Thread by @DeFi_Cheetah

1. If $UST ends up in a death spiral and cannot snap back to hold the peg, that really means the end of algo -stablecoin era, and all algo-stablecoin holders should now swap for $DAI, $USDC or $USDT. Here’s why:

@LFG_org @stablekwon @terra_money

https://twitter.com/DeFi_Cheetah/status/1510747852825276418

2. To be a resilient stablecoin, you need to have (i) the economy of scale or (ii) enough backing with the underlying asset for users to redeem. $UST is definitely the first type. It bootstraps the liquidity and scale to a $18B crypto asset - top 10 market cap, too big to fail

3. Before the avalanche of algo-stablecoins taking place, $UST should be the only one whose volatility absorber $LUNA is also the native token for the whole successful #Terra blockchain. This creates a lot of use cases: whenever you spend on $LUNA, it creates a source of demand.

4. Why is a great economy of scale so important for algo-stablecoins? This implies 2 things: (i) use cases & (ii) users’ confidence. These two tend to reinforce each other to create a flywheel effect: with more use cases, users feel more confident in the algo-stablecoins…

5. …which in turns lead to more use cases since users don’t feel uncomfortable to use it as a settlement currency. USD is the biggest example of it. It has been the settlement currency of many international transactions in the world, such as oil!

6. USD does not have any backing after the US govt stopped using Breton Woods system back in 1971. Have anyone had ever thought about how USD can be printed out easily? It’s because it is no longer bound by Gold Standard! But this does not change USD’s status as a global currency

7. What @LFG_org would like to do is to bootstrap $UST: to create as many use cases as possible before the fixed 20% yield on @anchor_protocol becomes unsustainable. I have showed how to assess the yield sustainability by calculating the run-time (how long can it last)

https://twitter.com/defi_cheetah/status/1503727303678902276

8. Based on my calculation, it won’t last for more than 30 days, and when yield reserve is depleted, there would be floodgates of $UST redemption, which causes huge $LUNA sell pressure and potential death spiral may be taking place by then.

9. That’s why @stablekwon needs to attract huge liquidity by setting up a 4pool and creating a league with top $CVX holders to influence the underlying $veCRV to direct most weekly $CRV emissions to the 4pool, in a hope of attracting billions of liquidity with attractive yields

https://twitter.com/defi_cheetah/status/1510747852825276418

10. @stablekwon is the extremely clever guy in DeFi. Let me sum up a bit how he bootstrap $UST: he created a blockchain with native token $LUNA as the volatility absorber of $UST. Unlike others, $LUNA itself has sources of demand when #Terra ecosystem has more D-apps.

11. With #Terra, @stablekwon created a huge frame source for $UST: 20% fixed yield via @anchor_protocol. This results in a lot of $UST deposited in there. But he knows it won’t be able to last long, and thus he did 2 more things for the sake of soft landing:

12. First thing is the creation of 4pool, which tries to attract billions of liquidity by providing attractive yields via @CurveFinance’s gauge weight voting. Second thing is @LFG_org’s pooling of $BTC as the backing in case of instability of $LUNA!

13. With the economy of scale, this creates more use cases for $UST and users become more confident in it. Institutions are no exception to that. @stablekwon’s @LFG_org has acquired $3B crypto assets and get the financial support from @zhusu’s #3AC and many other funds!

14. This is truly what ‘bootstrap’ in DeFI means: you buy (loyal) users with attractive yields, during which you burn money to bide time, figuring out a way to have a sustainable model, and then that repays what you previously spent for.

15. @stablekwon’s plan is quite perfect: @LFG_org has acquired $3B to back $UST. Nothing seems wrong up to this stage. But then there’s one thing which may be fatal to @stablekwon’s plan: #Terra ecosystem’s imbalanced weighting on @anchor_protocol.

16. According to @MessariCrypto in messari.io/article/mappin…, apart from @anchor_protocol, $UST use cases are not diverse enough, meaning that most people just treat it as a yield-farming tool. With regard to this, @stablekwon tries hard to address the issue. #AstroWars is example.

