Can someone explain what happened with Luna? I'm not aware of it. People here are calling it a ponzi scheme, but I can't find any explanation of what the deal was. (there is this forbes article that only talks about it tanking[0])
On basic: if ust coin(pegged to one dollar, so the target was to keep it at one dollar) lost value(under one dollar) new luna coins were created to buy ust coins.
So.. As long ust coin was under one dollar, it created more and more luna coins to buy ust coins.
I think luna started with like a few million coins and ended with something like 7 or 8 trillion coins, now the network is officially shutdown.
It was a horrible idea.
No matter how good your algorithm is, people will manipulate the open! Book of upcoming trades to make profits, and destroying the coin with it.
Its like knowing what vanguard bak will do, before they even start trading on top of that you can force them to trade im certain ways, because you know how they will react, with hundred percent accuracy!
It is not a ponzi. The 20% they were paying out should be considered a cost of user acquisition paid out by the team themselves. If paying incentives to attract users is a crime, we’d have to shutter most startups.
I’m not defending Terra, but we should be precise with our words lest we escape reality ourselves.
>Where was this coming from if not from new buyers?
Anchor generated revenue in 2 ways. The first is that it collects staking rewards for collateral that was deposited. The second is that it collected interest on the loans it lent to people. Some of what it was able to collect can be attributed to new buyers because an increase demand for UST increases the value of Luna. This combined with more gas fees means that bLuna holders will be paid out more. bLuna is one of the assets which can be used as collateral on Anchor. Even without new buyers there would still be profit that could be awarded to depositors.
Even if that part were a Ponzi, it wasn't related to the core problem with the stablecoin peg algorithm, which was what actually brought Terra down, and which could/would have been targeted regardless of this high yield staking program.
When the algorithm was coded, they didn't know those things. It could have worked equally well with minuscule volume. Supply and price could have multipled by a million with no new investment.
A Ponzi uses new investments to pay interest. If it doesn't get exponentially increasing revenue it collapses. Paying someone in more tokens or stock is different. If it collapses, it's for different reasons under different circumstances.
It's a lot easier to fabricate market cap than to fabricate cash.
> Sick of people calling everything in crypto a Ponzi scheme. Some crypto projects are pump and dump schemes, while others are pyramid schemes. Others are just standard issue fraud. Others are just middlemen skimming of the top. Stop glossing over the diversity in the industry.
> No matter how good your algorithm is, people will manipulate the open!
The algorithm isn't good at all. Such catastrophic failure was predicted a few months ago by a lot of people independently. But it is difficult to predict the timing so only few people shorted it at the right time.
It wasn't a ponzi in the traditional sense but the algorithm propping their stablecoin while likely well-meaning had a serious death spiral-based fault in the case of a coordinated attack or very bad market conditions. For what is worth, they did have a healthy (for smartchains) ecosystem beyond that stablecoin and were clearly attempting to do more than temporarily prop their token and then run away.
From what I understand that 20% was completely legit and made sense. It simply came from a reserve that was created to attract investors, and as soon as that reserve were depleted, those returns would be gone.
I've not read all of anchor's material but I don't recall them publicly stating that the 20% APY was only going to las till they had burned through a specific amount of money. Do you know, was that stated publicly?
There is not a 21 day lock up for pulling funds out.
The Terra blockchain is a proof of stake blockchain where you can stake Luna in order to gain rewards from various fees the network collects. Unbonding your staked Luna takes 21 days to complete.
One of the assets which you could use as collateral on Anchor is bLuna. bLuna is a token that represents a Luna that is currently being staked. Anyone who holds bLuna is able to redeem the rewards that staked Luna has accrued since it was last redeemed. When you give it to Anchor as collateral Anchor will start paying it's depositors with those rewards. It is possible to convert a bLuna back into Luna, but this takes at least 21 days to complete as the unstaking process takes 21 days itself. If you don't want to wait that long you can just sell the bLuna to someone else for Luna.
If this is an attack like Soros vs the Bank of England, how is the profit exfiltrated if both currencies are worthless when the music stops? Is there a put option somewhere else?
Certain application in the decentralized finance space will allow you to borrow a cryptocurrency based on collateral in another currency. So in this case you deposit bitcoin and get Luna out. Then you sell the Luna. Then after the price crashes you buy Luna to repay your debt. Basically shorting Luna
So, I put up 10BTC as collateral to get 110LNA - worth 11BTC - on the promise that I'll pay back 120LNA - worth 12BTC.
I sell the LNA for 11BTC worth of dollars. A meteor comes and destroys the price of LNA, sending it to a penny. When my loan is due, I buy 120LNA for a buck twenty and pay it back. I keep all of the 11BTC worth of dollars, having essentially bought them for a dollar.
Something like that? Seems like it fucks lenders more than holders, but I'm guessing that a lot of holders use some trickery to act as lenders as well. Neat scam.
Pretty close, I'm guessing there are peer to peer lending platforms but typically you do it through a smart contract where assets are pooled together. So when you put your 10 BTC in the lending pool, you can only borrow up to ~80% of that value. If the price of BTC goes down, your BTC gets liquidated if it gets to within 5% of your borrow amount
Yep that’s essentially how it works. However, it can be risky either way. For instance, what if the price of Luna had gone up massively? Well then you would have had to repurchase Luna for a lot more than you sold it for. Basically, it reduces down to the exact same scenario as shorting a stock.
probably an attack exploiting bad algorithms, I wouldn't be surprised if the US regulatory captures stablecoins now and it somehow becomes necessary to police the whole world for 'financial terrorism' or something of that nature ...
[0] https://www.forbes.com/sites/stevenehrlich/2022/05/11/luna-n...