $1.
Now, typically this works.
It's had a few slip ups in the
past, but nothing it hasn't recovered from.
Every time there's been a slip up, it's been
because the market tanks or something like that.
But these things are made to withhold
market events, so typically it's fine.
Well, as you're aware, I'm sure UST is now trading at
far less than a dollar, around fifty cents at the time
of this recording, and it's been as low as $0.29.
Now, the worst part is that people buy and
invest in UST and other stablecoins as a
bit of a shelter from volatility and risk.
You park your money there when
you're trying to be safe.
Like that's supposed to be the safe option.
The best way to visualize this is like
extreme inflation, which real inflation, it's pretty bad
today also, but inflation that doubles overnight.
So coffee was $3 yesterday.
Well, it's $6 today and there's a
chance it could be $12 tomorrow.
This is essentially what happened to every single
UST holder and there are millions of holders.
This is huge.
So what caused all this?
Well, at the beginning of the month, Anchor Protocol,
which was the most popular lending platform on the
planet, switch their rate structure here, you could lend
out the UST stablecoin token for around 20% APY.
Crazy rates.
The problem is that this was more of
an introductory rate to get people in and
build up excitement around this ecosystem.
Rates would be lowered later.
They were burning a ton of cash and this
couldn't go on forever, which is totally fine.
If cash ran out, rates would just drop.
But your deposit would have no issues whatsoever.
At the beginning of May, a new
rate structure was enacted that would make
rates more variable depending on demand.
Within that protocol, rates were expected to lower
by about 1.5% per month for a few
months until that stability was found.
And then they weren't burning so much cash.
So this started and the expectation was that
people who had money deposited on this Anchor
protocol earning interest would leave, some people would
and the exchange would be spending less money.
The opposite happened.
Deposits hit a record high in early May
after that switch to around $18 billion.
But again, this wasn't the end of the world.
I personally kept an eye on it, but I wasn't
exactly worried about this, because again, the money runs out.
It's fine.
However, we're in a touchy market right now.
Stocks are going down, cryptos, everything.
There's a ton of fear on
everything having to do with investing.
People in the general market began to sell
cryptos, including the one that backs UST, Luna.
The decrease in Luna's price caused investors to
be concerned about its ability to back the
value of this now massive UST token.
It's a top ten token.
Now, some investors began selling their UST, and this
caused a ton of downward pressure on UST because
the algorithmic, it can go down in value.
This took it off of that $1 peg.
So it went from $1 and around May 7 to around $0.99.
Again, this wasn't the end of the world.
Stable coins fluctuate.
Even USDT fluctuates a little bit.
Just recently, UST was trading at a $1.01.
No one batted an eye.
It was totally fine.
So things were a little bit touchy,
but so is the entire market.
So this didn't seem like that big of an issue, really.
That is until Monday, when the
Fed announced the interest rate hike.
And this caused stocks and
crypto to tumble dramatically and almost instantly.
People worried about further
losses in the market began selling, including
the Luna token and UST.
So this caused a kind of negative
flywheel where Luna's price decreases further.
And remember, Luna is backing UST.
So people get even more worried that the
value behind this stablecoin is crumbling.
This means even more sell offs happening.
And you can see this kind of negative
effect happens because of these sell offs.
UST falls further off of its $1 peg, selling off
more and more because now people are freaking out.
It hit $0.98.
People are like, I'm done with this.
You can see that negative effect compounding.
We can see the market cap of
UST dropping dramatically right at this time.
This is where prices begin to absolutely free fall.
And I'm not going to lie, this
was a very panic inducing time.
I saw this happen live.
I was on the chart for Luna and UST.
I saw Luna live drop by 50% in what felt like minutes.
I watched the price for UST, which is supposed to be
a dollar, dropped down to $0.80, and then $0.70 and then $0.60.
And there's nothing I could do
about my deposits at this point.
The network was congested.
By the time I could get any money onto an
exchange, this thing could hit zero, evaporating my account.
Anyone who was using leverage was very
likely liquidated, especially by this point.
If you had even 10% leverage, it's not looking good.
And that's a lot of people
but what's especially frustrating for me?
Before I ever bought a single dollar of UST
personally, I did an insane amount of diligence to
determine if this risk reward made sense.
I understood the tokenomics and the key risk factors.
I'm diversified.
I even chatted with three different crypto lending hedge
funds to look at their risk analysis to see
if this actually makes sense for me.
I really like to do the research before I buy anything.
The consensus seemed to be that UST would
be totally fine as long as Luna doesn't
drop more than about like 70%, which seemed
like a reasonable margin of error to me.
Well, guess what happens?
Luna dropped 70% and then some.
Surprisingly, it didn't go to zero the first
night, but I was still looking at larger
losses than I've personally ever seen before.
This was money.
I'd sitting on the sidelines waiting for good
deals while the market was just being crazy.
I was trying to be relatively safe with it.
So I keep my money in not wanting to
be the guy who sells a dollar for $0.50.
Because that sounds ridiculous.
Who would do that?
And I know that's perfectly possible for the
price to go back up to one dollar.
With an understanding of how this price goes back
to $1, I even decided to try some arbitrage.
I should be able to essentially buy UST for $0.70 or
whatever it's at, and then sell it to Terra for a
dollar instant 30% profit or whatever that difference might be.
This was a major problem though, because they have
a safety mechanism that makes it less profitable to
do arbitrage the more that it's being done.
So it creates this kind of
like cooldown period within the system.
Now, in normal times, this is pretty useful, but
right now this means my $1 tokens are stuck
at far less than $1 for the foreseeable future.
Meanwhile, the backing Luna is getting pummeled,
increasing the risk more and more.
