It’s time for some self-reflection in the crypto community after the spectacular collapse of the terraUSD (UST) stablecoin and the entire Terra (LUNA) ecosystem.
A debate about what crypto investing should be like, how crypto projects are promoted and whether ‘bitcoin-only’ is the best strategy to follow for average investors, has now re-emerged in the community.
Among the key points of contention in the discussions is the role that large venture investors had in promoting Terra-based assets to retail investors, who in many cases had seemingly little to no understanding of the underlying economic model UST and LUNA was based on.
“It’s time to stop promoting ponzi-like assets as ‘blue chips’,” wrote the crypto trader and economist Alex Krüger. He added that there should be “no more deceptive marketing,” and said exchanges should not list “ponzis” even though “high volumes drive fees.”
“The only redeeming point is it happened now and not later after much increased adoption and market cap,” Krüger added.
Meanwhile, Udi Wertheimer, a Bitcoin (BTC) proponent and developer, said that what shocked him the most about LUNA’s collapse was “how many investors didn’t understand the dynamics AT ALL.”
“I didn’t believe it would implode right now, but understood the dynamics and what a crash would look like if/when it does happen,” Wertheimer said, adding that buying only bitcoin is “a reasonable strategy and it’s what I recommend to most people.”
However, Wertheimer noted that there is an important distinction between recommending bitcoin only and calling everything else “a scam,” saying the latter will make people “ignore your advice when it matters most.”
Taking the same argument a step further, Nic Carter, another popular Bitcoin proponent and partner at Castle Island Ventures, said investors didn’t do the necessary due diligence on UST “because crypto people are mostly completely ignorant of economics and think they’re discovering everything for the first time […].”
Carter further said that few people from the crypto industry wanted to criticize Terra “due to lunatics being total assh*les,” and since “most funds” were invested there was “no incentive to piss off colleagues.”
People didn’t read the whitepaper
According to Arthur Hayes, the former CEO of crypto derivatives exchange BitMEX, the fact that people were surprised by Terra’s collapse “means they did not properly read the whitepaper.”
“The Luna-tics also didn’t question hard enough where that 20% UST yield came from on Anchor,” Hayes wrote in his latest essay. (The Anchor Protocol was used as a key incentive mechanism for users to hold UST with its high yields of 20%.) He further noted that the only way LUNA and UST can survive is if there is “some genius protocol changes effected to bolster market confidence that the marketcap of LUNA will always exceed the UST float.”
“I have no idea how to accomplish this,” Hayes said.
UST not workable ‘without BTC mooning’
Commenting on Hayes’ take, the popular crypto trader DegenSpartan suggested that it should have been obvious that the plan to partially back UST with BTC could not work “without BTC mooning.”
He added that “degens” that understood how the system worked “milked the yields” before they got out. Meanwhile, ordinary users – or “normies” – thought the 20% yield that could be earned by staking UST was a “miracle” from “the magic of the blockchain.”
Others also pointed to earlier comments about Terra where they made it clear the project did not appear to have a sustainable economic model behind it.
Among them was a popular Twitter user who described himself as an NFT trader and a former risk manager for MakerDAO (MKR), who shared a screenshot from four years ago where he said “unless I’m missing something, this project isn’t gonna work.”
“Terra is like the Maker model, if the only collateral you could post to create DAU is the MKR token itself,” the user wrote in 2018, when they said they worked as a research analyst at crypto investment firm Scalar Capital.
Similarly, another user shared a video interview with Arthur Breitman, a popular Tezos (XTZ) community member, where he said:
“If you ask me from a financial perspective, does UST make sense? Absolutely not!”
At 16:22 UTC, UST traded at USD 0.119 and was down 68% in a day, LUNA changed hands at USD 0.000077 and was down almost 100% in a day.
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