It's the same problem for basically any stablecoin: they exist because the paths between traditional finance and crypto are narrow and tricky. But this in turn limits the ability of a stablecoin to actually peg to a value from traditional finance. If there are mass net outflows from the cryptocurrency ecosystem back into traditional finance it will be impossible for these stablecoins to maintain their value. They are essentially a bet on the downside of crypto (if everything goes to custard you won't be able to exit) with none of the upside of crazy returns found in non-stablecoin cryptocurrencies.
I'm probably missing something, but stable this is not.
And it gets faster and faster as luna price falls, because more luna is minted to burn the ust. The amount of minting is inversely proportional to luna price.
The vast majority of crypto projects in top 100 by market cap are not like UST/LUNA. The demand for them comes from speculation about future utility, but there is no unsustainable market-beating yield to entice people to deposit new money.
And as an aside, not being in compliance with SEC regulation does not in any way make a project scammy. Being non-compliant with SEC regulations could be the case with LUNA, and still be entirely incidental to it being scammy, as it is possible to operate with no deception and without exploiting any one - which is an essential component of any scam - and still run afoul many SEC regulations.
$0.72 on Coinbase.
But to be fair, the last 5 minutes have been brutal...
It's not looking good at the moment... I know HN isn't very fond of crypto, but I still feel for everyone stuck in UST space right now. I've been there with other assets, and it's too damn stressful. There is so much red across the board in cryptoland... it's gonna be a stress test for more than UST and LUNA.
I can't speak for HN, but any financial instrument that can't be easily differentiated from a ponzi scheme should be assumed as one unless proven differently. I think that's just investor due diligence frankly.
I'm holding and taking no action (ie, not buying more). It's at the risk exposure I'm comfortable with.
Then again I held my shares in sun microsystems until the very end. No regrets on that either.
This is not financial advice, I'm probably a fool. FWIW, UST is recovering way quicker then my positions in Nvidia and Adobe are. It's back to $0.92.
In an environment where companies like Rivian are down over 90% and across the board 75% stock price drops are common right now, recovering in 24 hours is pretty great
I do feel for the people who are in this crash right now, wondering if they should get out right now, or if it will be back to normal tomorrow morning. But I don't think this stablecoin has ever dropped this low before.
I think I can understand the stress anybody is feeling from this. Its kinda horrific. I remember when money-markets lost their peg back in 2008 and pretty much the world went apocalyptic. I can't imagine what it feels like to lose 30% of an alleged "stable" value in a few hours.
Nobody in their right mind should have expected UST to remain stable for any length of time at all, as it is fundamentally built on smoke, mirrors, and Ponzi's best friend.
I'm sure there will be some sad stories about people who had no idea what they were buying that lost money they couldn't afford to gamble with, but it's really hard to feel too bad for the suckers and hypemonkeys who memed this stuff into having temporary value.
For comparison, I believe it was only one money market fund that had to break the buck and sell for something like $0.97 instead... and the withdrawals were hitting 10% of total money market fund value in a few days.
By some reports, Binance has set a floor price on trades at $0.70, so people cannot sell lower. It has also suspended withdrawals. So this 'holding' may be influenced by one of the largest exchanges effectively halting trading.
I don't imagine that anyone will find themselves sued successfully...
I understand the empathy, better than contempt.
But what were they thinking? Sorry they lost all their money. A fool and their money....
I'll know the crypto rush is over when you can't "stake" for 10% anymore.
If you want staking rewards on USDC (from crypto.com) without a fixed-term deposit, the best you can do is 2%. If you want to avoid having to lock up $40,000 in CRO for a minimum of 6 months, the best you can do is 1.5%. Given that you can earn 0.7% on a FDIC-insured deposit in actual USD, that's not much of a deal.
Agree with tkfu that this is misleading. You're looking at 6% for a 3 month lock up right now without investing in CRO. I think 3 months is fairly short compared to say US I-Bonds which are currently paying over 9%.
3 months ago you could have locked in a 3 month investment in USDC for 10% though without any CRO. It should be noted that you're not actually get 10% after 3 months though, more like .25 .1 * (Your investment). 3 months = .25.
* I-Bonds interest changes every 6 months. Lockup period is 1 year. You lose 3 months interest if you take it out before 5 years though.
I'd be curious to hear whether you still think it's a scam after reading it.
> For every $1 of UST, there’s an algorithm to maintain parity with the US Dollar
Well that was broken yesterday. The algorithm is not sufficient because you have to have collateral to maintain parity correlation. Why would I "believe" in an algorithm? It either works or it doesn't. This one obviously doesn't.
Interesting the title of the section is "belief." Things are not worth what we think they're worth because we believe it. It's a common misconception. Something is used because we believe it will still be worthwhile tomorrow, but something isn't worthwhile tomorrow just by believing it will be.
> Belief in the protocol based on its mechanics, its math, its history, and its team.
Belief in it's team? Nobody in their right mind in this market would ask you to believe in a team. Belief in the mechanics? Based on the writing, I'd be willing to bet the author doesn't understand the mechanics. I do, and I've explained it in this thread a few times, it is nonsensical.
Then there's an admission of investment into the project and therefore bias.
Then ample appeal to authority, fallacious explanations as to why Terra is different than competitors with a similar scheme, "cash flow" which is laughable in a decentralized context. The author has the audacity to claim that Luna is backed by transaction fees. This is absurd.
Th rest is just shitting on something called Titan and something called Iron, which are probably low hanging fruit.
Go read about nubits and nushares and learn a thing or two about previous attempts to do this.
That all depends on liquidity though. The arbitrage mechanism is only compelling and effective if you can reliably take some asset you actually want (say, USD), put it into one side of that market, do the arbitrage, and get USD back out from the other side. If that route becomes risky then you're mixing the arbitrage mechanism up with significant asset pricing and/or counterparty risk.
By that definition almost all crypto is currently behaving like a ponzu scheme.
I would unless it's trading paper or some other non-crypto security somewhere behind the backend.
I'm not defending the coin, but in what way is this a Ponzi scheme? It may be hair-brained and an absolutely terrible investment, but from OPs description it does sound "novel" to my novice ears. How is this specific concept (pegging one coin to $1 by using a second coin) a ponzi scheme?
Most of the yield in crypto is generated from dilution, and therefore the real return can be positive as long as there are new investors, which offset the effect of dilution. Now, classifying them as Ponzi schemes depends on how these assets are marketed and sold. Expected return of these kind of schemes is zero, which is how they should be marketed.
Don't forget to point out how most other markets operate on similar Ponzi principles too. You can't make profit off of anything unless you can have someone else pay more for it than what you paid.
It's quite the neat idea really -- but I suppose it hinges on people believing that there is a healthy UST-LUNA ecosystem tomorrow that you can use to withdraw your funds if you want. Burning UST to get LUNA doesn't make sense if LUNA loses enough value by the time you could exchange it for something else, so I assume people rather take the loss on selling UST for less than $1, which would explain what we're seeing: Right now UST is at $0.81 and LUNA is down 47% in the last 24h. We'll see if the system is robust enough to recover from a 'bank run', if you can call it that. It at least isn't the first time the peg has been broken, and so far it's stabilized at $1 again every time.