A once-stable, “safe and happy” crypto project named terraUSD imploded earlier this month, prompting an “I told you so” refrain from detractors targeting those unlucky enough to be duped – and ink – by the latest crypto calamity.
It’s hard not to mock a utopian future of decentralized, trustless, permissionless, hard-money finance that unsuccessfully turns to quantitative easing (read: kwontitative easing) to survive. But as it is becoming painfully clear, some investors have lost most of their savings to the collapse of terra and its twin coin luna.
This begs the question: who encouraged ordinary investors to jump on the latest bandwagon by showing a ticket to the moon? What credibility gave luster to a doomed project? This is the terra/luna room of shame from FT Alphaville.
Several parties mentioned in this article did not provide comment per pixel time.
To give Novogratz its due, the co-founder of Galaxy Digital recently write a letter preach humility in the investment world. Before these lessons were learned, Novogratz touted the promise of terra’s tremendous technology and encouraged Do Kwon – the once inspiring face of the “LUNAtic” movement.
When Novogratz was not flexing his proof-of-LUNAtic ink on Twitter, he was overseeing a Galaxy-led funding round for Terraform Labs, the company behind the terra and luna debacle. “We are always looking at these projects because they are the canaries in the coal mines,” Novogratz said in January last year. Well, absolutely.
Humility is one thing. Introspection is another, it seems. “The mission of the crypto community – and of Galaxy – does not change. I firmly believe now more than ever that the crypto revolution is here to stay,” Novogratz said to conclude a recent letter to shareholders.
The backing of major trad-fi trading company Jump Trading Group has added a lot to the legitimacy of the Terra ecosystem.
In February 2022, the crypto arm of high-frequency trader, Jump Crypto, led a $1 billion funding round that enabled the Luna Foundation Guard – the quasi-central bank of terraUSD – to establish a “UST Forex Reserve denominated in bitcoin”. Yes really.
“The UST Forex Reserve further bolsters confidence in the anchoring of the UST market’s leading decentralized stablecoin,” Jump Crypto President Kanav Kariya said at the time. The tone is a little different these days.
I don’t know exactly what to say. This week has been hell for our entire community. I know we’ll come out stronger, but that doesn’t make it any easier
— Kanav Kariya (@KanavKariya) May 13, 2022
A breakdown of Jump Crypto activity in the Terra Community can be viewed here.
Marco Di Maggio
In a 2019 white paper, Harvard Business School researcher Marco Di Maggio teamed up with Nicholas Platias of Terra Argue that Terra’s dollar peg would prove “very robust. . . based on 1 million years of simulation data”. Three years later, Terra’s dollar peg was anything but.
But in a rebuke of Do Kwon’s leadership, Di Maggio told FT Alphaville that the terra he once knew was no more. The terra he wrote about planned to peg a stablecoin to the Korean won. His analysis of how that that the system could withstand under pressure was therefore no longer relevant, he argued.
Do Kwon decided to introduce a borrowing and lending protocol called Anchor – Terra’s first attempt to enter the decentralized finance market. The initial idea was to allow users to borrow the terra stablecoin for other transactions within the ecosystem. In the original design, the interest rate paid to lenders should have been a market rate determined by borrowing demand. This would have made it durable without posing a risk to the overall design.
Instead, to gain attention and grow the business, Do Kwon decided to subsidize and fix deposit yields for lenders at 20% APY. Everyone on the research team knew this would create an unstable system with unsustainable supply growth. With such a high rate, Anchor has attracted around $15 billion in capital. But the growth of the underlying capital, now decoupled from the demand for borrowing, has made the whole system very fragile. Depositors could withdraw large amounts of capital, sell it in the market and cause the stablecoin to lose its peg to the US dollar. We tried to explain the risk and the instability of these fixed returns proposed to the leaders of Terra. But with no decision-making power in the company, our words were ignored.
Venture capitalists and misguided academics are one thing, but one of the biggest and most influential companies in the industry is quite another.
Changpeng Zhao, the CEO of Binance – the dominant crypto exchange behind the main quote in this story – has had a lot to say on terra lately, including a joke that the crypto-bro who made the list of Forbes’ Top 20 Richest Last Month Was Now”still poor” after the collapse of the project.
More importantly, Binance promoted a terraUSD lending program as a “safe and happy” investment just weeks before the terra/luna ecosystem collapsed into a pile of zeros and lost savings.
The crypto exchange told the FT it is reviewing how it handles its advertisements, but that may be too little too late for potential crypto investors who read the exchange’s message on Telegram, which was seen more 110,000 times.
Real Vision CEO Raoul Pal also drank the terra Kool-Aid. “You can just put in some money. . . stake the network and get 20%, and [it’s] basically risk-free,” the former Goldman Sachs trader turned crypto preacher said during an episode of Real Vision. aired last November.
“It’s breathtaking,” he added.
As mind-blowing as terra may have been to Pal at the time, it seems he didn’t put his money where his mouth was. In a Twitter thread posted on May 10 – just as the fateful terraUSD unpeg was gaining momentum – Pal tweeted that he “had no idea how this was going” and that he “didn’t no skin in the game”.
Boyfriend concluded his thread suggesting that “markets like to find the pain”, a sentiment that is probably not shared by those who feel the real pain of crippling financial loss. When injured crypto investors unearthed the November video, the backlash was fierce.
It’s so sad to see Twitter dissolving into angry people – value or commodity investors, BTC maxis and other non-pragmatists – all yelling at anyone with different opinions. These are just investments, not a philosophical war for justice. We all have different points of view and that’s normal! Be nice.
— Raoul Pal (@RaoulGMI) May 23, 2022
They may be last in their division at pixel time, but fans of MLB’s Washington Nationals will surely take solace in the franchise’s February partnership with Terra, which established a “baseline for future applications of blockchain and cryptocurrency”.
Echoing the Houston Astros’ untimely merger with Enron in 1999, a private bar at the Nationals stadium was quickly renamed the Terra Club. It remains Terra Club today, although it is unclear whether UST will be accepted as payment next season.
In the teeth of terra collapse, the MLB franchise also flexed its unique ability to read the play with this tweet.
— Washington Nationals (@Nationals) May 10, 2022
Who are we missing though? Which unfortunate promoters should be on a long list? Let us know in the comments below.