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UST Luna Collapse And The Cause

UST Luna Collapse And The Cause

This Is A Major Event In Crypto History

What led to the crash? Was it a coordinated attack, or an inevitable collapse? What Red Flags were there ahead of time? What’s the fallout from all of this? What lessons can we learn?

UST Luna Collapse And The Cause

UST Luna – The Biggest COLLAPSE in Crypto History

16,095 viewsMay 11, 2022


155K subscribers

We’re currently watching one of the the largest events in Crypto history. The sketchy outlook in the markets has triggered a run on the UST stablecoin, which began destabilizing in the last several weeks. As time progressed, the peg worsened, and it eventually rolled over into a complete crash of both the value of UST, and the native asset LUNA. What led to the crash? Was it a coordinated attack, or an inevitable collapse? What Red Flags were there ahead of time? What’s the fallout from all of this? What lessons can we learn? —— 📣 OPOLIS | Sign Up to Get 1000 $WORK and 1000 $BANK —— 🚀 SUBSCRIBE TO NEWSLETTER: 🎙️ SUBSCRIBE TO PODCAST: —— BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALED ETHEREUM ❎ ACROSS | BRIDGE TO LAYER 2 🏦 ALTO IRA | TAX-FREE CRYPTO 👻 AAVE V3 | LEND & BORROW CRYPTO ⚡️ MAKER DAO | THE DAI STABLECOIN 🦁 BRAVE | THE BROWSER NATIVE WALLET —— Topics Covered: 0:00 Intro 6:30 Explaining the Terra Ecosystem 9:30 Tail Risk and Background 13:50 Bitcoin, Curve, and Monsters 17:54 The Initial Destabilization 20:14 The Panic Begins 24:40 The Charts 27:18 A Total Collapse 32:30 Regulators Get Involved 35:08 Was This An Attack? 37:58 The Collateral Damage 40:00 Do Kwon’s Big Talk 41:52 Rick Sanchez and Basis Cash 44:08 Community Response 46:05 How Do We Move On? 49:14 Don’t Take Shortcuts —— Resources: Anchor Protocol: Buying Bitcoin:… Curve Pools: Binance Orderbook:… External Collateral:… Deploying More Capital:… Collapse:… Bitconnect:… Historical:… Janet Yellen:… Coordinated Attack:… Vitalik Clip:… Mental Health:… —– Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here:…


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bankless nation this is a special episode from us because we are witnessing something historic right now


in crypto we are witnessing the uh largest event i think in crypto history this is the the collapse of an


entire stablecoin david uh where are we going in this


episode yeah so what’s going on is there was about 50 billion dollars of total


capital destruction out of the luna ecosystem the collapse of the largest algorithmic stablecoin ever the largest


collapse of a stablecoin ever uh and so we we are basically watching this unfold


as we speak uh i don’t think there’s ever been a crypto event a bad event this large in crypto history i would say


uh and so we’re going to run through going to speedrun through what happened uh the the timeline of events that have


have unfolded to where we are now as we are currently dealing with this uh for the people new to this channel who don’t


know about the terra luna ecosystem will also explain at a high level how the whole thing works and how it came to a


point where 50 billion dollars was lost between the two tokens a lot of people have lost a lot of money


as a result of this many were using the stablecoin out of the terra ecosystem as a safe haven for assets


going into the bear market ever since january crypto assets have been going down down down so people have been using the stable coin as a flight to safety


and they’ve been getting yield using the stablecoin yields in this application called anchor which holds a very


very prominent role in this whole entire entire story in addition to people using ust the


stable coin out of terra as just a place to get yield there were also a significant amount of funds that were getting gaining leverage getting


leverage yield on this many were overexposed many have lost a significant amount of their net worth some have lost


it all ryan and there are even reports of suicides out of the terror community both in this


terror subreddit and on on the terror twitter so this is a time to reflect as to how


the hell we got here as an industry and that’s what you could tell in our voices we’re not quite uh super chipper


as usual and bullish because this is a serious set of events and i think uh you


know many in the crypto community have predicted that this could happen this would happen i’d refer bankless


listeners to a previous episode that we did not less than six weeks ago on uh


whether tara luna was a ticking time bomb or not it turns out it was a ticking time but the question is


certainly answered and it exploded um and yet for those who have been right


about tara this is certainly not the time to gloat i think this is the time to reflect and so uh that’s the tone


through which dave and i are going to approach this episode we’re going to tell you exactly what happened and we’re


going to reflect on the events and the implications and outcomes of those


events in hopes that we don’t have to repeat this and so if you were someone who is affected by terror you lost a lot


of money uh that’s terrible i’m sorry it’s happened to many people in crypto


before you will recover you will come back i have been smacked down by the markets many times


in in my history in crypto and uh this is not the end of the world this is recoverable i think the crypto community


will come back stronger from this crypto as an asset class will come back stronger for this are some learning lessons that i hope you take with you


and teach to the next generation who are new in this space and want to go down a


path and take risks as the lunatera ecosystem has taken risks yeah


just to add on to that i also got smackdown during my first cycle in the crypto markets and there seems to be a


lot of new people who came into crypto looking for the cool new thing and they found the very loud community of the


terra ecosystem uh and so this is going to be uh the first experience the first like round of pain that a lot of first


cyclers have as they come into the crypto industry usually it’s not this acute usually it’s not or is this trash


or this shark believe how fast it happened david right yeah so uh i mean when i lost all my net worth in 2018 it


was just a slow decline from the top down to the bottom but it was not a collapse like this so this is something