As the price of Luna goes down, this risk goes up.
Plus that cooldown period just
isn't happening fast enough.
This is insanely bad, like the
crypto version of the housing bubble.
So the next day comes and I know
that we're completely walking on eggshells here.
If the crypto market drops further, we're screwed.
Absolutely a total bank run.
But if we can be calm, prices will go back up to
a dollar, maybe in a few days, maybe a week at most.
So I monitor the market and sell
a little bit at like $0.90.
But things seem to be healing up.
So the plan was just hang tight just a
little while longer to see where things trend.
That was a mistake.
Late on the 10th, prices began to tank
further and further, hitting eventually around $0.20 for
UST, a dollar now worth $0.20.
So Thankfully I didn't panic sell during that time.
But I do have sales around $0.50 on a dollar.
Who would do that? I guess me. By far
the most painful sales of my entire life.
So not only am I part of one of the
worst events, Black Swan events, to happen in crypto, but
now I'm thinking about how I feel obligated to be
transparent and talk about it like someone has to talk
about these events and think about this.
If I bought a volatile asset and it
dropped 50%, sure, I'd be salty about it.
But I'd think to myself, like, well, that's
the risk you take buying a volatile asset.
But when you buy something that's supposed to be
the safe bet, you know, reasonably safe anyways.
It's not perfectly safe.
You just feel betrayed when it drops.
And I'm sure there's a lot of people who kind
of feel the same way as I do about this. You feel dumb.
You think that you could have done something different.
You think you should have done something different.
But the more I think about it, I really
don't think anyone who lost on UST should feel
like they did especially anything like that wrong.
This is the definition of a Black Swan event.
This is the Lehman Brothers collapse of crypto.
It's not just degenerates who were part of this.
It's not 100,000% APY.
Yes, it's high APY.
Don't get me wrong.
It's a hint of degenerate, for sure.
But we're talking hedge funds
were in this, retirement savings.
There was a lot of smart people who
would invest in this, who got absolutely smashed.
Every single person invested just didn't
properly calculate risk, myself included.
And that's the mistake that we made.
And for those saying this is 20%, it's unsustainable.
What do you expect?
You're absolutely right.
But so are lending rates on
literally every single crypto platform.
Every exchange that pays 8% to 12% flat
interest on stablecoins is losing money in order
to get people in the door.
This is no different.
No one would expect an $18 billion
to just essentially evaporate in two days.
And that's what happened.
Now, I'm going to talk about
what the future may hold here.
But first I want to talk about the
rumors that this may be a coordinated attack.
Now, we don't have proof on this, but I
think it's important to understand what's being said anyways.
So market conditions absolutely
amplified this entire issue.
But there are rumors that it might
have been spurred by BlackRock and Citadel.
They borrowed 100,000 Bitcoin from Gemini, and the story goes
that they then swap 25% of that into UST.
They then reached out to Do Kwon, the founder of Terra, saying
that they wanted to buy a large chunk of UST and would
sell Bitcoin at a discount in order to do so.
And they wanted to do it directly
so they didn't hurt UST too much.
Supposedly, he took the bait, lowering
the supply of available UST.
Again, this has not been confirmed.
BlackRock and Citadel then sold all the Bitcoin in
UST that they held causing both markets to fall
sharply at the same time, creating this panic, or
at least amplifying a panic that was happening.
Once price decreased, they then buy back their Bitcoin
that they loaned out at a lower price and
make a tidy profit on the loan.
Now the unfortunate thing is that if
this is true, it's totally legal.
They were simply exploiting a market
that had a major weakness.
It's extremely unfortunate, but it's a weak market.
There's not much you can say or do.
Some people did call that this could happen,
and I even did to a certain degree.
But we shouldn't be too hard on ourselves,
because if you look hard enough, you will
literally find a prediction for anything.
So what now?
There are two major concerns that I want
to point out, and then my announcement.
Terra is voting to tweak the algorithm of UST
to get the $1 Peg algorithm to work faster,
getting the price back to normal sooner.
This is good, but the issue here is that
it will be at the expense of Luna.
It will cause a lot of downward pressure.
And even given this change, I foresee a ton
of volatility in UST before it gets fixed.
If it can even get fixed, the stress
is not over if you still hold UST.
In my opinion, none of this
is financial advice, of course.
Now, second, this is extremely bad
for the entire crypto market.
Both crypto lending and stablecoins have had a close
eye from regulators for the last year or so.
I'm willing to bet that this is
the nail in the coffin for both.
This event is exactly why markets get regulated.
Look at the bank runs of
Black Wednesday, the '08 crisis.
All of these things.
People have their fun, they make their money,
markets get hot, and eventually the music stops.
Then regulators need to come in and
try to prevent it from happening again.
But then there always will be a new market
that crops up and the exact same thing happens.
And we saw this coming.
I highly recommend watching my last two videos after
this one is about governments attempting to replace Bitcoin
and stablecoins and the reasons to do so.
And the other is about how
the anchor protocol is dying off.
I didn't plan it, but those
two videos somehow landed perfectly, unfortunately.
The only thing that we can
do now is learn from this.
So personally, I've learned that
I'll diversify even further.
I thought an 8% allocation of this was
risk I was willing to take, and I
learned that even that can be too much.
Now I did want to do something because I
know the community is hurting like I am, honestly.
Bitget and FTX sponsor me, so I'm
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So if you grab the link in the description you'll
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supporting this channel so sign up and try them out.
Now the giveaway, I'm going to be giving away $500
every day for the next seven days on my discord.
It's totally free.
All you have to do is join and react
on the post in order to be entered.
That's all I can really do at this point.
It's a sad day for crypto and we
just need to stick together so thanks everyone.