Not so Stable
The top 5 most interesting stories in crypto, and more!
Just a warning: Story 1 is a long one, but I feel like it is justified. If you want, please go ahead and skip to story 2 and beyond for some other interesting stories.
1. Luna drops ~100% and UST loses its peg
Last week was a devasting week for crypto and many thousands of individuals. Terra Luna, a popular layer 1 blockchain lost nearly all of its value in the space of 72 hours.
Over 20 Billion dollars…gone.
NEVER in the history of crypto, has a coin so large, straight up gone to zero in this manner. It is hard to put into words how devasting this was for many. Being one of the largest cryptocurrencies meant it had thousands of investors, retail and institutional alike. Many of these investors lost all wealth they had in LUNA. For the foreseeable future, when people mention crypto, this is what many will be thinking of.
So what happened?
First, we need to understand what UST is.
UST is a stablecoin, which means it is a digital currency that is meant to hold a stable value of 1 USD dollar. Other cryptos like bitcoin fluctuate in value, and sometimes you want to hold a digital currency that does not change in value. Without going into too much detail, UST maintains its peg through a burning and minting (printing) mechanism using LUNA.
To oversimplify things, if UST falls below $1, people are incentivized to burn UST and mint LUNA. Burning UST reduces its supply and increases the price.
If UST rises above $1, people are incentivized to mint UST and burn LUNA. Minting UST increases the supply and so lowers the price. Econ 101.
Last week, it is speculated that somebody borrowed a large amount of UST and sold it on the open market, causing the price to fall below $1. Not by much, however, only to around $0.91. However, this caused some people to panic and sell their UST, causing what is essentially a bank run (where people panic and sell their UST). This further led price to fall down to 0.85…and then 0.63.
This whole while, the mechanism we discussed above was happening, LUNA being minted, UST being burned. This along with the Terra foundation selling reserves to buy UST to prop up the price led to a recovery into the low $0.9s. Unfortunately, it was not enough, the next day, the UST price plummeted to $0.65 and then $0.26. The peg broke completely and the whole time large amounts of LUNA were being minted and sold on the open market.
So much Luna was minted that the total supply went from 300 million to over 6.5 trillion today…all of that supply was being sold on the open market, essentially printing the coin to zero. LUNA was removed from many large crypto exchanges starting with BitMEX, then Binance, and then FTX.
I think this story is sad, interesting and a great learning opportunity for many. An opportunity to learn about how different crypto mechanisms work but also some of the risks associated with the industry. Here are some great threads to supplement the above:
Terra: To the Moon and Back (I highly rate this one)
How to make a >800 million dollars in crypto attacking the once 3rd largest stablecoin, Soros style
What happened to $UST and $LUNA? A long thread that looks at what happened in the last 4 days
LFG has gone from having $3.1 billion in their reserves a week ago to now having roughly $87M. Which means they spent roughly $3 billion defending the UST peg and UST still collapsed.
2. Founder and CEO of FTX purchases a 7.6% stake in Robinhood
FTX is the 3rd largest crypto exchange, last week it was announced that their CEO had purchased enough shares to give him a 7.6% stake in Robinhood. Robinhood is a stock/options trading app in the US. It is incredibly popular among retail traders as they are able to easily access leverage and trade using options.
3. Instagram will begin to introduce NFTs
Instagram is testing support for NFTs, as a small group of Instagram users will be able to showcase their NFTs by connecting directly to their crypto wallets. NFTs will be tagged as “Digital Collectibles”
4. Azuki founder admits to abandoning 3 other NFT projects in the last year
Azuki’s are an incredibly popular NFT project that launched in 2022 and regularly tops the OpenSea volume table. The floor price of an Azuki peaked at around 30 ETH ($60,000) and now sits at 13 ETH.
Last week it came out that one of the founders of the project had previously worked on 3 other projects and had abandoned them as soon as they didn’t show any signs of success. The issue here is a moral one, there are people that would’ve invested in these projects only to have the lead dev decide he’s out. The dev said those projects were “experiments”
You can read the thread below for information on other shady behaviour:
5. Portugal’s Finance Minister Announces plans to Tax Crypto
When it comes to crypto and taxes, there are really only a few countries that are friendly. The most famous of these are Portugal and the United Arab Emirates. Today the finance minister of Portugal said that they will begin to tax cryptocurrency gains. Bullish on Dubai anyone?
What we are reading?
Luna Brothers, Inc. - Arthur Hayes
A Thread on Bear Markets - Punk6529
Thread on the Crabada bot looting strategy and how it made $500k profit in ~100 days. - Beansgum