"Letโs first understand the underlying reason for why Terraโs pegging mechanism is inherently fragile"
A passage from Hjalmark Peters' new post, "Why I am Betting against TerraUSD" ๐๐๐
1/๐งต
For every 1 UST that wants to convert back to 1 USD there must be 1 USD (or any other non-Terra asset worth 1 USD) willing to either buy UST at a price of $1.00 or, due to Terraโs arbitrage mechanism, buy LUNA at whatever price.
2/
Otherwise, if there are more UST eager to leave Terra than there are USD willing to enter Terra in the way just described, UST can obviously no longer trade at parity.
3/
At the time of writing there are 18.5B UST while the market cap of LUNA is 28B USD. Naively, one might conclude from that that there should be more than enough USD available for any amount of UST that might want to leave.
4/
However, this conclusion would be incorrect. Market cap is defined as market price times circulating supply. So, one would have to sell the complete circulating supply of a token at the prevailing market price to generate proceeds to the tune of the tokenโs market cap.
5/
When selling a large amount of tokens, though, none but the first few of them will obtain the prevailing market price, because the price will quickly crash. For that reason, only a USD amount worth a fraction of a tokenโs market cap can be pulled out of the markets.
6/
Now, this line of reasoning implicitly assumes that one cannot sell more than the circulating supply, and for LUNA one can, given LUNAโs variable supply.
7/
Nevertheless, while the exact number of USD that can be extracted from LUNA markets is unknown, it is limited and the above reasoning might provide some clue about it.
8/
If net more UST than this unknown number of extractable USD want to convert to USD, then USTโs peg must break. (โNetโ means that the number of USD that want to convert to UST is subtracted.)
9/
This is the reason for why UST supply contractions pose a permanent threat to the peg (assuming they are caused by UST leaving Terra and not by UST merely swapping to LUNA).
10/
"Terra counters this threat by incentivizing UST supply expansion. However, its approach is not sustainable, as pointed out in the next section: Terraโs ponzinomics"
11/11 END
Peters continues with a clear, logical post that lays bare Terraโs ponzinomics, what will start the inevitable UST/LUNA death spiral, and why the Bitcoin reserve can't change the outcome.
"Terra will remain fragile in the long run no matter what. The longer it takes for Terra to bust, the bigger Terra will be when it happens, and the bigger the repercussions will be."
For Bitcoin's sake, let's hope crypto traderz and fundz kill Luna / UST in its cradle. #DontKwon
My latest @CoinDesk interview:
"Crypto payments have not taken off yet because of where we currently are in bitcoinโs adoption cycle. Historically, an asset that becomes money evolves through four stages: collectible, store of value, medium of exchange and unit of account.
1/๐งต
"We are still early in the store-of-value phase, when most of the very small number of people who own bitcoin are using it for long-term savings, with the bonus that its value is likely to appreciate significantly over time.
2/
"As more people adopt bitcoin and store more of their value in the protocol, the price will continue to rise and volatility will decline, making it more suitable for payments.
3/
CENTRAL AFRICAN REPUBLIC ADOPTS BITCOIN AS LEGAL CURRENCY
(Looking for more than a single Forbes post)
"The Central African Republic has become the first country in Africa to adopt Bitcoin as a payment currency."
1/๐งต
"In a worldwide first, the National Assembly unanimously adopted the bill to help put the countryโs plan for economic recovery and peacebuilding on track."
2/
"The minister of digital economy, post services and telecommunications and the minister of finance and budget initiated and submitted the draft law establishing both the legal framework for cryptocurrency regulation and Bitcoin as an official currency."
3/
Nothing new under the โcryptoโ sun with Do Kwon and UST. Just another altcoiner lying about Bitcoin to promote his sh*tcoin. 1/5
At the 22:00 mark of Do Kwon's โMoney Talksโ interview with Bill Barhydt on Youtube, he claims that โitโs very difficult to use Bitcoin as a medium of exchange.โ What is this, 2017? 2/5
The primary value proposition promoted by Do Kwon is false. He says that you need a dollar-pegged cryptocurrency to make payments. Thatโs not true. 3/5
The Turkish lira dropped vs the dollar by about 1/3 in just the past month.
Some real life consequences of inflation, stories from my own network in Istanbul.
A short thread๐๐๐
Already one of my friends got poached by a European company to do the exact same job, but paying 50% more. This cost the European firm nothing, but the Turkish firm could not match.
Because pretty much all rents have some form of rent control, the apartments people are in now remain affordable, but no one can afford to move since a new tenant is charged market rate. This means people can't move to be closer to a new job, or can't leave toxic situations.
5 years is a loooong time in #Bitcoin. It's incredible to think how much has changed AROUND Bitcoin, while Bitcoin itself changes very little (by design). 1/15
For those of us from the Class of '17, who found Bitcoin during the last bull run, it's illuminating to take a look at some of the top tweets from 2016.
You'll see friends, enemies, and some real eyebrow-raisers!
Let's hop in the time machine... ๐๐๐ 2/15
Kicking things off with podcaster extraordinaire and @CashApp fan @joerogan