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robbing about at so as we get into it i think let’s start with an explanation


of tara and ust there’s two tokens in the terra ecosystem there’s the luna token and that’s the native asset of the


layer one blockchain uh ether to ethereum bitcoin is to bitcoin luna is


to luna uh lunatera tara is the chain and luna is the asset of the chain right


and so people stake luna to to process the blockchain but what’s unique about


the the luna terra ecosystem is that it’s a two token model so there’s a native stable coin called ust


uh which is pegged to the dollar that is a part of the consensus protocol of the blockchain because it’s it’s tied to


luna uh and so there it’s an algorithmic stable coin uh which means it’s a stable coin that it’s


maintains it’s pegged to a dollar via incentives but there is no hard collateral backing the actual ust


there’s only redemptions for for terra for luna excuse me so users can swap the luna token for ust and vice versa at a


guaranteed price of one dollar regardless of the market price of either token at any time so there’s the market


price of ust that trades on centralized exchanges like binance or on decentralized exchanges like curve both


of these things become relevant later in the story and that price can fluctuate but as a part of the protocol built into


the protocol you can swap one to one one dollar for one dollar of ust to


to luna the token and this is how it maintains the peg because you can arbitrage the opportunity between the


price and the secondary market with the actual redemption price of ust to luna it maintains its peg now we have this is


called an algorithmic stable coin i also like to call these reflexive stable coins because it requires this peg


mechanism to actually work uh unlike many of the other stable coins that we find out in the ecosystem usdc and and


tether for example are one-to-one redemptions for actual dollars in a bank so they are not prone to these reflexive


moves and then there’s also dye which is more decentralized which has actual hard collateral backing it ust does not have


hard collateral backing it and that is ultimately what came to cause the collapse of the stablecoin we’ve seen


algorithmic stablecoin experiments on ethereum many many times before none of them have worked but this was an


algorithmic stablecoin experiment as a layer one blockchain which is unique and novel and seemed to actually propel it


into success uh up until it finally collapsed um ryan any comments on that yeah doke one is a name that you’ll hear


he was the the founder of the luna and definitely a spokesperson almost operating as kind of uh the jerome


powell of the luna terra ust ecosystem and it’s also this this was news as of


today not his first time doing an algorithmic stable coin we’ll get to more of that later but david i just want


to set the mental model for this a little bit i don’t know if you’ve ever read anything by nasim taleb but he has


this this analogy he uses about tail risk events and this is something that


vitalik said on our last podcast about stable coins that are algorithmic and reflexive in the way that ust


and uh luna was and that’s they can be going along swimmingly somewhat like the


turkey right so imagine a turkey he’s getting fed every day by the pharma wow


by the farmer wow isn’t this a wonderful life someone comes and feeds me every day i don’t have to go hunt for my food


fat and happy hang out with other turkeys life’s good one day life’s good the next day life just keeps getting


better and better and better and this is a chart of the the life of a turkey from


one to one thousand days of course turkey is humming along fine until there is this surprise event the turkey


didn’t realize was actually going to be eaten okay and so all at once his world


collapse collapses around him i know that’s kind of a graphic way to describe what happened but what’s interestingly


what interestingly enough this is how the terra chart looks yeah it’s pretty similar to the life of a turkey in that


it was going very well it kept very stable from you know a dollar price just oscillating by like a few tenths of a of


a cent along that price until bam tail risk event it was hit and got knocked


off its peg in a big way david uh do you want to take us through the timeline of events here yeah so in order to get


started we have to explain uh the anchor protocol because that is the thing that a lot of absorbed a lot of


ust supply so tara has had insane growth over the last six months and people have been using terra to get


ust into anchor protocol to get an astounding 20 yield and that’s where


this whole thing really starts these are the months leading into 2022 and also from january to to where we are up until


about a week ago the the anchor protocol on terra received a bunch of inbound deposits uh and so we just saw a grow in


total value locked from roughly like three to four billion dollars in january uh to up to i think uh at the at the


very peak 14 billion dollars in deposits where it was a week ago and again it


came from a bunch of subsidized yields and so this was tara’s growth strategy this was marketing for terra this was


juicing up the yields to attract deposits uh and so the the uh the actual


yield the true yield coming from the cost of borrowing was something like eight to ten percent which was also pretty good but then that number was


subsidized by just the terra project of just uh juicing up the yields in order to attract growth uh and so people were


depositing ust into the anchor protocol to get these yields and the anchor protocol did amazing things for the for


