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mondoveneziano
LUNA is trading at below $0.00001, that is below 1/1000th of a cent right now. For many, getting rid of it may be much harder than just ignoring it. A few weeks ago the price people were willing to pay for it hovered around $100.

I say "the price people were willing to pay" instead of "value", because now that nobody wants to speculate with LUNA, it did fall down to its intrinsic value: Practically zero. Nobody needs it for anything besides buying and selling it from and to other people, which is not happening anymore.

Cryptocurrency is gambling, plain and simple. The difficulty that fiat currency faces is inflation, which roughly means diluting the economy that backs it too much. The difficulty with cryptocurrency is that there is nothing of worth backing it. Factor in the horrifying externalities, and its worth is negative.

For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.

akkartik
I prefer Matt Levine from his newsletter today:

"Safe assets are much riskier than risky ones. This is I think the deep lesson of the 2008 financial crisis, and crypto loves re-learning the lessons of traditional finance. Systemic risks live in safe assets. Equity-like assets — tech stocks, Luna, Bitcoin — are risky, and everyone knows they’re risky, and everyone accepts the risk. If your stocks or Bitcoin go down by 20% you are sad, but you are not that surprised. And so most people arrange their lives in such a way that, if their stocks or Bitcoin go down by 20%, they are not ruined.

"On the other hand safe assets — AAA mortgage securities, bank deposits, stablecoins — are not supposed to be risky, and people rely on them being worth what they say they’re worth, and when people lose even a little bit of confidence in them they crack completely. Bitcoin is valuable at $50,000 and somewhat less valuable at $40,000. A stablecoin is valuable at $1.00 and worthless at $0.98. If it hits $0.98 it might as well go to zero. And now it might!

"I have in the past told the story of TerraUSD and Luna by saying: The weakness in TerraUSD is Luna. One UST can be exchanged for $1 of Luna, but that only works if people continue to have confidence in Luna; if Luna goes to zero then TerraUSD will follow. But you could also tell the story by saying: The weakness in Luna is TerraUSD. Luna, as the cryptocurrency of a blockchain ecosystem, would rise or fall with the value of that ecosystem. But Luna, as the thing supporting a stablecoin, could go to zero in a week if that stablecoin needed support. Terra was so unstable because it was trying to be stable."

ambrozk
I interviewed with Terraform Labs less than a year ago. The guy interviewing me was a pretty standard eng manager who'd left Amazon for the excitment of a crypto startup. I tried to prep for the interview by researching their white papers to figure out how the various balancing and investment mechanisms actually functioned on a technical level. But it was difficult to make sense of their white paper, which was fairly general, and different portions of their documentation seemed to contradict one another. When I asked what I'd been misunderstanding, he told me that I hadn't misunderstood anything: their white paper was not a full spec, and their documentation was out of date. In that case, I asked, how could one actually understand the protocol? "It's probably not possible at this point," he told me, "These things are in motion all the time." I thought his answer was pretty eye-opening.

Their interview question was: design a simple app which allows one to query the effect of crypto price changes on the supply & price of LUNA. I gathered that the upshot was, how big a movement would be required to break the $1 peg? I wonder if their models weren't good, or if their models were good, and they were just accepting a high level of risk?

mrintellectual
The crux of the problem is not Luna itself, but the Anchor Protocol (19.5% yield), which enticed users to burn Luna by investing in UST through a, for lack of a better phrase, Ponzi scheme. I get it - people like decentralization. But without some form of regulation, either by the broader crypto community itself or by governments around the world, situations like the LUNA/UST collapse will keep happening.

There are also rumors of a Terra fork: https://agora.terra.money/t/terra-ecosystem-revival-plan/870.... Thanks, but no thanks.

vyrotek
What a mess. And now I just saw this. What?

"Leading crypto exchange, Crypto.com, has announced that its users who traded embattled Terra’s native token, LUNA, on May 12 at around 12:40 – 13:39 (UTC) did so with the wrong price.

Crypto.com, one of such exchanges, has revealed that traders involved in the concerned transactions would have their transactions reversed, and a $10 reward in CRO, the native token of the platform, would be given to them as compensation for the inconvenience."

https://watcher.guru/news/crypto-com-reverses-traders-luna-m...

mrkramer
First there were MLM, HYIPs and other bullshit and now we have NFTs, Stablecoins, various cryptocoins and cryptotokens.

I think this Ponzi crypto assets are something like the evolution of fraud in a sense that scams are no more secretive, obscure and somewhat straightforward investment programs but more wrapped up in a sophisticated talk about cryptography, blockchain and DeFi which should bring you confidence that you should invest in them because they are more technologically advanced.

