The decentralization of the blockchain market and the nature of smart contracts make the market incomparably free, and the creation of DeFi allows the market to not only be free and permissionless to use a variety of high-risk financial instruments such as lending and leverage, which happens to be a market without worrying about the consequences.
From a bearish point of view, the fall of LUNA is seen in three dimensions
── History is likely to repeat itself, but it is definitely not the same way:
·(with sufficient short value) Starting in May, LUNA has a market capitalization of more than $40 billion, occupying the leading position of algorithmic stable coins;
·On May 4, the Federal Reserve announced a 50 basis point rate hike and began to shrink its balance sheet in June, and the global economic market began to lose blood, and the digital currency market was no exception;
·(Short-term liquidity short-term) On May 8, Terra removed liquidity from the Curve and prepared 4pool for UST, FRAX, USDT, USDC;
·(Hunting begins) On May 10, Terra Ecology’s native algorithm stablecoin UST was decoupled from capital hunting, falling to as low as $0.6;
·On May 11, it announced an increase in the MINT mint capacity from $293 million to $1.2 billion, accelerating the deflation of the UST, and this move to abandon LUNA accelerated the decline of luna prices;
·(Prematurely depleted of ammunition) Began on May 12, through various destruction, exchange and other means to try to stabilize the price of LUNA, the use of various reserve funds to save the market, while various financing methods failed.
On May 19, LUNA is now priced at 0.000172, with a market value of more than 1.1 billion, and in this financial war that began to end in just three days, the process and results of soros sniping the pound sterling and the Thai baht were repeated, and in the digital currency market of one day in the currency circle and one year in the human world, the efficiency and speed of short sniping were also reflected vividly.
The death spiral of high leverage
P2P has told us that “projects with yields above 20% represent a risk of touching the principal of investors”. The concept of DeFi decentralized finance has brought stronger liquidity to the blockchain market, bringing almost all financial instruments in the traditional financial market, in the traditional financial market, high leverage ratio financial instruments represent a higher threshold of access, but also represent a higher risk, and many in the traditional market as a capital hedging and risk aversion of the use of high poles in the digital currency market has been deliberately ignored risk, users only see the yield and the increase in the number of funds per day.
Anchor Protocol plays the role of a state-owned bank in the Terra ecosystem, providing UST holders with ultra-high demand yields of up to 19%-20%, and domestic users should have heard a warning during the P2P collapse in 2013, when the investment return is as high as 20%, the principal is in complete risk.
Anchor Protocol’s ultra-high yield means that in the Terra ecosystem, there must be enough positive cash flow to maintain the capital expenditure brought about by the high yield, and the using ecology of using the UST in the entire Terra is only Anchor, which means that the most important positive cash flow is missing in this seemingly complete ecological closed loop. In this cycle, 20% of the holders have only two sources of income, either through the assistance of the overall ecology, that is, the inverted funds to subsidize to maintain high returns, or the so-called benefits are the same as the Ponzi scheme, which comes from the user’s principal.
The meaning of shorting is to speed up the value return, not to blindly attack (Terra experiences the value regression speedup, not malicious shorting).
The way up is brilliant, and the speed of going down the mountain is outrageous
Terra ecology relies on Anchor super high yield bundle user funds, and then through the rise of user volume to make the price of LUNA tokens rise to complete this seemingly complete business logic, and in this logic there is a necessary condition, that is, the volume of users / capital volume continues to rise, according to LUNA and UST dual token model, UST users increase also represents the rise in LUNA prices, thereby attracting speculators into the ecology, This makes this similar gameplay similar to the Ponzi scheme sustainable.
The reason why Terra’s ecology is a Ponzi scheme rather than a simple Ponzi scheme is also because of the unique nature of the blockchain market, in the process of ecological casting, under the premise of having enough user volume, it can be introduced in a very efficient way to make a variety of profits, whether it is NFT, DeFi or GameFi, etc. In this can be quickly completed in a way similar to Lego splicing, the premise of all this is to have enough user volume.
What Terra experienced was not a malicious short-selling, in a reasonable amount of time through financial means to luna and UST price reached a rapid return of value, but this situation led to a rapid escape of funds, speeding up the end of this Ponzi-like scam.
Just as the dual token model can make the tokens linked to stablecoins rise rapidly during the market development period, the market will also make the price fall quickly when it enters the high-risk period, and when there is no positive return into the business cycle, there is only one defense solution for the death spiral brought by the dual token model, only with sufficient capital reserves, so that the price is not hit into the water before the price of the stablecoin liquidity pool is broken, and when the price of the algorithmic stablecoin enters the water, it is forcibly purchased. It’s like fighting the panic that has already taken shape. This behavior is like a moth to a fire.
The crypto market is growing faster than you could have imagined
From the rise is the future, the decline is the irregular market of the scam, from the exchange as the king to the decentralized financial DeFi, from the NFT and metacosmity called the bubble market by traditional institutions to the circle, the blockchain market has spent just 3 years to complete the concept of DeFi, NFT, metacosmity, etc. In these three years, the blockchain market has gone through the road of traditional finance for decades.
Compared with any financial market, the blockchain market highlights freedom and decentralization, and under the premise of decentralization, it also improves the user’s self-management threshold, any user in the traditional financial market who wants to use leveraged financial instruments needs to have the corresponding qualifications or capital volume, and all tools in the digital currency market are fully open, which means that participants in this market are not only facing high returns, but also various risks that are not mentioned.
In this fully open financial market for market participants is the fairest and most unfair market, compared to other markets blockchain has a completely open and transparent characteristics, this characteristic means that it is absolutely fair to each participant, but for retail participants, for institutional users without restrictions is also the biggest injustice, if the digital currency market is a gambling table, then every participant will face a professional-level opponent.
In an economic system, the more actors there are, the more complex the system becomes. But many people forget that complexity is growing exponentially. In this market of continuous complexity and openness and transparency, every participant is constantly improving themselves, whether active or passive, turning gambling sentiment into investment, and progressing with the fast-growing market in order to have a place in this day when institutions and giant whales have entered the market.
The market will speed up the return to value
In the financial market, the market cycle rises and falls like a wave, and in the digital currency market, the speed of this wave rotation is also increased by various DeFi ways to improve the utilization of funds.
Today, the various projects in the market have been frequently attacked to now focus on code review, but the attacker’s attack methods have gradually changed from technical means to financial means, and financial tools in the digital currency market have given operators too much convenience, making shorting this simple and fast for the market and clear benefits.
Compared with the blood inflow brought by the market through various FOMO sentiments in 2021, the blockchain market needs to appear a sustained and stable growth track like the traditional market, and for the market that has been sufficient in size, any rapid rise from the market value will appear passive rapid value return.
NFT and DAO has completely put the blockchain market into the vision of the public and traditional investment institutions, whether it is the purchase of NFT by various stars or Musk’s acquisition of Twitter to try to make Twitter run in the way of DAO, will attract countless traditional financial institutions to enter the blockchain market, for today’s market situation, looking for projects in the market that do not match the value and price of the project to burst the bubble may be more efficient than looking for new tracks and opportunities.
Terra is the first time to affect the entire blockchain market of the bear hunt, but if in this market is still pervasive through locking, leverage, high yield to expand the size and volume of the atmosphere, this left foot right foot way to make the token price quickly rise, the same way will also face the same way to be quickly returned to value, the digital currency market will eventually become a hunting paddock for bearish institutions.