the adoption of tara um late march uh we was when we see the terra project buy a


bunch of bitcoin to help backstop the ust peg so this is something that like


like nation states participate in this when they put foreign assets on their fed like on their federal bank account


uh when in order to defend the price of their their currency right and so this is a very similar thing the luna


foundation guard which is what the lfg is purchased almost 25 000 bitcoins for


a total balance of 1.1 billion dollars and this happened on march 26th uh and


so this is them starting to shore up their own assets and put ammo into their into their quiver so that if they ever


did have to defend the peg they would have a bunch of ammo to do it you want a hard asset to defend the peg similar to


how a nation state might buy gold and keep gold in their reserves right exactly the this also drew uh criticisms and


qualms from others myself and i think ryan you would join me in that we like our protocols to not need foreign assets


to be self-sustainable uh and so this is in my mind an admission that you know that needs external help to defend the


peg uh for crypto l1 blockchains we like these things to not need external dependencies to operate on so they


started particularly because these were held in a in a multi-sig in a custody it’s just off-chain it’s not even on


chain right um but like that that is just the culture of the terror project that was cool with them uh and so they


grew a balance sheet of over 1.1 billion dollars starting on march 6th and so they were selling ust to buy bitcoin to


add to the lfg the luna foundation guard reserve during the same time this is when the


attack starts uh somebody we don’t really know who there is a bunch of speculation at the same time is uh


borrowed a hundred thousand bitcoins which is a lot of bitcoin so this is a very well capitalized player there’s


there’s speculation all over the place no no not real any clarity here but they borrow a hundred thousand bitcoins and


are selling into the luna foundation guards purchasing of bitcoins to fund what will ultimately become the attack


on terra that brought it down and so some entity borrows a hundred thousand bitcoin sells it into the market uh and


that this begins on march 27th and so uh the somebody some entity has a very well


capitalized war chest which will ultimately come to bring down the whole entire system we don’t know we can’t see this


happening in the moment but we just know that this is true in hindsight and so as a result


and there’s also the story of the the curve pools on ethereum and so the curve pool is where a lot of


stable coins on ethereum get a lot of liquidity and there is a ust on ethereum


cross cross bridged uh from the terra ecosystem to the ethereum ecosystem and


doquan and the terra ecosystem has been promoting this four pool where four different stable coins have liquidity


adding uh terra ust to the mix and so there is there’s the current paradigm of


the three pool and they were about to migrate to the four pool based on curb governance uh this is a topic for


another day but they had to uh people had to withdraw liquidity out of the three pool to put it into the four pool


and during that window of time when when liquidity out of the three pool uh was being pulled that is when the this


attack happened uh they’re calling this an attack uh because the liquidity was uh was removed from the three pool the


peg for ust was was susceptible uh and so the the attacker who had a hundred


thousand almost a billion dollars worth of ust which they amassed from selling bitcoin for ust uh started selling ust


into the curve uh into the curve pools and what what that does is that lowers the price of ust because they’re selling


it and that puts other stable coins into the hands of the buyers uh stable coins like usdc or dye or or fracks or other


stable coins and so this starts to brought offset the peg and this started happening on march


on may 7th and you can see you can see this very early blip of red on march 7th where they start to sell


ust into the to the curveball to start to destabilize the peg this is when the


luna foundation guard has to begin selling the btc that they purchased in order to defend the peg but bitcoin


when they bought bitcoin it was roughly at forty two thousand dollars and then they started to have to sell bitcoin at


roughly thirty four thousand dollars because the market had moved downwards in that time so they the the value of


their of their reserves had gone down and then they’re forced to sell it


yeah this is uh you can see the kind of the wobble and that’s what systems like this you know tend to do uh it’s it


starts with a wobble right so picture a bike going down a hill and it’s going too fast maybe um this was me as a kid


and i had a total wipeout i was on a tiny bmx bike and the first sign that


you’re going too fast you start to wobble right and so your tires are moving back and forth and then it moves


into the wobbling increases more wobble here and then catastrophic failure and complete wipeout what’s


what’s also interesting is what you just described in the attacker it’s it’s also a known attack i mean this has happened


to currencies in the past this is a george soros attack a soros attack yeah george soros in the early 1990s or late


uh 1980s i can’t recall uh used this type of an attack to destabilize the british pound when the central bank were


bankers uh in in the uk were using the the pound and trying to peg it so this


is a very well known attack for these sorts of uh pegged monetary instruments getting back into the attack they the


the attacker who amassed over a billion dollars a billion ust uh which because


if they have a bunch of ust they that means they have a bunch of ust to sell which means somebody needs to absorb


what will ultimately become 1 billion ust token cell pressure and so during this initial the first


phase of this attack they sell 350 million ust into the curve pool uh and


that is what causes the initial destabilization and that this is where a lot of people start to pay attention


here and there are many different participants in the luna terra ecosystem many of them are funds and then many of


them are retail so the funds understand that they are playing a game of chicken because these tara


anchor yields are just not sustainable they know that th this is kind of a game of chicken and it’s really going to be a game of who