Somebody should write a book about Fraud in Crypto Assets from the more academic point of view and tbh I would very much like to read it. For example explaining the history of crypto fraud and scams, investigating them deeper and dissecting them from economical and financial point of view with the addition of explaining the basics of cryptography, blockchains and DeFi.

woeirua
Luna is a sideshow. Sad for the people who got caught up in it and lost their savings, but Tether is the real game. When Tether blows up the entire crypto system is going to blow up. And this is why Luna was important, because it caused a loss of confidence in stablecoins across the board. For a while this week, it looked like Tether might actually lose its peg and start a death spiral.
codedokode
General idea of having two balanced cryptocurrencies doesn't look bad by itself. But the promises to pay 20% of interest per year are super suspicious. Where would that money come from? What kind of goods or services do they produce? Do developers of cryptocurrency expect to receive exorbitant fees from users?

If there is no valid business model explaining where that 20% come from then it is just a Ponzi scheme.

cutler
If anyone is really serious about creating an alternative currency which is capable of revolutionising finance make it impossible to profit from speculation with it. As it stands cryptocurrency is just more of the same from the little man's perspective - another toy for rich kids to try to take from society without giving anything back.
leach
I remember kicking myself for exiting LUNA at 20 dollars early on before it blew up. As I left I kept hearing whispers and sketchy things about it.

In hindsight I’m glad I pulled out when I did.

KVFinn
A great breakdown of Luna and Terra, notably recorded a week before the collapse. It's very amusing watching the hosts trying to figure out how this coin is supposed to remain stable while promising 20% guaranteed interest.

https://www.youtube.com/watch?v=V16U4J65xkM

memish
USDD next? Just announced yesterday by Justin Sun. 40% APR!

https://twitter.com/justinsuntron/status/1524726284399480832

lend000
The only way a true collapse to zero could happen for any other cryptocurrency is via a similar mechanism (either an unprotected mechanism to mint unlimited amounts of the currency in a rapid manner, which some mid-tier cryptocurrencies do have, or a bug/vulnerability that allows attackers to duplicate/double spend reliably).

Luna didn't collapse 99.999% in a matter of days because of a loss of faith in 99.999% of ITS value by speculators, but because of a ~50% loss of faith that triggered exponential inflation (printing of Luna tokens) based on the simple algorithm governing the ex-stablecoin. The fact that the supply of Luna started multiplying exponentially every minute that the stablecoin remained underpriced flooded the market with insane amounts of Luna. By virtue of the total amount of new Luna minted, its market cap is still around 300M (a "mere" 98.5% loss).

Bitcoin could go to near zero, but it would take DECADES and be a very drawn out process without SHA-256 breaking or every relevant country jointly criminalizing its existence. You could look at the values of any of the other deflationary early cryptos that clearly are now not going to play a pivotal role in the crypto landscape (e.g. LTC, BCH) and yet have essentially maintained their values and slightly grown with the market, slowly ceding market share to more relevant coins. In reality, coins like LTC and BCH should have lost 99% of their 2017 value, but because they are not inflationary like Luna, it hasn't happened and won't anytime soon.

Contrast this with a company that can clearly, unambiguously go bankrupt. These go to zero all the time when their value is essentially nothing by virtue of no longer doing business, they are legally disbanded, and removed from exchanges.

the_jeremy
> This matters for three reasons. ... First, over $15 billion in crypto value has been wiped out through luna and UST alone. ... Second, it raises questions about other stablecoins. ... Lastly and possibly most signifcantly[sic], the collapse of UST has caught the attention of powerful politicians and regulators.

To oversimplify, it only matters if you care about crypto. And if you do, you already cared about this.

zby
What is puzzling me right now:

Why LUNA is now trading at $0.033 at Bitfinex - but $0.0004 at Kraken? I understand that it is probably impossible to arbitrage it now - but two orders of magnitude? Come on!

Why UST is still trading at $0.16 - even without arbitrage mechanism to stabilize it? Some people still have hopes. This might go on for some more time.

The revival plan is to emit a new token and give away some of it to UST holders (https://agora.terra.money/t/terra-ecosystem-revival-plan/870...) - even if that new token gets the $1 value (which is probably not possible any more for algorithmic stable coins) - than still the 10% of $1B would mean $100M - that is 20 times less than the current market cap - so the UST price should be about $0.008 assuming that it all works. It is impossible to short it at Bitfinex right now though.

There might still be some value of the Terra ecosystem - so many talented people working on it, even a bankrupt startup can get some price via acquihire - but the Terra ecosystem was a ponzi schema maybe its value should be negative? https://twitter.com/zby/status/1525407557371691008

Vladimof
"The cryptocurrency market isn't pretty right now. Look anywhere and you'll see red"...

I saw green today just like on the stock market... and red yesterday just like on the stock market

dav_Oz
Stablecoins are the grease for CEXs the gateway (drug) for - since a lot of people trust their keys in the hands of the exchanges themselves - "claims" on listed cryptocurrency tokens.

In service of efficiency and maximizing profits: claims on cash with claims on digital tokens. I will leave out the massive inflationary use of cryptocurrencies themselves like CEXs issuing their own tokens as a bonus sideline. At this point one could easily argue that the market cap lists are advertisement panels controlled by CEXs disguised as score boards (filled with "sponsors".)

