Luna Cryptocurrency Collapse: How UST Broke

As with all human activity.

Energy storage and distribution networks constantly strive to minimize unstorable excess energy. Even under the assumption that that will not happen sufficiently, or, less hypothetically, by only taking into account the currently achieved levels: What you propose cannot be enforced. By design.

Bitcoin is decentralized, and everyone with an Internet connection and energy available can participate. That includes anybody with an even mediocre Internet connection and access to precious resources that can be converted into a single Bitcoin block and a massive amount of heat, for personally enriching transaction fees and a block reward in return. One of Bitcoin's very core principles makes gapless regulation unlikely, if not impossible.

What is your proposal for guaranteeing that only non-storable, non-transmissible excess energy is used for Bitcoin, other than individual goodwill?

Uhm, why can't it be both? You describe as if there is one ominous "crypto" with a single set of static rules. There are many different tokens/coins/etc, some are "store of value", some are "stable coins", and some are "volatile investments". Crypto can and is all of them at once.

There’s also a difference between monetary inflation (increasing the amount of money in circulation) and price inflation (increases in prices due to normal supply and demand). “They” spend an enormous amount of time and energy to ensure people don’t understand the difference.

Did we? Really? Does economic exchange without money have to be barter? I've yet to see actual evidence of this, rather than just bald assertions or just-so stories.

Or is it just that the kinds of mental debt-tallying we've always done is facilitated by physical tokens (money) commonly accepted as unit of account?

It isn’t that simple. Inflation indexed bonds have a coupon and a factor.

As inflation goes up, the factor goes up. Yay, keeping up with inflation!

But as market interest rates go up, the price of your bond with the lower interest rate goes down. Boo, crippling losses!

Now you can buy Series I Bonds to avoid this interest rate risk (i.e. duration) but you’re limited to $10,000 per year per social security number.

If you’re worried about inflation the best thing to buy is a productive asset. Like stock in a profitable business. That is… until so many people do that it makes every company wildly overpriced.

Wow this stuff is hard.

Practically useless. The government only allows each person to buy $10k of I-bonds.

You do know that the official inflation numbers are much lower than actual inflation?

Case in point: look at Gamestop stock, 15 months later. Still detached from reality, despite nobody -- even the buyers -- truly expecting the company to generate commensurate value.

Yes, it's very volatile and no, just like gold, it doesn't protect you from inflation in the short run. but, it does protect from inflation in the long run. It doesn't have the adoption of gold yet, that's why there's more risk, but also more upside too.

I'm not saying BTC is a buy at 30k or whatever price, but when you're writing the exact same post people wrote 10 years ago against the thing when it was at 10 cents you kinda gotta question whether your logic is sound.

And I also agree there are no new arguments here. We've been rehashing the same pro-crypto vs anti-crypto discussion for more than a decade and at this point most of us who are not new to this debate are just arguing to let off steam. If you have anything constructive to contribute, other than ad-hominems, I'm happy to hear your side.

The only way to save luna is to decouple it from UST entirely.

No, both you and the OP seem to have pattern-matched my comment to "bitcoin's energy consumption is similar to [something else]" argument, which is not what I'm talking about.

And a single vehicle creates more tangible good for the world than the entire global network.

At the moment it seems much more likely that the US government will survive than that BTC will be popular (and I think the relative values are fairly reasonable), but a few GPTs from now when computer governance becomes not only plausible but likely and crypto will seem like the only reasonable option.

The government is all of us. A society self-organizing by whatever rules suit itself. If we want Bitcoin, we can keep it.

The government is an oppressive force that will squash dissent. This makes Bitcoin a moral imperative maintaining a semblance of transactional freedom in the face of that force.

Economic models, Keynesian or otherwise, are attacked and misapplied because individual players are better off with a larger slice of a smaller pie. Which doesn’t inherently invalidate these models, but few care about accuracy when billions of dollars are involved. When people talk about say ‘cap and trade’ what they really mean is give us a giant subsidy.

So how do you decide which correlations to believe in more than other?

I believe economic inequality is a problem, but the gold standard would be throwing the baby out with the bathwater, based on weak "look, these things happened at the same time" reasoning.

Economic inequality has been MASSIVE at many times in the past prior to modern currency, after all.

Yes high inequality is a problem but I'd argue too low inequality is a problem too. You need a difference of outcomes to motivate people. If that doesn't happen in currency it will happen in another way. For example people will invest in political power and work hard to corrupt the system in their favor. This happens with high levels of inequality but is reduced as there is a legitimate path to improving ones lot. There is something competitive in us the drives us to do better than our neighbors. That needs a legitimate outlet.