can sell when that when the time comes up and so when the the peg goes down to about uh 97 and a half cents during this


first selloff of a 350 million ust this i think is when a lot of fun started to clue in and say hey something’s


happening here so we got to pay extra close attention meanwhile retail don’t they don’t pay attention to stuff like


this they’re not as sophisticated they don’t know how to do the research they don’t know how to look on chain and they’re busy doing their normal day jobs


and so the funds are keeping a very close eye on the peg watching other funds and other market makers and how


much assets they have starting to like you know do the mexican standoff it’s just like all right like who’s selling


who who’s selling what uh and so you gotta shoot first and shoot fast yeah exactly


that’s exactly right uh and so this is when uh at this point in time around may sixth or uh fifth sixth or seventh the


the attacker who has 650 remaining ust tokens which they got from their their


borrowed which some entity let them borrow this again we don’t know the details on this they go to and take that 650 million uh


usc tokens to binance and they start aggressively selling on finance between lots of 300 000 to 3 million ust at a


time uh some people uh some entities are defending the peg while while this


attacker is selling into the peg so somebody is defending the peg at .98 cents preventing the price from going


down but at some point that defender either just capitulates or they or they just pull their liquidity or they ran


out of money and it breaks through the 98 cents this is uh the binance order book is this what happened shortly after


and and so david you and i were actually recording a podcast with raul paul when the wobbles started to intensify in this


thing and we were observing in real time you can actually get raul’s real-time reaction well you when you hopped into


this recording room ust price was at 98 cents being defended uh do you know what


it is right now i said 92 cents yeah


and then later that day the binance order book was actually empty what does


that mean says he’s never seen that before yeah so this was actually a front-end glitch out of binance because they were not


prepared for to place bids below 70 cents it’s unheard of that a stable coin would be sold at 70 cents so this is the


actual binance actually had to enable sub 70 cent bids in order to allow the market to clear uh and so this is this


it was just got so low it got wiped out that there was no bids because the front end wouldn’t allow for it moments after


the screenshot was taken they did open up sub 70 cent uh bids on on ust


and then the price immediately fell below 60 cents but part of this it starts to create the


reflexivity this was not actually the attacker all of the way as soon as the attacker broke down below the person or


the entity that was defending the 0.98 price uh this this is when deposits out


of anchor started to clear so these are the funds saying yo somebody somebody is selling all their ust we also have to


start selling our ust because there’s not enough liquidity to let us all out of the door and so this is what happens where the


attacker starts to sell ust they create and instigate other selling and so it starts to turn into a negative feedback


route loop and that’s where it starts to not just be this attacker who’s intentionally depending the price


but everyone else is is willing to take the two three five cent loss in order


just to have and shore up their their profits that they’ve made from the yield for the last few months and so this this


this feedback loop of reflexivity this is where we are why i call algorithmic stable coins reflexive stable coins


there’s not enough liquidity for everyone so everyone needs to sell first and this creates basically a run on the


bank and that is what just plummeted the ust price down to 70 cents and then even below as once they once


they opened up the the orders um as the u.s tpeg fell down to 60 cents the the


luna foundation guard is having to sell their bitcoins to to buy and maintain


the peg as much as possible to the best of their ability they just don’t have enough ammo in the in the reserves to


keep it up and so they are they had to buy bitcoin at 47 000 to sell it at 34


000 and below just to defend the peg but the problem ryan is that as they are selling bitcoin at 34 000 they’re


pushing the whole entire market down and so the market was already going down anyways because of the the interest rate


hikes from the federal reserve and so people with bitcoin positions were getting liquidated people with ether


positions were getting liquidated this was a global market liquidation event which happens in crypto but it was just made worse by the luna


foundation because they had to sell into the lower price and so they sold they bought bitcoin at the high price of 47


the value of that goes down to 34 when they have to begin selling it and so it causes a global liquidation event for


all of the markets which just causes even more fear in the markets and especially for ust and luna holders and


we haven’t even talked about the luna price yet um but this is basically the problem with external collateral


viscantes tweets out reflexivity speculation and credit three strong but dangerous resources you can harness if


you are willing to pay the price in all three cases it can help you bootstrap by borrowing energy from the future but you


will need to pay it back later with interest especially with an algorithmic stablecoin doesn’t always have the ammo to pay it back and if it doesn’t you


have a reflexivity to the downside do kwan tweets out uh deploying more capital steady lads and


this is why ryan earlier called him the jerome powell of tara because he has to instill confidence in the peg this is a


faith-based peg this is when there’s not enough liquidity for everyone people just have to have faith that not


everyone else is going to sell and so when do kwan tweets out deploy more capital he’s saying hey uh we have


enough capital uh don’t worry about it and so luna goes and empties the last of their bitcoin


reserve while the last 1.4 billion dollars that they have to shore up the peg but again it’s just not enough so


here is the ust price and this is at may 8th when the first


first attack came with a 35 million dollars sold into the curve pool price goes is that one dollar falls down to 97