As we know from the practices of centuries old fractional reserving (how much does a bank has to hold on reverseves to create some amount money (credit) out of thin air?) "traditional" stablecoins are most certainly backed by (intransparent) fractional reserves, the most infamous one being Tether. For all we know they could be running at whatever is needed (some percent) to keep the machine barely running by people cashing out.

Sooner or later triggering events will briefly pause the music on those merry trips to Jerusalem - but on this scale of course not equally for all so that those at the centralized sources themselves have enough time and the insight to react accordingly by taking everything they can and run; which again leaves the rest with basically nothing.

So, in short exactly the opposite of what were/are the stated goal of cryptocurrencies. From that perspective I am eagerly awaiting the next iterations of CEXs and at some point after a lot of financial casualties the growing awareness of their abusive ecosystem of playing into the addictive and destructive nature of gambling fueled by the financial insecurities and disillusionment of social mobility a lot of people are facing in the real world. But I guess, this will be a long fight.

BrissyCoder
Doesn't seem to address the "why it matters" portion of the headline.
hathym
scotty79
Is there anyone who understands LUNA/UST setup so well that can explain it without using crypto/fin babble?

EDIT:

Somebody here posted this: https://www.bloomberg.com/opinion/articles/2022-05-11/terra-...

It's a pretty decent explanation.

electriclove
How it broke is pretty well understood. Is there a path forward to save the ecosystem? I think this is the more interesting question
herbst
I never owned UST, never got asked if I accept it or anything. I never understood why the currency seems so relevant. Now I know it's because a few big investors.

The only stablecoins I see actively used in the real world are Tether and Binance.

My point is, nothing changed and nothing of value was lost for a big part of the crypto community.

mekster
What these smart contracts and whatnot aren't taking into account is that people are dumb.

Not sure how many more examples are needed before people realize the rules need to be a bit more flexible to accommodate human mistakes.

Those products are meant to cause financial losses on first bug which obviously doesn't work.

naveen99
It would be funny if someone issues a stable coin for usd and then turns around and levers up on treasuries. And then interest rates go up and they get margin called on their treasuries position by their bank, oops !
mmaunder
“It all started this weekend. Over $2 billion worth of UST was unstaked”

Someone with $2B did the math using the new higher rate of inflation and pulled out of an asset that doesn’t produce anything because it has simply become less attractive. This pattern will keep repeating until inflation drops.

freedomben
I think the elephant in the room is the self harm that is happening. It may be very rare, but it is happening, and it happens in stock market crashes too (not just in crypto). Even if you don't care about crypto, even if you think people who trade in crypto are idiots, please remember there are real humans behind these things.

If you're licking your wounds, remember that things come and go. I know that's a shitty thing to deal with (I've lost my ass is crypto before too so I know first hand), but don't do something to yourself that is permanent and can never come back from. It's absolutely NOT worth it.

If you dodged this one, now is the time to be full of compassion to your fellow humans, not dancing on graves and gloating in "I told you so."

woah
I'd be interested in some analysis of whether Luna would have been more likely to work without the "Anchor protocol".
LeicaLatte
Software was eating the world. So much that it has started to eat itself. How predictable.
xg15
The favourite saying of german milennial teenagers comes to mind again:

Eine Dose Mitleid!

stickfigure
Are there other algorithmic stablecoins? Who is next?
xtat
Oof, not the most unbiased press
ParksNet
Encouraging Crypto to fail, and encouraging politicians to ban exchanges, is the quickest way to cut CO2 emissions and reverse chip shortages.
Lapsa
this is entertaining
jmyeet
The very idea of an algorithmic stablecoin is beyond idiotic. A lot of Crypto Andys are former gold bugs who bemoan th eloss of the gold standard (fun fact: the US dollar was never 100% backed by gold). Collaterized currencies are better but gold bugs still miss the point of what makes the US dollar work.

A currency only persists so long as people believe in it. That's it. As soon as that belief goes, it's all over. Even if it's collaterized that's true.

What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also foreign and domestic policy. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.

So it obviously sucks that people lost sometimes a lot of money on Luna (seriously the subreddit is a dark place now) and I believe at least some of the anecodtes of people losing their houses.. This probably shares a lot of pathology with gambling addiction (fun fact: gambling addiction has the highest rate of suicide of any addiction).

But you also need to recognize that a lot of people who got wiped out by Luna were in it to get rich quick. I mean even the ~20% staking returns on Anchor should be alarming by itself. Who is paying for that 20% return? It's bound to be a Ponzi scheme.

huitzitziltzin
Of all of the wildly implausible ideas to come out of the crypto area, algorithmic stable coins are the least plausible.
Linda703
sub7
The idiots who yelled "have fun staying poor!" are now yelling "we're people too please have empathy!"

Can't make this shit up

rufius
This article seems to assume it matters. It does not.
cutler
I have one message for crypto-addicts - get an 'effing life instead of wasting it trying to get something for nothing. In other news the war in Ukraine rages on, millions of Ukrainians have lost everything and thousands of innocent lives are being lost. Some perspective please.