Also you‘re taking one feature „they had a gold standard back then“ and take it as the single point failure. In reality having a „Gold Standard“ does not guarantee a non-inflating currency. In the 1920s the FED was printing more dollars than were backed by gold to pay back the government’s war time debts. The same happened in the losing nations like e.g. Germany, too, in a much greater force causing a death spiral completely destroying the German Reichsmark. In the US you were lucky to just experience a stock market boom that spectacularly burst in 1929. This would have caused a recession for sure. However, the decade long depression that actually followed was a result of unprecedented economic meddling by the federal government under Hoover and then Roosevelt.

The Gold Standard was removed after the „Bretton-Woods“ system broke down in 1971. That was an attempt at establishing an international currency system with fixed exchange rates. It worked in a pyramidal fashion: The US promised to have their Dollars backed by gold and the middle power nations‘ central banks backed their currencies with US dollars. Of course, the US printed more dollars than they actually could back by their gold reserves. At some point France demanded to redeem their dollar reserves in Gold. The US did not comply and in 1971 Nixon declared the Dollar not being redeemable into Gold any more because the FED didn’t have enough gold left. Since then the US dollar as well as all international currencies are backed only by the people’s trust in them and by the fact you have to pay your taxes in those currencies.

So you see the monetary history is primarily a history of failure induced by bad economic policies. How currencies were implemented is just of secondary interest.

Bitcoin could easily serve as an international currency compared to the US dollar. Its value is based on trust like the US dollar. Governments could collect their taxes in the form of bitcoin if their wanted to without a major systemic change. And unlike the Dollar or Euro, Bitcoin couldn’t be inflated. Whether that will happen and change economy for the better is still left to be seen.

When a bank makes a loan using it's customer's money, the balance in the account doesn't disappear -- and the money is still available to the customers. But now a loan for a car financed by a bank goes into the car dealer's bank account which then gets loaned out by that bank. This happens over and over again in a recursive manner. This is the Monetary Multiplier Effect as part of Fractional Reserve Banking.

It's basically kind of a regulated shell game. The bank has to have so much in cash to pay out in case of a bank run, and the FDIC protects customers from bad bank management. But your money is literally replaced with a number in an account balance. And your $10k in the bank might generate $40k of loans in the economy based upon your deposit.

An investment however removes cash from your account and replaces it with shares and that money is given to someone else. So it's an exchange of money and an exchange of shares. And thereby doesn't have the same multiplication effect. In this case value is created or lost which makes your shares worth more or less on the market.

Again, value doesn't create money. Money is exchanged between parties for different amounts. A 1981 bordeaux doesn't create currency over time, just increases it's value.

So borrower goes out and buys the stuff they need to make it happen. That money eventually ends up right back in the bank as a deposit. Once at the bank, it is once again loaned, spent, deposited, loaned, spent, deposited... Quickly inflating $1000 into a whole economic system worth huge figures like $100,000, not one cent of it real until all of the aforementioned economic activity actually succeeds in generating some real value. Always at risk of the whole stack unwinding due to business failures leading to defaults on loans which could cause even more defaults and liquidations and foreclosures and losses and all sorts of problems.

Multiplying that by an entire country's polulation results in truly mind-boggling amounts of money generation and therefore inflation. The actual money supply doesn't actually matter since it's a small fraction of the amount of money that's actually circulating.

The funniest part is cryptocurrency exchanges have turned into banks. They offer bitcoin lending services, savings accounts. Finite bitcoin supply? It doesn't matter. Value can always be inflated away through loans.

Because people have loved gold for thousands of years.

I beg to differ, asset prices experienced massive inflation during that period. Obviously, nobody was borrowing money to buy loads of hamburgers or other things that greatly influence the CPI. That demand is mostly inelastic and asset prices have little influence on it. That said, government spending accounts for almost half of spending in total. If this is increasingly financed by (the equivalent of) debt monetization, you will see debt chasing the hamburgers as well, causing runaway inflation like in Turkey. The central banks are very much in control of that not happening.

E.g. Inflation is good because it encourages people to invest in things, creating jobs. However, inflation is bad because it encourages people to take unnecessary financial risks (like borrowing or lending money) when they could instead save it for a rainy day.

Who knows who's right? I have no idea.

No, capitalists want your money to be productive. You don't have to spend your money, though that is an option, you have many other options for what to do with your money.

http://thumbnails-visually.netdna-ssl.com/purchasing-power-o...

It's always disappointing to see what hacker news devolves into whenever cryptocurrencies are discussed. We should try to hold ourselves to a higher standard than this.

Since the Fed keeps the rate much below inflation then all cash should be spent... which further encourages higher prices!

I just don't see the endgame here except hyperinflation to destroy the currency and start anew.

https://www.bbc.com/news/world-europe-21814325

Honestly, you can make a superficially convincing argument for any economic position.

If the currency was not inflationary, people saving would mean that everyone else's money becomes more valuable. You save first, then you invest. Not the other way around. Unless you want dumb money pilling in everything and creating mega bubbles that will burst and destroy everyone's value.

