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Terra-UST Saga – How to repair the trust when there is no trust built on

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Life is with surprises ?. For one month, you can be on the moonshot ?? and for another month, you are bankrupt completely ?❤️‍?. 

Some may say this is the nature of the crypto space, but it does not have to be this way ?! 

In the past, when crypto projects cratered, the community dissolved, and creators abandoned the project entirely ?. 

This time is different, the crypto market has matured, and founders are encouraged to reveal true identities.

Terra-UST Saga

However, there is no exit plan and crisis management in the crypto space to protect the community if the crypto is genuinely community-centric.

From moonshot potential ? to lunatic?, here is how Terra goes from the Defi future into shitcoin: 

⏳ History of Terra

After the payment technology boomed, Terra was created with a vision of the mass adoption of cryptocurrencies that could provide a price-stable against the world’s major fiat currencies

Terra operates under a consensus mechanism of delegated Proof of Stake with 100 validator candidates.

The initial insurance of native token Luna is 1 billion, and allocations to Terraform Labs (10%), Employees & Contributor Pool (20%), Terra Alliance (20%), Stability Reserves (20%), Genesis liquidity (4%), and investors (26%).

Terra had its moment from $180M at the start of 2021 to $15B in March 2022, with its native token LUNA hit by 138 times ?!   

Luna Foundation acquired an additional $1.5B on May 5th, 2022.

Everything looks so promising!

Founder of Terra predicted that 95% of coins would be whipped out, and it was entertaining him to watch the burn ?. 

? Collapsed the pricing

History of Terra
Luna crashed

Just only within the week, Luna crashed from $80 to near $0, and its stablecoin UST hit from $1 to around $0.13. 

Terra played what the Fed played. Since its native token was a collateral asset to maintain UST’s dollar peg, they can burn Luna and mint UST or vice versa to control the price. And they did supply more Luna to prevent the free fall of UST.

Luna and mint UST
Image credit: https://cointelegraph.com/news/luna-drops-20-in-a-day-as-whale-dumps-terra-s-ust-stablecoin-selloff-risks-ahead

Investors just didn’t buy it anymore.

Massive BTC was removed from Luna Foundation Guard (LFG) on May 9th. 

An explanation from the founder of the coordinated attack against the protocol.

With a very short period of notice of the vote, the foundation made an announcement.

It did not stop the bleeding.

UST was burned to $1.4B and still could not prevent them from falling.

Major crypto exchanges start delisting Terra.

And Terra blockchain was halted.

? What went wrong?

Here are my thoughts about Terra doom day:

1️⃣ Fail concept of stablecoin

If you cannot provide an accurate 1:1 peg, you may as well become a self-feeding warm. 

Unlike the Fed, which could print more money through the debt services – the Treasury can provide influential players to buy up debts. 

Compared to the government, community members provide their hard-earned money.

Crypto companies were only supported by communities whose beliefs on the project.

Stablecoin is a debt without obligation to the community.  

2️⃣ CEO of the Terra

Terra was claimed to be decentralized until it was not. The powerful CEO was representing the community.

3️⃣ Promotion materials

Too many promoters blindly upvote the project that may not be fully understood.

4️⃣ Not crisis mode management

There is no proper exit plan when the project fails, and the community that was built would likely be left behind.

5️⃣ Centralized rescue plan

Reshifle and redistribute tokens will not work if you lose community support and their trust.

6️⃣ One failed project to bring down the entire market

UST is a so-called algorithmic stablecoin, meaning that assets like cash or cash equivalents do not back it. Instead, it relies on trading and treasury management to maintain its value. 

Fake liquidity may not support its own massive valuation.

? What is the next?

Terra blockchain was halted and restarted and halted and restarted again.

The founder received several death threats toward himself and his family members.

We do not know if the revival plan will work in the future. 

So, how do you keep something stable?

? Follow me here

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Crypto Research

Bitcoin is not dead yet

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Bitcoin is not dead. In fact, the value of Bitcoin has increased in the past few months, and this is because of a lot of positive attention that Bitcoin has received. Many people are still interested in using virtual currencies to store their money. However, for these people who have been long-time Bitcoin users, the demand for Bitcoin has grown as the price has increased. If this assumption is valid, most people who plan to buy bitcoin will need to have a good reason for doing so. What if this assumption is no valid?

What is a cryptocurrency?

A cryptocurrency is a digital currency that has no primary functionalities other than being able to be stored online and exchanged for various other cryptocurrencies. Some of the most popular cryptocurrencies currently are Bitcoin, Ethereum, and many others.

Why to buy Bitcoin

There are numerous reasons to buy Bitcoin, but the most important one is to diversify one’s investments. If you are mainly investing in Bitcoin and other cryptocurrencies, then you will definitely want to buy more of them in the future. However, if you are trying to diversify your investment and purchase other cryptocurrencies, then you should start with the oldest and most successful ones. Additionally, individuals who hold positions in various financial products like stocks or bonds may also want to purchase Bitcoin. This is not a recommended move, however, as volatility in the market makes it difficult to know what will happen next. But when the economy will have a long recovery time, buying Bitcoin is not a wise move since it may take even longer for Bitcoin to recover its price.

Why not to buy Bitcoin

There are a number of reasons not to buy Bitcoin when the economy is bad. One of the top reasons is because you do not know where to start. There are many online retailers that sell everything from computer hardware to electronics, but you will probably never go that route since FTX is a prime example to let loss of trust on the exchange service. Another reason not to buy Bitcoin when the economy is bad is security. The amount of money and time to spend of securing Bitcoin is considerable. It is also likely that many criminals will target people who have money stored in a self-custody wallet.