cents but then gets bought back up because this is just the first wave and there’s plenty of ammo left but then it starts to hover around 99.5 cents and


this is where the funds start to be like yo what’s going on and then as time progresses we’ll go to


we’ll go to the next chart uh you can see the scale here so that red square is what we were looking at previously


and so you can see how much worse it gets when uh when there starts to be this panic as the the uh attacker starts


to sell a bunch of ust price goes all the way down to 0.64 cents where it should be a dollar it goes down to 64


cents but then it gets bought back up by the remaining luna foundation guard reserve ammo uh and then and and so then


again gets back back up to 90 cents but then here again that square the square on the left is what it was that what we


were just looking at and then this is the most recent snapshot that i took just before recording this where things drop all the way down to 34 cents here’s


the price of luna and this is also a contributing factor to the fear going through the whole entire ecosystem where


in on may 4th the price of luna was 87 it starts to also sell off because


people are getting scared and so they want to reduce their exposure to the whole luna ecosystem also there are many


many redemptions for ust for luna and causing and because people want to


get out of ust because it’s losing the peg and so they’re they’re selling ust for luna


luna is getting minted because that’s part of the algorithmic stable coin and then that is getting sold and so that goes from 87 on the fourth down to


something like 65 on the seventh and then on the by the ninth it’s down to


like 52 dollars and then today the 10th it hit a low of one and a half dollars uh and so this is


a total collapse of the value of the luna token which is the the last line of defense for backstopping the value of


ust and this is when the total market cap of usc ryan starts to actually pass


the total market cap of luna which is bad because you don’t like that because this is the terra token is the thing


that ultimately comes to be the final collateral of the ust and when there’s more outstanding liabilities than there


are assets then only some people can make it out alive and so this is how we end up where we are today where luna is


down 99 over a one week period of time and there is billions of dollars of outstanding


ust that have no actual market value yeah so guys what what we just witnessed is a uh a text book downward spiral of


in algorithmic stable coin basically textbook and the surprising thing is how quickly it happened but once it started


happening i mean this is a three day period of time we witnessed the wobble and then we witnessed the total collapse


of both luna and ust there were attempts to defend it there were attempts to try to resurrect it do quan and others tried


to re-inject confidence in the market was unable to uh handle the


the the downward pressure forces and having something like bitcoin on the reserve to try to protect this is not


actually something you want to hold during a downward spiral event because that’s a very correlated asset to the


rest of the crypto market if anything you’d want a completely decorated asset to the market that would hold steady in


this kind of downward pressure spiral so david that is the total collapse in a three day period of time i think all of


crypto was not surprised necessarily that this happened but certainly all in crypto were surprised that it happened


this quickly and uh like this i guess emphatically i mean like i said this is


absolute textbook david do you want to talk about the fallout from this because now we have to deal with the fallout


yeah right and just to recap the numbers luna the luna the l1 asset went from 41


billion dollars down to one billion dollar market cap so it lost 40 billion dollars of capital usc goes from 18.7


billion dollars to 5.2 billion dollars probably lower at the time of recording uh and so like i said there’s over 50


billion dollars almost 50 billion dollars of capital loss for the crypto ogs that have been around since last


cycle we had this uh ponzi scheme this actual ponzi scheme uh where everyone knew it was a ponzi scheme uh other


people were calling tara a ponzi scheme but other people were saying no so it was up for debate and like people kind


of were capitulating and letting the luna ecosystem kind of just like ride without really giving it too much too


much flack now in hindsight now everyone’s calling it a ponzi scheme in hindsight bitconnect was not that big connect was a ponzi scheme through and


through everyone knew it it was 3.5 billion dollars at the top when it fell down to zero this is so much larger than


that and so i took some time and i photoshopped to superimpose the value of the big connect market cap on top of the


uh the value of the luna uh market cap and so you can see just how much larger this is and this in the the blue line


being luna of course does not include the value of ust which also lost you can add on another like 12 billion dollars


on top of that so the massive amount of just capital destruction that has just happened is unfathomable i’ve never seen


it there’s no one has ever seen anything like it in the crypto space billion dollars and this is all targeted


on luna holders primarily it seeped out into other areas of the the crypto ecosystem but it was amazing how


resilient actually bitcoin and ether have been to the prices it certainly seeped out into other alternative layer


