Thread by @DU09BTC

1/ A #Terra - #Luna - #UST thread

My views on #UST growth and why I need to offer a more balanced/fair view on recent developments.

Particularly when I see such posts from fans like @CryptoHarry_

📌Hint: Demand for UST has 6 months left!

Let's go! 👇

https://twitter.com/CryptoHarry_/status/1496035518655889415?s=20&t=uvU6Ep7VQG98BJAvotq8Xg

2/

12 bil #UST was minted in the past year. A great achievement for a decentralized, algorithmic coin. I agree here.

Exponential growth as @CryptoHarry_ says. But here is also where things get a bit more nuanced...

Particularly if you expect this to continue in 2022! 👇

3/ We need to answer one question. What drives #UST demand?

The most obvious answer is... Anchor's protocol 20% interest on deposits (pictured).

There are almost $7 bil #UST in Anchor deposits earning 20% APY today (pictured).

How can it pay 20%? 👇

4/ Anchor uses collateral from borrowers to generate income and pay depositors (so called b assets or bLuna, bETH).

But there is a problem. Borrowing demand is DECLINING while deposits skyrocket (pictured).

A bear market only makes this worse... so how can Anchor pay 20%? 👇

5/ Anchor has a Yield Reserve to ensure it pays 20%.

This reserve was near $0 most recently before @stablekwon himself, the boss of #Terra ecosystem, topped the reserve with $450 mil #UST

Well played, you just increased demand for UST some more!

But there is an issue 👇

6/ Borrowing is falling on Anchor and Deposits continue to go up.

This means that WITHOUT the $450 mil top-up, the sustainable APY on Anchor would drop to under two digits, likely 5% at this rate or less.

Demand for #UST would then crash. But... 👇

7/ Will they top-it up again? Most likely.

#UST growth / demand depends almost entirely on Anchor's 20% yield.

No wonder they dropped almost half a bil into it...

This is the "exponential" growth people parade. Based on incentives and ONE protocol!

Risks are high 👇

8/ Where did @stablekwon have half a bil from? He burned #Luna to generate #UST outside of the liquid market.

Magic money! So this "achievement" is a one man show with a big wallet to finance a protocol that CANNOT pay such yields.

See the issue? 👇

https://twitter.com/stablekwon/status/1491714837189070848?s=20&t=AMe0WtM6DYYtGZOdzRulrg

9/ Will they top it up again?

As long as there is #Luna to burn, why not. Everyone wins.

But this demand for #UST is not organic. Anchor cannot pay 20% either on its own.

Maybe the hope is that hey can buy time until the next bull market when borrowing grows again. Next 👇

10/ It's all fund and games until the incentives stop or the yield on Anchor goes to 5%.

Then there will be a LOT of #UST ready to EXIT terra...

What happens then?

You burn UST to mint Luna and... SELL Luna. A CRAHS follows...

How is this not obvious? See next 👇

11/ When "top-ups" stop, I see big risks in holding #UST.

De-pegging risks increase as #UST market cap grows, particularly if they suddenly stop Anchor top-ups.

We have less than a year until a new decision is needed. How many months left? 👇

12/ At current rates, the Yield Reserve loses $2.5 mil / day.

🔸496/2.5 = 198 days / 30 = ~6 months...

People will suck the yield reserve dry, particularly in a bearish market.

Not looking that exciting now right? Enjoy while it lasts.

I made a similar thread on this 👇

13/ You can find it below and see next tweet for more.

https://twitter.com/DU09BTC/status/1481375730869149701?s=20&t=Cnj-gRqcj0Ywo_jG9YEOVw

14/ If you liked this thread, #retweet the first post to get more of this content in the future! 😍

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