Myth Of Money: The Demise of LUNA and the Rise of LUNA INU
Welcome to this week’s edition of Myth of Money, a weekly newsletter on the digital asset markets read by 12,000+ investors.
Disclaimer: The following is not intended as investment advice. Do your own research.
This week’s headlines have been focused on the collapse of a top 5 coin - Terra Luna. Its native token LUNA, moved from $65 on Monday to $33 on Tuesday and currently sitting at about one-hundredth of a penny.
Algorithmic nature of LUNA and UST
The Terra ecosystem works as a series of levers between LUNA and UST, its algorithmic stable coin. To maintain the UST peg to $1, LUNA is continuously burned, creating upward pressure on LUNA.
What types of stablecoins are there?
There are three known manners as to which stable coins are pegged/ backed:
(2) with fiat currencies or other collateral
(3) backed by other cryptos, such as Bitcoin
$UST, however, followed quite an unusual route. It relied on an algorithm that mints and burns Luna to balance the stablecoin’s peg to the US Dollar. Terra did this by incentivizing arbitrageurs to burn LUNA for UST (or vice versa) at a profitable rate in order to reduce UST’s volatility. Founder Do Kwon later expanded the strategy, and created a reserve of Bitcoin and other assets, “just in case.”
Was LUNA a ponzi?
One reason folks invested heavily into LUNA and UST is because of the associated DeFi Anchor protocol that promised a stable return of about 20%. Just a few days ago, Anchor’s total value locked (TVL) was $14B+, proving it to be one of the manor drivers of adoption. 20% returns are unsustainable, of course, and a ponzi scheme can only go up for so long.
The Great Short
According to multiple sources, it appears that the demise of LUNA was an orchestrated attack by Wall Street on Crypto. And the execution was nothing short of genius.
Step 1: Take a loan of 100,000 coins of Bitcoin (approx. $4B)
Step 2: Sell it to Do Kwon, who is buying BTC to stock up Luna’s reserves, in exchange for UST.
Step 3: Open a short position on $UST, $LUNA and $BTC.
Step 4: Start aggressively dumping $UST onto the market to begin the de-pegging.
Step 5: Each $UST is no longer worth $1. New LUNA is being minted at an accelerated rate, while faith in the protocol decreases and users are dumping the token. Meanwhile, Do Kwon started selling the Bitcoin from reserves to attempt to prop up the peg.
Step 6: All 3 assets begin price collapse while the attacker walks about with Billions (if not trillions) in profits from the shorts.
And so, a coin fell from an all time high of $120 to 0.00000000000001.
What This Means for Other Stablecoins
Terra's crypto ecosystem accounted for 13% of cryptocurrency's market capitalization, and it’s collapse resumed worries about the stabilities of other stablecoins, including Tether, which continues pegged redemptions at $1.
"Tether continues to process redemptions normally amid some expected market panic following yesterday's market," a Tether spokesperson said in an email. "Tether has not and will not refuse redemptions to any of its customers, which has always been its practice."
Many investors are opting to hold Coinbase-based USDC, as an SEC-audited alternative.
Treasury Secretary Janet Yellen said, at a hearing Tuesday before the Senate Banking Committee, that Terra Luna's crash "simply illustrates that this is a rapidly growing product and there are risks to financial stability which needs a framework that's appropriate." Some investors are worried that the plummet of UST may stir up more regulatory scrutiny.
The Rise of LUNA INU 🚀
Meanwhile, speculators have started buying up LUNA as a meme coin, trading it like a dog coin to 10x in 24 hours. I myself bought 40M coins for just $1,600. The thesis is simple - the community is still strong and active. If a new leader is put in place, with a strong plan for recovery, perhaps LUNA could see a second era in the limelight after all. I’m holding at a $1. For the culture.
Photo credit: Asia Crypto Today.
This Week By the Numbers 📈
LUNA’s collapse in addition to downward Macro pressures, created ‘Fear, Uncertainty and Doubt’ across the crypto markets. It is unclear if we have hit bottom and how long this will last. For now, I’m heavy in Bitcoin, Nexo and USDC, and avoiding most degen plays.
Deal of the Week 💰
For this week’s deal, I’m supporting an up-and-coming female entrepreneur Maren Altman. Maren has built up a following across Tik Tok, Instagram and Twitter of 2M+ dedicated followers. Her secret sauce? Maren can predict market swings by reading Lunar charts. Yes, I know how this sounds, but data does not lie. Her predictions have been remarkably accurate both for short-term trades, as well as calling this week’s crash and last year’s May 19 crypto market collapse.