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this is the sort of thing that starts to get regulators attention and those in government’s attention uh what does he


say here yeah he saw he says 40 40 billion this is an old tweet it’s now 50. almost totally destroyed in the


space of a month and this year in terms of sheer magnitude is probably the most significant collapse in the history of the crypto space uh and then not even 12


hours later we see janet yellen talking about it on the capitol in the u.s capital about the ust the destruction of


capital and the need for regulation uh and so this has already caught the attention of regulators uh and to start


to pay attention to to the cryptocurrency ecosystem and this is this was what was our this was our fear


our explicit fear on bankless about like if this thing gets too big and it does collapse uh it’s going to bring the arm


of the regulators down for the whole entire crypto ecosystem because they are not educated enough to understand the difference between ust


dye uh tether or other cryptocurrencies they’re just going to lump them all together so this is just a black black


cloud over the ecosystem at the moment terra usd um experienced a run and had


declined in value and um well so it i i


think that simply illustrates that this is a rapidly growing uh product and


um that there there are risks to financial stability and we need a framework when


you’re faced with what we saw just happened basically the show that just happened i mean who’s going to stand up and say no actually there’s


some innovation here it’s it’s it’s hard it’s very difficult to make the case this is why we said a couple of bankless


episodes ago um to to those who were saying hey don’t worry about tara it’s fine don’t be a you know a


decentralization maximalist an ethereum maximalist or whatever it’s just we’re hopeful do kwan don’t screw it up well


this is really screwing it up for a lot of people and i think one of the most significant worries coming out of this


is the regulatory backlash that we might face as an industry yeah that’s exactly right and while a lot of this loss was


contained inside of the luna ecosystem it has definitely spilled out into funds


a lot of funds are going bankrupt at the moment that are based on luna and the funds that are having positions both


inside and outside of luna are going to have to sell bitcoin and ether and other other assets to to account for


their losses and so the losses of the luna ecosystem do spill over into the rest of the space uh there’s there’s a


big question as to like whether or not this was a black swan event or whether or not this was a coordinated attack


the terra ecosystem is definitely leaning into this was a multi-level economic hitman attack


and while it does appear that there was one like well-capitalized entity that that


maneuvered this trade or this attack it really doesn’t matter the it’s a semantics different as a difference as


to whether uh it’s a trade or an attack right it’s an attack if you’re in a victim but it’s really just a trade


because people saw an opportunity to make a billion dollars and so i haven’t said this yet but the the entity that


borrowed a hundred thousand dollars with bitcoin uh sold it into the market uh bought a bunch of ust to it to kill the


peg they made out with roughly 900 million dollars of profit from this and so this was a rational actor who saw an


opportunity in the market to walk away with 900 million dollars while also causing the collapse of the whole entire


ecosystem it’s beside the point as to whether it’s a coordinated attack or a trade all that matters is that if it can


be attacked it will be attacked and luna had this weakness from day one many people called it out many people were


aggressively silenced by the luna ecosystem by the the what we call the lunatics who were silencing discontent


they were swarming our youtube channel they were swarming us on twitter and anyone that expressed any amount of bearishness were just harassed by this


community as being eth maxis or whatever and so there’s definitely some


part of the luna ecosystem that uh probably in the back of their mind saw this weakness but didn’t want to account


for that so they just harassed others who pointed it out uh and so this is this is behavior that we’ve seen in


crypto twitter before i think we’ve seen it in other communities before that have faced a similar outcome uh vitalik even had


words about this when we recorded with him about three or four weeks ago this is a clip from vitalik probably you know


die rye maybe usdc are like the only three stable coins that we really need at the same time like you know i do see


the the value in ongoing innovation um and like the there’s definitely a minor


projects that are getting underrecognized but there’s also these other projects that are just doing kind of insanely risky um you know under


collateralized barely collateralized sort of stuff um and that are trying to market themselves on how optimal they


are um without uh uh really caring about the like how fat their fat tails are the


biggest fallacy that people have uh in terms of like judging stable coins for example is that i feel like the way that


a lot of like especially newbies judge a stable coin is they’re like if a stable coins price stays between 0.99 and 1.01


then it’s good and like that mindset is very wrong right because whether a stable coin like jumps up and down by


two percent or zero point two percent isn’t a function of how good the stable coin is it’s a function of how good the market maker is and anyone can hire a


good market maker for a short period of time um somebody else that saw it coming who i deeply respect in this space as


hazu and hazu says usc is worse than bitconnect at least bitconnect didn’t masquerade as a stablecoin when your ponzi targets


people’s savings not their investment portfolio there is a special place in hell reserved for you half of crypto


twitter influencers vcs and trading firms are complicit he follows up with another tweet saying if you supported


ust in the past you don’t get to look away now and this is this is the dark part of the story uh and so we’re going


to the the luna terra subreddit um where you can see the the national


number for the suicide hotline uh pinned and this was a very common thing in 2018 and then there are other stories where


people have said that they have lost all of their savings some people are reporting stories where their colleague has committed suicide


there’s many many people saying that they’ve lost lost all of their savings their their friend savings their family savings so this they went straight to


the heart of retail who were just not informed enough to be able to gauge


these risks and were of course the last ones holding the bag because the funds who are professional were the first ones


out the door because they’re good at this stuff so this whole thing like 50 billion dollars of capital just


absolutely destroyed people take their lives for that for that amount we saw people take their lives in 2018 and like


we’re doing it all over again that’s the that’s the other thing where regulators begin to take notice is when this starts


to effect and happen to retail regular everyday people right uh when it’s cloistered off to a small experimental


group in crypto a bunch of d5 degens and something blows up as it has previously kind of like who cares we already had