17. I repeated many times. The more the economic activities on #Terra, the more the demand of $LUNA, the greater the cushion for $UST redemption, since by redeeming $UST this creates a huge supply of $LUNA. If #Terra ecosystem is vibrant enough, it could digest such a supply.

18. However, before this could happen, @anchor_protocol cannot sustain 20% fixed yield to keep $UST in the vault. Many users expect the yield reserve depletion and front-run others. Most importantly, extreme market condition has catalyzed the whole thing. @stablekwon is unlucky

19. The death spiral takes place before (i) 4pool on Curve can accumulate enough liquidity as cushion, and (ii) the start of #AstroWars to create more use cases for $LUNA to withstand huge supply from $UST redemption. That breaks the whole plan!

20. If $UST really fails at the end, I think mostly because of a bad market timing: @anchor_protocol’s yield reserve is about to be depleted at a time when BTC has been free-falling, creating a panic selling which forces many users to redeem $UST.

21. Without such a coincidence, $UST soft landing (no more 20% yield to keep $UST in the vault) may not be an issue, with the 2 upcoming plans by @stablekwon to address it, not to mention he leveraging the confidence from institutions to get $3B backing!

22. There won’t be any other algo-stablecoin that can go that far. And this, if $UST really can’t recover, you should not hesitate, sell all algo-stablecoins you have to get back your money.

23. If you find this tweet useful for you to understand @stablekwon’s grand plan, please like and share to whoever you know! Thank you! I will keep an eye on it and update you all from time to time! #UST #Luna #depeg #ThreeArrowsCapital

https://twitter.com/defi_cheetah/status/1523834776180129793

@stablekwon @stablekwon @terra_money @astroport_fi @mars_protocol @LFG_org @NexusProtocol @0xCha0s @TheRyanLion @gtcapital_ @GuyPolio @wencol5 @cpablo1888 @LunaLegolas @SumoLuna @tweeterazzis @StarTerra_io @mirror_protocol @anchor_protocol @lejimmy @lunatichisoka @Cephii1 @danku_r @Route2FI

@stablekwon @terra_money @astroport_fi @mars_protocol @LFG_org @NexusProtocol @0xCha0s @TheRyanLion @gtcapital_ @GuyPolio @wencol5 @cpablo1888 @LunaLegolas @SumoLuna @tweeterazzis @StarTerra_io @mirror_protocol @anchor_protocol @lejimmy @lunatichisoka @Cephii1 @danku_r @Route2FI @cryptrus @TheMoonMidas @Speicherx @CryptoHarry_ @AgilePatryk @cptn3mox @DrCle4n @ChainDebrief @FynnToTheMoon @AlphaSeeker21 @NicolasFlamelX @mooneybagz @FishMarketAcad @nicklovesterra @Panterra0x @MrRefractor @deadrightdove @rebel_defi @iii_OIO_iii @ZeMariaMacedo @tundra_v1

@stablekwon @terra_money @astroport_fi @mars_protocol @LFG_org @NexusProtocol @0xCha0s @TheRyanLion @gtcapital_ @GuyPolio @wencol5 @cpablo1888 @LunaLegolas @SumoLuna @tweeterazzis @StarTerra_io @mirror_protocol @anchor_protocol @lejimmy @lunatichisoka @Cephii1 @danku_r @Route2FI @cryptrus @TheMoonMidas @Speicherx @CryptoHarry_ @AgilePatryk @cptn3mox @DrCle4n @ChainDebrief @FynnToTheMoon @AlphaSeeker21 @NicolasFlamelX @Cephii1 @TheMoonMidas @JayJaboneta @danku_r @blocbits @Remi_Tetot @ZeMariaMacedo @DegenSpartan @terranaut3 @twobitidiot @stablechen @CryptoWizardd @Speicherx @cobie @pedroexplore1 @SumoLuna