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UST lost peg, LUNA crashed & 5 lessons of a lifetime
Perhaps many people suffered in the incident UST lost peg and LUNA recently collapsed. The money is gone too, the market is still there and moving on. So, what can we learn from this event? Here are 5 lessons I learned.
Funds are not “divine” as we think
A common way to play in crypto, or any other field, is to follow someone we think is good. And in this case the investment fund (Venture Capital).
Usually, users who invest in projects have large funds down the money. As is the case with Terra, these are Coinbase, Hashed, Delphi Digital, Binance Labs, etc. These are funds that are considered top-tier in the crypto industry.
As of the beginning of 2021, LUNA has grown by a considerable amount from the previous low price. But funds are still actively investing when Terra calls for capital. Even at 50 USD/LUNA, Terra can still raise capital easily in early 2022. This shows that they are very confident that LUNA will still grow a lot in the future.
In there, Hashed and Delphi Digital are two very strong spending funds not only for Terra, but also projects in this ecosystem. And yet, Delphi Digital also accepts to use UST to pay for its Premium account.
The total amount Terra calls in 2021 is about $175 million. And now, that number has officially returned to “dust”.
Losses are not simply in the money invested. Hashed, Jump Crypto all participate in becoming Terra’s Validators, which means they have to lock a large amount of LUNA. Ironically, this locked LUNA takes 21 Unstake days to be withdrawn and sold on the market. This mechanism was originally used to encourage users to stay with Terra, limiting LUNA withdrawal. Therefore, this LUNA number is currently considered as lost.
We, myself included, often “divine” funds, seeing them as collateral for the project. But through the case of Terra, or before that of Sushi, should VC be “revalued” in today’s time? If not, is it because we are too “blind” to delegate decision-making power to the fund without preventing failure?
Making money in crypto is not easy
What is the phrase that we often recommend to you “F0”? Perhaps a warning that making money in crypto is not as easy as it seems online. But after the case of Terra, I think making a profit in this market is 10 times more difficult than imagined.
Terra used to be in the top 10 projects with the largest capitalization of crypto. Even, at times, this coin is close to reaching the top 5. Besides, UST also in the top 3 of stablecoins had the largest market capitalization at that time.
Historically, no project in that segment has had a price drop of almost 100% in just 4-5 days.
In crypto, another popular way of investing is to buy and hold only top coins (high cap assets). The reason for this is that top coins usually don’t lose much value as BTC corrects, or at least don’t get scammed like low-cap projects. In return, the profit received is not high.
But Terra has proven that, despite its incredibly high capitalization, the project is still at risk of being attacked to the point of being almost impossible to save. Or even, there are rumors that Do Kwon, the Founder of Terra, also called the police to protect him (details here).
Next, Anchor Protocol known as a favorite investment place for many people because it gives an interest rate of 20%/year and pays in UST. This is evidenced by over 14 billion USTs deposited into Anchor before Terra crashed.
Just deposit stablecoins, and get 20% of the profits also stablecoins. It sounds easy, but now, UST has been severely devalued. Many people make 20% a year, but lose 50% in a day because of the UST discount.
Therefore, there is no safe way to make money in crypto. If someone tells you about a profitable, absolutely safe investment channel, it is definitely a scam, or has bad intentions.
No matter how good R:R is, don’t be subjective
In this section, I want to talk about two things: Do Kwon’s bet and UST & LUNA investment at the time of devaluation.
1. Do Kwon’s Betting Review
Umbrella bet takes place at the LUNA price of 88 USD (whether the LUNA price in 2023 is respectively large or less than 88 USD), which is much higher if calculated from the price of Seed, Private, or even fundraising rounds. 2021. But I thought the win for Do Kwon was very high.
Because both are betting on Do Kwon’s own ecosystem. At that time, although Terra was a potential ecosystem, there were really some problems with the use of UST.
Users like me can still see this, can’t Do Kwon and team not see it? Therefore, just fixing the problem, LUNA’s growth is almost certain.
But everything doesn’t take into account that someone will attack the 3pool when Terra moves liquidity in 4pool of the UST. And although it’s still a long way from the expiration date, we probably already know who wins.
2. “Bottom-catching” UST and LUNA in the meantime
Not only me, many people take the opportunity to buy LUNA price plummeting and wait for the problem to be resolved, then the price will recover. In addition, buying UST according to you still has a greater chance of winning, because UST is a stablecoin, and is also the core of Terra’s construction philosophy. So LUNA may lose value, but they will do their best to save UST.
Also, I was thinking that their funds would help Terra in this incident. But no, when Do Kwon called for capital, the funds refused, leading them to “self-advocate” by adjusting the Terra parameter to reduce the selling force of UST.
That much effort is not enough for both LUNA and UST to recover. As a result, those who participate in “bottom fishing” UST and LUNA mostly lose.
Looking down on others and the ending
I wrote in an article about UST losing peg about Do Kwon being so proud of his “baby” and “dumping” anyone who criticized Terra. And there is a possibility that this is the reason for the parties to join forces to attack Terra.
While not the main reason, it also affects the process of finding support. When Terra was in trouble, a series of names that were previously despised, or teased by Do Kwon, all tweeted mocking Terra. Typically, the Founder of Cardano is as follows:
Or in another case, in a post interview, when asked Do Kwon predict the number of projects in this market to fail, Do Kwon answered that 95%. It is worth mentioning that after that, Do Kwon said that watching these companies “die” was quite entertaining.
Of course, with or without these tweets does not increase Terra’s ability to raise capital. But when faced with this historic event, I think negativity makes it harder for Do Kwon and team to manage their emotions when finding solutions.
Psychological control when investing
This incident deserves to be put in history because of the level of devastation it caused. Not only financial, even investor spirit.
On Reddit’s Terraluna section, pinned posts about emergency phone numbers when no one listens to anyone or wants to get advice. In addition, some people act negatively after losing money. In posts about this on Yahoo.com, they must attach a phone number if the reader needs health assistance.
It is not clear whether the above cases are real or fake, but given the severity of the recent past, these incidents are not surprising.
Personally, I am lucky to know how to allocate my portfolio. Although there was partial property damage and psychological damage, overall, the next day was much better. Therefore, in order to survive in the market, in addition to the knowledge of “finding the truss”, we need to have a clear understanding of the proper allocation of capital.
Despite the luck of overcoming the consequences, this Terra incident deserves to be an example of investment. Through this case, what did you get, you can comment below for everyone to discuss.
#lessons #lifetime #collapse #UST #LUNA