Illustration by Mitchell Preffer for Decrypt
It was the market’s sixth consecutive weekly decline, but on Crypto Twitter, the industry’s eyes were pinned on UST’s historic depegging.
Terra’s dollar-pegged algorithmic stablecoin collapsed, bottoming out at $.13 on Friday, causing a domino effect where the price of LUNA nosedived to virtually zero as people rushed to exit UST by redeeming it for LUNA, which is currently worth a fraction of a cent as UST trades at $.17.
There are many questions, grievances, proposals, and conspiracy theories as to what exactly happened, but let’s first rewind and recall Terra CEO Do Kwon’s immense hubris.
Last week, he literally said this would never happen.
In March, he threatened to personally crush his rivals in the algorithmic stablecoin market.
But this week, Kwon’s pride, like his projects, came crashing down. Guess the Earth became a bit unstable?
Those of you waiting for the earth to become unstable-
I’m afraid you will be waiting until the age of men expires
Cities have returned to the dust
Oceans have gone bone dry
The map of continents have been drawn anew
And dinosaurs once again roam the earth
Gluck
— Do Kwon 🌕 (@stablekwon) May 8, 2022
UST began seriously depegging on Monday when it hit an intraday low of 79 cents. Do Kwon reassured followers he was doing everything he could to throw money at the situation.
Deploying more capital – steady lads
— Do Kwon 🌕 (@stablekwon) May 9, 2022
He also tweeted vague murmurs of a “recovery plan.”
Close to announcing a recovery plan for $UST. Hang tight.
— Do Kwon 🌕 (@stablekwon) May 10, 2022
By Wednesday, you’d be forgiven for thinking the Kwon had everything under control.
Getting close … stay strong, lunatics
— Do Kwon 🌕 (@stablekwon) May 10, 2022
An hour later, he conceded the defeat in a lengthy thread.
14/ Terra’s return to form will be a sight to behold.
We’re here to stay. And we’re gonna keep making noise.🌕
— Do Kwon 🌕 (@stablekwon) May 11, 2022
By Friday, he personally hammered the last nail in UST’s coffin.
2/ I still believe that decentralized economies deserve decentralized money – but it is clear that $UST in its current form will not be that money.
— Do Kwon 🌕 (@stablekwon) May 13, 2022
‘Predictable, if you knew the details’
Nic Carter, a blockchain journalist and general partner at the crypto-centred Castle Island Ventures investment firm pointed out the irony of Terra’s collapse. Do Kwon may believe that “decentralized economies deserve decentralized money,” but would a truly decentralized currency let its creator take measures like this?
For those following along, the decentralized stablecoin has declared a bank holiday by installing limits on onchain redemptions and getting major markets to suspend trading
— nic carter (@nic__carter) May 10, 2022
By Tuesday, Bloomberg crypto journalist Muyao Shen had decided she couldn’t absorb any more Terra conspiracy theories.
I only have one human brain and it’s definitely not big enough to digest the latest rumor on who first started attacking UST’s peg.
— Muyao Shen (@MuyaoShen) May 10, 2022
FTX co-founder and CEO Sam Bankman-Fried stressed that UST’s depeg was not a big enough surprise to merit any wild conclusions.
Just as the outside view skeptics predicted, during a large market move a stablecoin blew out. Just not the stablecoin they predicted.
Which was predictable, if you knew the details.
This isn’t a comment about good vs bad–it’s about how important it is to know the details!
— SBF (@SBF_FTX) May 10, 2022
TRON CEO Justin Sun, who also recently issued an algorithmic stablecoin similar to Terra’s, decided he was going to show his support to Do Kwon, his main inspiration.
I may have a secret plan😜
— H.E. Justin Sun 🅣🌞🇬🇩 (@justinsuntron) May 8, 2022
It’s worth noting that the similarities between Sun and Kwon go beyond having common stablecoin ideas, or the fact that at one point both CEOs wanted to invest in $10 billion Bitcoin reserves for their stablecoins. Even when it was worth a dollar, virtually the only purpose of holding Terra’s UST was to lock it up in DeFi protocol Anchor, which promised stakers 20% returns. This week, Tron promised returns of up to 30% for staking its own newly issued USDD stablecoin on lending protocol JustLend.