caution tape over that thing retail wasn’t getting involved the insidious thing about this a collapse is that the


terra ecosystem ust was actually targeting retail right put your money in this account like let’s integrate it


with uh top seedify apps right so you could create an app and use anchor as a


protocol to receive 20 so it’s sort of hidden under the covers uh and i i think


that’s going to be a lasting a lasting blemish on the industry as well and get rid and get regulators attention


definitely somebody that has now received a lot of the ire of of the community as dokuan the the leader


behind the terror ecosystem and do kwan people were pointing out how confident and cocky dokwan behaviors


twitter on uh was he was one of the people that i would say was the main culprit behind instigating this very


toxic culture out of the luna ecosystem here he is taking a 200 million dollar


bet about the price of the asset luna in one year’s time i mean sorry but found l1 founders do not do this not not good


ones by any means don’t make bets on twitter about the price of their asset


of course he also has his famous comment by my hand die will die die the stable


coin um because he had he had it out for uh the maker dow community when some of


them started uh talking negatively about basis cash uh which we will later find out dokwan was a part of um


spoiler spoiler yeah and so dokwano famously tweets out by my hand dai will die uh i actually respond my money is on


die simply because maker dao is the most just like trusted and just like well secured stable coin there is in crypto


twitter and i was absolutely just harassed by dokwan himself so do kwan gives this oh really like meme and then


follows up with saying only an eth maxie would bet on something he’s already lost giving the bicycle helmet no brain uh no


brain like this is the this is not the behavior of a responsible founder very


very popular tweets too it’s like this community would swarm and basically overwhelm ratio you on twitter on on


some of these comments so we call this now toxic insecurity where like they know that theirs their ecosystem doesn’t


really have uh all their all their whole all their like weaknesses covered and so they just like make sure that no one


talks negatively about their ecosystem on twitter and so this is actually where we’ve discovered as of today as of the time of


recording do kwan was also behind the earlier failed algo stable coin called basis


cash which also imploded but it imploded much earlier in its life cycle


and caused much less harm in the ecosystem so there was an anonymous founder called rick and morty


and who actually turns out that was do quan and other employees of terraform lab so after basis cash exploded i guess


they just rotated into doing the same thing but as a layer one which is crazy funny story so i didn’t


personally lose anything in the ust luna ecosystem because it had so many red


flags when basis cash started i was introduced to a rick sanchez on telegram


by a vc venture capitalist that i very much respect and rick sanchez in telegram the pseudo


anonymous founder went on to describe what basis cash was tried to get me very excited about it i ended up putting a


little bit of money in like a very small amount because there’s some possibility that an elgo stablecoin uh would be


successful but i knew it’s like fraught with massive amounts of risk and then later the founders of that project


completely abandoned it after it crashed uh i ended up losing the little amount


that that i put in it was a learning lesson at that time again not my first one by the way i’ve seen a few of these


algo stable coins uh try to try to make something but but the the way i think


that do kwan abandon that project right speaks very much to what he intends to do or his intents for


the lunatic ecosystem at least it’s a data point that people should factor in if he was willing to abandon that


project like what are his intents behind luna and tara it cause all of that into question let me ask you a question real


quick does evil exist and if so can one detect and measure it um but we didn’t have that information because we didn’t


know that he was behind basis cash until literally today and so all of this stuff is coming out


um tim copeland tweets uh tweets out uh we’re also watching some people who have previously promoted ust on twitter


delete their tweets um because of obvious reasons uh and so like and the


thing is like we’ve seen this before uh the we’ve seen algo stable coins come and go it should be no surprise that


this algo sable stablecoin blew up once again fiskanti’s tweets uh uh it tweets out some really good advice for those


for those this is a message for those who are who feel lost as a result of this who lost a bunch of money fiscantes


gave out this tweet saying i don’t know who needs to hear this but losing all of your money is not the end of the world


even losing more than you have don’t do anything stupid i’ve never shared this but once i was down negative 150


thousand dollars of net worth because of a very stupid mistake that i made i was uh that was a huge pile of money for me


back then and the day it happened and the subsequent two weeks afterwards were very crushing it was hard for me to do


even basic things like leave my bed and shower i was too proud to even tell my friends about it so i suffered in


silence don’t do this it’s better to let it out and share if you don’t feel like sharing with a friend or or and you


can’t afford it therapy is a good thing to consider as somebody with a background in psychology with my mom as


a therapist therapy is tight like if this is hurting you psychologically and you feel like this is bottled up i


definitely would encourage you to just talk to anyone yeah absolutely feeling for the


community out there and i think simultaneously it’s okay to feel for the community of retail


investors who uh didn’t know any better maybe were kind of duped into this sucked into them this it’s their first


time around listen as we said in the intro all of us have lost money on stupid things in crypto simultaneously


uh to hold that idea in in your head with the idea that hey there were also a lot of vcs and influencers and investors


and even founders who should have known better they should have known better and that is not a good look for this


space so the question is where do we go from here individually where do you go from here if you’ve been wrecked by this


