Good news, everyone!
Close to announcing a recovery plan for $UST. Hang tight.
— Do Kwon 🌕 (@stablekwon) May 10, 2022
His plan is to bail out Terra, the algorithmic stablecoin, which detached from its peg on Monday and has been torching billions in VC capital ever since.
So far, the plan has failed spectacularly:
Here’s what happened. The Luna Foundation Council, Terra’s central bank, tried to defend the peg by lending rather than liquidating its recently acquired bitcoin reserves, while simultaneously pledging to buy bitcoin using staked native Terra coins for some reason:
4/ As a result, the LFG Council has voted to execute the following:
– Loan $750M worth of BTC to OTC trading firms to help protect the UST peg.
– Loan 750M UST to accumulate BTC as market conditions normalize.
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
Terra’s grand council was then reported overnight to have tapped up crypto investors in the hope of raising another $1bn or thereabouts. The defence funding package reportedly included issuing Luna, the protocol’s governance token cum see-saw stabilisation mechanism, at a 50 per cent discount.
The details I have heard but might not be final:
– Jump, Celsius and Jane St. committed already, Alameda not yet
– targeting $1B – $1.5B raise
– 50% discount to LUNA spot with 1yr lock + monthly linear vest over 1yr
– total of ~$700M in commitments as of morning https://t.co/BtqJrF0eqM— Larry Cermak 🫡 (@lawmaster) May 10, 2022
Perhaps unsurprisingly, a proposal to raise bailout cash by putting an effective short position on its own stablecoin matrix hasn’t helped restore investor confidence. At pixel, UST’s $5.5bn market cap is collateralised by Luna’s market cap of less than $1.9bn.
And so, the floor having disappeared, traders (who self-identify as Lunatics) have abandoned the Luna-UST swap mechanism and are instead rushing for the exits. Appeals for calm have not had much effect:
Getting close … stay strong, lunatics
— Do Kwon 🌕 (@stablekwon) May 10, 2022
And as the sun sets on the great Luna-Terra magic money experiment, there will be a lot of opportunities for I-told-you-so. To start us off, here’s a good one from crypto promoter Richard Heart that gets straight to the point:
Why am I always so right? #UST #LUNA https://t.co/6sKraNDBqY
— Richard Heart (@RichardHeartWin) May 9, 2022
Update, 11.30am GMT:
Algo go BRRR.
7/ First, we endorse the community proposal 1164 to Increase basepool from 50M to 100M SDR *) Decrease PoolRecoveryBlock from 36 to 18 This will increase minting capacity from $293M to ~$1200M. https://t.co/aqNKzYK2xC
This should allow the system to absorb the UST more quickly.
— Do Kwon 🌕 (@stablekwon) May 11, 2022
Trying to print a way out of a hyperinflationary death spiral is . . . brave? Nevertheless, the initial market response to Kwontitative easing has been positive . . .
… albeit not for everyone.