Honestly, if that were the case (as it used to be, back in the early days), I would have zero problem with crypto. The tech isn't the problem per se, it's all the greedy leeches who are looking for a get-rich-quick-scheme.

Yes fractional reserve banking is a real thing, but real banks must publish audited financial statements so that outside observers can asses the banks financial position. From small local banks to national reserve banks, the financial statements are out in the open for depositors and borrowers to scrutinize. This isn't possible with Tether because the fiat side of their books are closed.

If everything is above board at Tether why not release the books? It's such an obvious PR win and would increase adoption of their currency.

They haven't done so because they know the books are cooked.

That is insured by GOVERNMENTS...

There is a minor difference, though. On a typical fractional reserve bank the deposits are backed by assets worth more than what is the worth of the deposits.[1] Not only that, there are other liabilities that take the possible losses before the deposits are being hit.

On a typical stablecoin, there is a reason to suspect that the coins are backed by assets worth less than the market cap of the stablecoin.

The difference may seem subtle, but it is a difference of a legitimate business and a despicable scam.

[1] In case you are interested, you can go and check the balance sheet of any bank you want. The part where the value of excess assets to back the liabilites of the bank (deposits etc) is listed under "Equity"

There was an explicit attack that crippled the peg to the point that their algorithmic stability mechanic couldn't self heal. Which led the Luna project to attempt to assist the peg by deploying their own reserves, which unfortuently didn't work.

(But I won't deny that there was also fraud, and economic incentives for inflated ratings.)

Also, technically the value of UST was fully backed by LUNA, until the total market cap of LUNA dipped below the market cap of UST, and then it wasn't.

IMO it's not the collateralization that makes something an algorithmic stablecoin, it's the currency is managed entirely by on-chain smart contracts, as opposed to Tether or USDC etc, which are managed manually by humans working in a room somewhere. Who knows though, I just made that definition up. The algorithm that manages DAI is pretty rad, so it seems unfair to deny them the status of "algorithmic", but that's fine.

If it's not able to raise enough DAI to make up for the DAI that was issued when creating the vault the protocol can mint and sell MKR for DAI to get rid of that debt.

Are the people who "read the instructions" really the ones who benefited here? The main winners here, as far as I can tell, are the employees and creators of Terraform Labs—who benefited from people investing in a project that was doomed to fail—and the people who got in early and out early—who are probably more lucky than smart.

What are the top few similar synthetics out there right now if you don't mind me asking?

Same here.

I was asked about crypto many times since it became legal tender in my country.

The country definitely went through an 'investment' craze for some months. Maybe in a similar way to what Robin Hood / GME was in the US in late 2020/early 2021.

For some people the damage was limited to the $30 they received from the government in their wallets, as a consequence of buying high and selling low.

For others who went all in and bought crypto with credit cards, is a different story.

Like for many people here the best investment they can make is paying up their up to 49.99% APR credit cards, but that doesn't seem exciting enough for many.

I remember having conversations with friends and acquaintances about investment options. Researching which bank offered the highest APR for term deposits, (they can sometimes be up to 5.5% for USD time deposits here), which investment options were available, or how usually investing in yourself (education) or paying debts is a much better investment.

At least one of them decided to go full on crypto "deposits" with higher APR, I haven't asked if they are underwater after the recent news.

Another thing that surprised me is that the ones that spent the most weren't IT people. Since originally here, Bitcoin was mostly an IT niche topic. A few lucky people that mined when it was possible to do it with GPUs or bought when it was bought about a $100.

With all this, most of my friends in IT were like "oh, I've known about this for a long time, I wish I had bought them years ago" but didn't take major actions. On my case I remember the first Slashdot post about Bitcoin and even downloading one of the early Bitcoin Windows wallet but I never mined.

Others were mostly bit annoyed for having to work after hours to update their companies' payment systems to handle crypto in a short notice.

But non-IT people where like very excited about it. It was surprisingly popular with 60+ and older acquaintances. I'm sure it was heavily promoted on local TV and probably by social media posts targeting their demographics.

I've met some 75+ retirees that even wanted to buy ant miners and others that bought crypto with their pensions. Like their first online purchase with card was for buying coins really. And I'm talking about the demographics that actually goes every month to the bank to update their bank booklet after their pension is deposited.

Very weird days.

Can you link me to these instructions?

On the other hand, jumping in without understanding is why a small fraction of people got ridiculously rich from SHIB.

Just want to mention that I in no way support algorithmic stable coins, I think they are a joke (including luna/terra). But I also don't agree crypto currencies are generally a ponzi scheme (there may be a few exceptions).

Anchor did a decent job of obfuscating the nature of the scheme.