Maren has decided to put her skills to benefit a larger group of traders and investors, by partnering with a tech team to build a trading vault product called ASTRACE. This DeFi product will allow you to lock capital in a vault which will trade it based on the Lunar cycle.
ASTRACE just finished the first tier of their raise (which sold out in a matter of hours), and is opening up their next tier shortly.
As unique as this product sounds, I’m incredibly bullish. Astrology and horoscopes have acted like catnip on humans for centuries. And with Maren’s avid following of 2 million people, this product is sure to have a strong start.
I am both an early investor and advisor to the project. For more details on the raise, please contact Maren Altman directly at firstname.lastname@example.org.
Top Stories 🗞️
The nonfungible token (NFT) collections by Yuga Labs have experienced a dramatic downturn in transaction volume over the past 24 hours. Otherdeed is down just over 50%, Mutant Ape Yacht Club (MAYC) is down 46% and Bored Ape Yacht Club (BAYC) is down 25%, according to data from NFT market tracker NFTGo.
The general NFT market activity has mirrored Yuga’s collections, where volume has dropped 31% to $113 million. However, prices have not yet followed suit, as the total NFT market cap has dropped marginally to $19.5 billion in the same period. Those collections comprise three of the top five traded collections globally. Each collection except Otherdeeds has seen nearly 50% drop-offs in volume over the past seven days as well, possibly indicating the NFT market is cooling off.
Sam Bankman-Fried, the CEO of crypto exchange FTX, has taken a 7.6% stake in Robinhood, according to a Thursday filing with the Securities and Exchange Commission. Shares of the investing company jumped 36% at one point in extended trading before pulling back. They were last up about 25%. In regular trading Thursday the stock hit an all-time low. Robinhood ended the session priced at $8.56, about 77% away from its IPO price last July. According to the document, Emergent Fidelity Technologies took a stake worth $648 million in Robinhood. Bankman-Fried is the sole director and majority owner, it says. The document goes on to say Bankman-Fried acquired the shares in the belief that they “represent an attractive investment.”
Twitter’s market cap has dropped to $9 billion below Musk’s purchase price as concerns about deal emerge
As Elon Musk pursues ownership of Twitter, shares of the social media company are dropping, suggesting some concern among investors that the deal won’t reach the finish line. Twitter has slid nearly 13% since reaching its high for the year in late April. As of market close on Thursday, the stock traded at $45.08, well below the $54.20 that Musk agreed to pay on April 27. The difference represents more than $9 billion in market value. Though Twitter’s board approved the purchase, it could still take months for the deal to close, and there’s no guarantee that it will. Musk would have to pay a $1 billion breakup fee should he choose to walk away. The Tesla CEO is worth more than $220 billion.
“The market is having marginally less confidence that the deal will go through due to regulatory challenges,” Mark Mahaney, an analyst at Evercore ISI, said in an email, adding that this is his “very quick interpretation” of the stock movement.
The Central Bank of Nigeria (CBN) is moving ahead with plans to upgrade the country’s central bank digital currency (CBDC) to be used on a wider range of goods and services. It is also maintaining harsh crypto restrictions that cripple the country’s fintech sector. The CBN branch controller Bariboloka Koyor spoke at a campaign aiming to “sensitize” businesses to the eNaira at a market in the country’s most populous city of Lagos on Monday, according to a report from Vanguard. Koyor said the upgrade was launched to make onboarding easier, touting its wallet that had no charges and was faster than internet banking. He added that in the future, the eNaira will be the only way to receive financial assistance from the government, stressing the advantages of early adoption.
Federal Reserve Chairman Jerome Powell warned Thursday that getting inflation under control could cause some economic pain but remains his top priority. Powell said he couldn’t promise a so-called soft landing for the economy as the Fed raises interest rates to tamp down price increases running near their fastest pace in more than 40 years. “So it will be challenging, it won’t be easy. No one here thinks that it will be easy,” he said. “Nonetheless, we think there are pathways ... for us to get there.” The remarks were published the same day the Senate overwhelmingly confirmed Powell for a second term, a move that came nearly seven months after President Joe Biden first submitted the nomination.
Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading. If you stumble upon my newsletter, you will notice that I write about money, economics and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital and Cryptocurrencies. I believe in empowerment through closing the financial education gap and creating equality of opportunity for the next generation. I have invested in 20+ companies and funds. Check out my portfolio here.
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