uh our hearts go out to you i think that’s great advice for fiscante from fiscantes on this uh maybe some therapy


take a pause go for a jog spend time with those you love i think for an industry the question is


how do we move on from this uh and here’s somewhat a cynical take i hope


this doesn’t turn out but do you want to read this from mike mcdonald david yeah the sad part is the reason why this


tweet did so well is because we’ve seen this before mike mcdonald gives his take as to what is about to happen he goes


the best part about this whole thing being facetious here doe will disappear he’s probably made life-changing money


you have lost all of yours you will also likely fall for the next grifter who employs the same tricks he will


rebranded something else and his next project will result in him profiting again hopefully off of you again very


cynical take but this is also what we saw out of the the wonderland fiasco uh


and so like xerox sifu who turned out to be the quadringa exchange scammer uh just was just cycled


into the next scam there are just some people out there who are just these serial entrepreneur scammers out there


who just can’t stop doing this stuff and so hopefully if you have been burned by


this this is your last time and you would look towards other alternatives rather than these very very


attractive juicy returns on steroids ecosystems that ultimately collapse


yeah the the message is if this happened to you don’t let it happen to you again and try to warn the next person we’ve


been very critical of ecosystems like danny siesta from wonderland we got attacked from that earlier this year it turned


out not six weeks later that um danny was into some very shady things


and so was his co-founder and that community just kind of disappeared in a puff we saw similar sentiments and there


was a similar feel and similar vibe coming out of the luna ecosystem and terra ecosystem almost put together yeah


we put together a bulkhead spare case podcast gave the bull case a fair shake


gave the bear case a fair shake a very fair podcast i think even even the the


uh attendees thought so and we’re absolutely grilled by the lunatic community for that


podcast that’s their name by the way that’s not our name for them they are self called the lunatics yes yes uh


we’re not calling them lunatics they call themselves lunatics and so the moment where any any critique or any


questioning of an ecosystem or a mechanism is met with uh that’s fud that


you know like you’re just a bunch of shills you’re you’re maximalist you have nothing to contribute here rather than


reasoned responses that’s when you should get worried those are some warning signs well we were absolutely


grilled by the luna ecosystem and also by by the wonderland ecosystem uh i do appreciate like sometimes it’s it it


hurts getting grilled by those people but ultimately there are there are people that come out and say thank you i


hear smart programmers saying i would like to thank myself ryan sasel anthony suzano for educating us about luna and


ust i had my money in that thanks to them i was out without getting wrecked feels bad for the fallen ones


the next tweet is a swagtimist a friend of ours who tweets out where are the luna moonboys now who enjoyed shooting


on the bankless episode when they were when they weren’t going through the existential risks where are you at now


um and then zazzle anthony suzanna says silent just like the frog nation that came before them guys so we’ve taken you


through the the entire life cycle of the terra ust ecosystem and up to date now


things could happen in the future the the ecosystem could repair uh could start to rebuild if they do hopefully


they incorporate a better mechanism design but i also hope this is a learning lesson for everyone in crypto


uh first of all the risks of these things sometimes they are not well understood but a lot of the principles


that we talk about on bankless principles of decentralization uh for instance and and security uh are


important and i think this demonstrates why these fundamentals are important sometimes people who say


stuff like this um they sound like boomers in the space they sound like they’re just old people


uh you know virtue signaling repeating common tropes but i think this


is the reason we say them and we say them so often say them so emphatically is because


we don’t we want to build this industry for the long term we want to build it responsibly we don’t want to take shortcuts and i hope the lesson for


everyone in crypto whether you’re a builder whether you’re investor whether a user of these systems is


don’t take shortcuts let’s build this thing right let’s build this thing from first principles


decentralized all of the way let’s not mix up fintech risk in this let’s not


become another set of bankers let’s not create a system just like the old system that we left we don’t have to the future


is ours what would you say in closing david yeah um some some many many people for both


inside the terra ecosystem and outside of it their net worth is approaching zero as the crypto markets come down


this is normal for first cyclers uh my my net worth basically hit zero in 2018


and then again in 2019 and then again in 2020 uh as we got liquidated in in the


march coveted dump um but like there’s there’s plenty of pass forward the


magnitude of the crypto revolution is still ahead of us and so that’s still the best opportunity


there is in the world um and so it hurts uh emotions are down bad depressed markets create depressed


humans but it’s it’s no time to just like eject and and


abscond from the from the industry and so there’s still plenty of opportunity uh this is a learning lesson that if you


learn this now hopefully you don’t have to learn it later and so there’s there’s still a bright future ahead


so hang in there guys if you enjoyed this episode please make sure you subscribe in youtube as well if you’re


listening this in the podcast make sure you hit subscribe like and review thanks a lot of course i have to end with this


none of this has been financial advice eth is risky bitcoin is risky my god so


is crypto you could lose what you put in but we’re headed west and we’re still headed in that direction this is the


frontier it’s not for everyone but we’re glad you’re with us on the bankless journey thanks a lot hey we hope you


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