I disagree. The return could just go down over time. The idea of taking more loans out against your borrowed loans is risky and can be done with any other loan provider. It opens you to a lot of risk because if you get liquidated you will lose a lot.

>Then this resembles a classic Ponzi scheme.

Anchor itself isn't. A Ponzi scheme is where earlier investors are paid with the funds of later investors and is not sustainable without growth. In a Ponzi scheme not everyone can withdraw their money as the total reported money is more than the money deposited. In the case of Anchor the money reported is actually the same as the money deposited. Everyone is able to withdraw their UST. You can still get 18.06% APY on UST from Anchor right now.

The actual issue is with how Terra handles contraction of UST demand. As it turns Luna into an inflationary currency instead of a deflationary one. This is the danger of having your collaterals value tied to the growth of the stable coin itself. I can see how Terra + Anchor can look like a Ponzi scheme, but I personally don't see it that way. I personally just see another algorithmic stable coin deegging as demand for it goes down. The same thing would have eventually happened even without anchor. People could just get board of the project and decided to pull out.

I think that there are many in between states for society, between the two extreme points of "allow ponzi scheme investments to be sold to uninformed investors" and "Communist dictatorship".

Instead of either of those two extremes, we could choose a middle ground of "Liberal democracy, where people running ponzi schemes are prosecuted".

> There is no all-seeing, all-knowing bureaucrat that can detect Ponzi schemes

Nothing is perfect. But it doesn't have to be. The government can just go after the obvious ones, at a very minimum, and get it mostly correct.

The problem is: how do we trust that this report is true?

You mean like this insane set of requirements that makes it basically impossible for the average retail investor to redeem their USDT for USD? [1]

- $150 for KYC + verification, minimum transaction amount is $100,000

- U.S. citizens must be classified as Eligible Contract Participant to redeem USDT via the website (ECP = individual investors with more than $10 million, individuals with $1 million net worth, businesses, etc)

- 0.1% fee for withdrawals up to a maximum of $1,000, which means Tether is redeemable at $0.99 for up to $1 million

- Any individual who is a U.S. Person and any entity that is a U.S. Person is prohibited from using the Site or any Services, [...] Exceptions to this policy may be made by Tether, in its sole discretion, for Eligible Contract Participants only, which shall be customers solely of TLTD.

- There's more, but those are the highlights

[1] https://cryptoslate.com/you-can-redeem-tether-usdt-11-on-tet...

At least the crypto investors aren’t expecting a wholesale bailout at any point, unlike “sophisticated” institutional investors as we saw in 08…

Said house is destroyed in a fire, insurance can't pay everyone out (see Paradise fire) and then those same people end up begging others for support (Including GoFundMe) pages.

Didn't they gamble on having a house in a high risk area and lost? Why do we only bail out certain people and not feel bad about it?

When the traders walk away I will still be using Bitcoin as a way to store and transfer value p2p unless something with similar properties replaces it.

Nonetheless, the winners think they’re winners because they made the right choices and will try to convince others to follow suit.

I bought an item for thousands of dollars in bitcoin just this week just to dodge paypal fees. Some of my clients pay me in bitcoin too. I am considering offering a discount for it as it saves me conversion fees.

The traders are speculating and most of them do not care about privacy or censorship resistance or using it as a currency so they are just here for the hype and greed. They are fickle and will lose a lot of money.

I just buy, hold, and spend, because bitcoin is a currency that, if used without kyc exchanges, offers much better privacy and censorship resistance than visa, paypal, or mastercard.

Privacy and censorship resistance are utility.

Those betting against the internet succeeding long term as the defacto way of exchanging data were wrong, and those betting against decentralized value storage will be wrong too. It will get worse before it gets stable but I am in it for digital sovereignty above all else.

I will have no regrets for funding digital sovereignty. It is a war for critical freedoms that if lost at least wont be as bloody as those with weapons.

The world I want to live in requires decentralized money and governance and I continually vote with my wallet.

This is terrible advice. People speculatively trade commodities all the time, including agriculture commodities. They are just as valid of an investment as equities are.

Your advice that commodities are “not an investment vehicle” is simply wrong, and can be proved wrong with very minimal effort. I wonder how everybody you convinced using this rationale is going to feel when they discover it is nonsense…

instruction goes in, stablecoin comes out

input output

smart contracts are vending machines placed on the side of an ephemeral gas station

what regulation would you like to see and how would it apply or prevent.. anything with that reality?

I think instead of punitive taxes the regulators could try to make an approved framework seem more attractive, which just creates another additional option for the user

Imagine the people in the 1920s that were like “you know what would be funny… what if we got the government to add confidence to our private business with public money and then we get all the customers and skim a little bit from them at every turn, I know I know its dumb but that would be funny right”

Of course being a dick while advocating for better protections from this kind of scheme is better than feeling bad and doing nothing.