Unanchored Moonlight: Terra’s Origin, Predicament, Deduction, and Way Out

Original Author: @0xTodd, Partner at Nothing Research

1.1

the moon will finally set

Seeing it rising from the Zhulou, seeing it collapse.

In fact, the problem with $Luna is only about one word: "liquidity".

As a volatile asset with insufficient liquidity, Luna can mint UST at a 1:1 equivalent value, and with the help of EX such as Curve, it has obtained the liquidity of fiat currency that only stablecoins deserve. From that day on, it was doomed to die. And 20% APR is a total button for acceleration.

2.1

Let me talk about the reason first, the fuse-UST big players left the market.

On May 8th, the enthusiastic Terra was preparing for 4pool (a new pool on Curve) known as "the end of Curve War", and temporarily withdrew the liquidity of the old pool. However, the 8400w UST may be a misjudgment, or a snipe attack. It directly smashed the market price of UST on Curve, and broke the anchor of the unprepared UST at once.

2.2

Fermentation-Terra's buggy bailout PR.

I once said that confidence depends on confidence. If confidence is lost, it is the beginning of eternal doom.

After unanchoring, you should actually continue to fight chicken blood, drink chicken soup, and pass it lightly.

But Terra has been reverse PR: We are saving the market! We're going to hold this anchor.

It sucks and conveys negative confidence: you say you're healthy, so why see a doctor?

2.3

External Conditions - Poor market

Under the influence of U.S. institutions, BTC is highly correlated with U.S. stocks. Affected by interest rate hikes and balance sheet shrinkage, U.S. stocks have been performing poorly, which has led to a continuous negative decline in BTC. Unfortunately, LFG made a wrong decision at the wrong time. Since the average cost of LFG's 100,000 BTC is around 40,000, it can't cut the meat at this time, and the bailout tray needs money. LFG had no choice but to mortgage BTC to the market maker in exchange for legal currency to support UST.

2.4

worsening situation

However, BTC continues to fall, which makes LFG even more difficult. If UST continues to unanchor, the newly mortgaged BTC is also at risk of liquidation. So we can see that LFG will soon transfer all the remaining BTC out, maybe to sell it, maybe to keep the fruit, or more likely to make up the margin, which makes the situation completely worse.

LFG address tracking: https://bitinfocharts.com/bitcoin/wallet/Luna-LFG

2.5

Because, the narrative of "UST-BTC rising and falling together" that was just established is officially shattered. This brought about a new round of FUD that led to today's situation.

3.1

What is DK's current predicament?

In the case of lack of funds, comprehensive protection is no longer possible, and he needs to make a difficult decision-whether to protect $Luna or $UST. Because there is not much ammunition left, you have to do your best to keep one.

3.2

Paul$Luna

Then it is necessary to manually increase the price of the oracle machine (using the expected price), abandon the 1:1 rigid exchange mechanism, and instead maintain Luna’s premium to UST, in a disguised way to make UST burners retreat. Just burn UST. For example, the market price of Luna is 1.1, but the burning price is 1.3. There is very little room for arbitrage, which is why UST has not returned to anchor so far.

But this will severely damage the fundamentals of UST (no longer stable), and it is impossible to make a premium for a lifetime.

Burn UST for Luna

3.3

Keep $UST

Then we have to watch the UST be replaced by Luna and smash it, so that we can return to the anchor. But Luna has less than $1 left. The market value of Luna is only 1/5 of that of UST. Even if it is smashed to pieces, it is not enough for UST holders to withdraw.

There is an English word that describes this well: insolvent (free translation means insolvency), which is also the end of every ponzi.

“technically insolvent”

3.4

DK's response

Maybe after careful consideration, on May 11th, DK finally wrote a short and concise thread, with only one sentence to the effect, he still wanted to keep UST.

If I were DK, then I would turn off the cross-chain bridge, and ask Jump and Binance to force Binance’s UST back to 1. This is very conducive to market confidence, and maybe a glimmer of life.

Tweet of DK

3.5

Break down the psychological defense

However, after he posted this article, everyone also understood his intention: it seems that he wants to give up Luna.

Luna fell further and completely broke everyone's defenses. Everyone saw Luna starting with 0. Binance even downgraded the precision of the Luna contract. You know, one month ago, it was still three digits, but now, it depends on three decimal places.

Ann of Binance

4.1

Deduction-Can UST really be saved?

Liquidity is everything. This is also the subject of our thread.

Looking at the audience, although UST currently has 0.8U, the Curve liquidity is close to drying up to less than 2000w, and there are 300w left on Terraswap and Astro. Binance, FTX's handicap UST, Luna may still look like a small million.

However, there are 13 billion UST wanting to run.