Conclusion

The demand for Bitcoin has grown over time as more people adopt the digital currency as a store of security and money if that is the case. As more people adopt the currency, the value of Bitcoin has increased. This growth is likely due to many reasons, including the fact that many people now want to use the currency as a store of security and money. Although cryptocurrency has seen rapid growth over the past few years, it does not guarantee it will grow in the future. The demand for cryptocurrency will likely decrease in the future if people realize that it does not have any primary functionalities other than being a cryptocurrency itself.

Of course, this is no financial advice.

Photo by Silvestri Matteo on Unsplash

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Crypto Research

Invest NFT is a very bad idea

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You’re probably thinking, “but why would I ever want to deal with non fungible tokens or NFTs?” Well, that’s because there are a couple of very practical reasons why you shouldn’t. Firstly, non fungible tokens are not very good for your long-term investment. Let’s take an example. You have just purchased a 5 million worth of NFTs from Coinbase. Your long-term investment is protected for the next three years — barring some catastrophic event? But even if you manage to maintain your long-term investment for the next three years, imagine what will happen once you hit five of those years! Without a doubt, these problems increase exponentially when you have a bear market — how much can you keep NFT value? It’s quite likely that you will be broke. 

What is a non fungible token?

A non fungible token is an crypto that is not from a recognized blockchain like Ethereum. After being offered for purchase, these tokens can be easily bought and sold on any exchanges you would think. However, they are extremely liquidated and hard to sell.

Proper use of tokens

When you want to buy or sell a single NFT, you can always purchase it with other cryptos. However, NFT is just a symbol of owning something that is … useless…

Fees and charges on transactions

A transaction fee is charged when you make a payment with a cryptocurrency exchange. You can choose to pay this fee in fiat cash or a payment service like Coinbase’s Wallet.com. The transaction fee is a percentage of the amount of money you have just transferred. You can pay this fee in exchange for having access to the market for that particular crypto exchange. Some exchanges will charge you a trading fee in addition to the transaction fee. This is mainly to help cover their fees. 

What happens if we try to sell NFTs?

Creators will benefit from each transaction. That is all. Unless there are exclusive perks that follow of owning NFTs, there are no much value that you want to possess them. 

Conclusion

NFTs are not as what we expected them to be.

Photo by Ashley Jurius on Unsplash

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Crypto Research

When crypto bank is a shadow bank

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If your business goes bust, what will you do? You’ll probably need a fresh start. Fortunately, that can be a lot easier than you think. But that is not easy for a shadow bank, particularly the crypto shadow bank. Let’s explore what to do when your shadow bank goes bankrupt.

What’s the profit in being insolvent?

When your business is profitable and has plenty of cash in the bank, you can either pay your debts or use the profits from your sales to repay your creditors. If you’re able to meet your debts, you can then use the profits from your sales to pay your creditors. In some cases, you can even try to access your assets to pay your creditors. However, crypto shadow bank has illiquidity assets that unlikely can exchange to cash and pay off the debt. They are likely to go bankrupt with cash on hand and forced to sell their illiquid assets later to pay off debts.

Residual income or loss?

In general, if you’re able to show that you have a profit in being insolvent, it’s a good sign that the other parties in your business have their ear. If they haven’t, they could become targets. If you can show that you have a surplus, that is money left over from one period of activity when you were profitable and unable to pay your bills, you could be able to get your debts forgiven or pay them in full. For example, if your sales this past month were $1,000 and the total amount saved was $400, your surplus could be $100. If you can’t show this, you may have to start again from scratch. Unlike crypto shadow banks, they made huge profits when the market rose but lost quickly when the market went down. When the market goes down, they are less likely to get more funds since investors lost their appetite on the crypto.

What to do if you’re insolvent and no one will pay your bills

If you can’t show that you have a profit in being insolvent, you usually have three choices. You could either pay your bills or try to get a loan to avoid bankruptcy. You may also be able to get a special interest group on your local real estate board to readize you and make any required property inventory. You can also call a mortgage broker and arrange to buy a home.

But if you are running a crypto shadow bank, you cannot sell crypto because the market goes down faster to preserve your asset price. You cannot get another loan because likely you have highly leveraged your previous loans with high risky assets.

Get a loan to avoid bankruptcy

If you can’t pay your bills, you might be able to get a loan to make repayments on your credit cards or other debts. However, this shouldn’t be your only source of cash. For example, if you have a net worth of $5 million and your debt is $1 million, you could borrow $500,000 and have it repayments in as little as a month. Again, this is a very low-risk way to make payments.

But in crypto shadow bank, that is no an option for you.

Make payments on time

If you’re able to show that you have a surplus, you can try to pay your debts in a timely fashion. For example, if your debt is $500 and you owe $100, you could pay the full amount in a few weeks, or you could wait a month and then pay the rest. This is a low-risk way to make payments.

In the crypto shadow bank business, you cannot make payments on time and will likely go bankrupt soon.

Try private loans

You can go ask private loans with high-interest payments for the short term to offset your losses. This is not an option for crypto shadow bank again, they have already possessed high risky private loans.

Conclusion

Small businesses can weather uncertainty but no crypto shadow banks, which is why many crypto lending services keep collapsing.

Photo by Martino Pietropoli on Unsplash

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