At the height of LUNA’s collapse, Sun started FUDding his own creation.
But Justin Sun has little reason to fear. While TRX is currently down 23% from last week—a normal dip for a leading project—LUNA is down … more than 99%.
Binance CEO Changpeng Zhao said he was “very disappointed” with Terra’s handling of the situation, and said the Terra team stood “in sharp contrast to Axie Infinity, where the team took accountability, had a plan, and were communicating with us proactively.”
5. I am very disappointed with how this UST/LUNA incident was handled (or not handled) by the Terra team. We requested their team to restore the network, burn the extra minted LUNA, and recover the UST peg. So far, we have not gotten any positive response, or much response at all
— CZ 🔶 Binance (@cz_binance) May 13, 2022
It should be noted that CZ’s own “handling” of the situation involved delisting all LUNA trading pairs before resuming LUNA trades again exclusively against BUSD, Binance’s dollar-pegged stablecoin. Binance also originally had a limit that stopped UST trades if the price dropped below 70 cents, but by Tuesday the exchange had removed this safeguard. Because profits.
Finally, Cardano creator and Ethereum co-founder had a brief and catty exchange with Do Kwon.
‘Soros style’?
There were accusations that the crash was the result of foul play by attackers with insider knowledge. Crypto enthusiast @napgener blamed Citadel, accusing the American hedge fund giant of borrowing $100,000 in Bitcoin, trading it for UST and then dumping that UST to wipe out the market.
One of the worlds most credit worthy firms:
Borrowed 100k $BTC
Shorted into Kwons Twap buying
Swapped 25k $BTC to TaeKwonDo for $UST
Aggressively dumped the remainder on spot over past week.
Started unloading $UST near bottom
Please welcome @Citadel to crypto
Give it up for Ken https://t.co/Hs6o6oE4le
— napgener 0xBullMarket (@napgener) May 9, 2022
Other variations on this theory implicated asset management giant BlackRock in the plot, along with crypto exchange Gemini. Both BlackRock and Citadel denied the accusations in emails to Forbes. Gemini denied the accusation in a tweet that same day.
We are aware of a recent story that suggested Gemini made a 100K BTC loan to large institutional counter-parties that reportedly resulted in a selloff in $LUNA. Gemini made no such loan.
— Gemini (@Gemini) May 11, 2022
At least one blockchain developer said there was never any foul play.
Blackrock and Citadel did not kill ust
you guys are smoking crack
— icebergy ❄️ (@icebergy_) May 11, 2022
Meanwhile, security researcher Eric Tung memed the LUNAtic coping theories.
That said, blockchain sleuth Onchain Wizard posted a remarkably popular theory of his own, suggesting that the depegging actually may have been an attack.
How to make a >800 million dollars in crypto attacking the once 3rd largest stablecoin, Soros style:
Everyone is talking about the $UST attack right now, including Janet Yellen. But no one is talking about how much money the attacker made (or how brilliant it was). Lets dig in🧵 pic.twitter.com/nGVfqjpVJb
— Onchain Wizard (@OnChainWizard) May 10, 2022
It’s interesting that he references Soros’s 1992 bet against the Bank of England. Last year, a tweeter called @FreddieRaynolds warned that Terra was susceptible to a “Soros style” attack. At the time, Do Kwon dismissed that thread as “Probably the most retarded thread I’ve read this decade.”
Probably the most retarded thread ive read this decade.
Silence is a perfectly acceptable option if stupid.
Billionaires in my following, go ahead, see what happens https://t.co/wtt9OhX4kg
— Do Kwon 🌕 (@stablekwon) November 28, 2021
But what most people can agree on is that two huge Terra projects failed spectacularly. And although we know broadly what fueled the death spiral, many questions remain.
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Source: https://decrypt.co/100423/this-week-on-crypto-twitter-do-kwon-takes-heat-for-ust-failure