4.2

I have come into contact with many Luna farmers, most of them are extremely smart, and of course some are deceived, especially ordinary people/small and medium companies in Korea, let’s not list it for the time being. In any case, under the current circumstances, it is everyone's consensus to run.

4.3

However, the escape quota is less than 1%. UST seems to still have 0.8U, and many people fantasize about returning to the anchor. But the fact is cruel, only tens of millions of UST can enjoy the escape price of 0.8, while the remaining 10 billion+ billion is 0.

Thousands of words into one sentence: Not enough liquidity!

Without liquidity, any token is waste paper. This is the difference between Ponzi and real assets.

5.1

So what to do?

So what if you try your best to keep one? The back is still running out of ammunition and food.

I admire DK's operational ability and charisma. But no matter how good a person is, he cannot overcome things beyond his ability and must rely on external forces.

After careful consideration, there may be three final ways out.

5.2

way out one

Looking forward to the miraculous rebound of U.S. stocks, BTC followed U.S. stocks and quickly returned to 4w and then 5w, and the entire market re-entered Fomo.

However, under the current expectation of raising interest rates and shrinking the balance sheet, such conditions are hardly met, and the possibility is very small.

5.3

way out two

Convince Jump trading and count on market makers to save their lives. Other Luna investment institutions, such as 3AC and Binance, made it clear that they wanted to stop losses, but Jump, which is deeply bound, may save them.

But the problem is: to revive it, at least billions of dollars are needed. But if billions of dollars are spent, the price of the currency is saved, but everyone runs away, then the project seems to have no need to exist.

5.3+

And, judging by what the block says, it appears that Luna's funding plan failed.

5.4

way out three

shock therapy.

As the name suggests, let it go.

For example, when Luna falls back to 0.01 and UST falls to 0.01, then with LFG's current strength, it is hopeful to get them all back. But at what cost? I think everyone understands.

The last shock therapy project, such as Basis Cash, was once the third generation king. You can see how much money is left in the algorithm-guaranteed "dollar stablecoin" $BAC.

5.4+

PS: Interestingly, Terra employees broke the news that DK is also an important participant in BAC.

6.1

Talk about something else.

I like Twitter very much, but the only dissatisfaction with the CT atmosphere is that many people don't tell you the risks behind this thing, but directly use Few and NGMI to describe people who don't embrace Ponzi.

What's more, they like to embrace ponzi enthusiastically, boast that ponzi has reached the sky, and try to smash it to the receiver after other people come in, and are complacent about their escape.

6.2

In the past two days, I went to Terra's Discord, (its Tele seems to have been reported as unable to join), and I also listened to many Twitter spaces. Many foreigners have devoted all their life-savings to Anchor, and now they are very helpless and painful, and they can even hear their faint cries when they speak.

Many people have been deceived, by DK, by Terra, and by these people who claim to embrace Ponzi, and their half-life savings have been turned into paper wealth without any liquidity.

6.3

I'm not a big KOL, I'm just a crypto researcher, and I manage a small crypto fund (@NothingResearch) with my partner, and the money in it is basically our own. I don't take ads, I don't take rebates, and as I said before, my idol is @ZachXBT, and he is famous for debunking scams.

6.4

My conscience drives me to write these words in the last six months. Many of my friends hold luna, maybe I object to luna too much, I even feel that they are quite critical of me.

If you look through my twitter, you will know that for a long time, I was reluctant to mention Luna's name directly, for fear of provoking scolding from Luna Holder. Of course, I don't blame them, after all, I want to go to CX after buying crypto.

6.5

But I still want to say that when I meet Ponzi, I will still point it out firmly.

This is a matter of principle. Every time I save a person, I feel a little more at ease.

The above content is purely random thoughts, comrades who are not interested, please ignore it.

7.1

Say back to $Luna

I don't recommend going short with large funds at this point, centipede, dead but not stiff. Although Luna with 1 knife is going towards 0 knife in the end, it may return to 2 or 4 dollars for a short time. I also don't recommend jumping sideways and bands repeatedly, because most people will only return the principal to the exchange slowly.

7.2

Maybe UST still has some room to fall, but of course its upside is not much, the highest is 1;

Perhaps $ANC and other ecological projects on the Terra chain will not have a better life. Refer to the current status of the Tianwang project on EOS;

Maybe DK will be able to turn the tide once again, but I'm afraid it will be the last time, and the odds of winning are really too low.

7.3

Finally, many friends are obsessed with algorithmic stablecoins, including me.

I think Suanwen is an elf in the DeFi forest, so tempting, maybe it is close at hand, but it may not exist at all, but it has attracted countless people to follow.

But be careful not to bet all your chips on social experiments.

I still look forward to the birth of a non-custodial, completely algorithmic stablecoin-bringing a fairy-like dazzling light to this increasingly out-of-control world.

looking for elves