Thread by @vwucrypto

Real world analogy of what happened to #LUNA...

1/ Once upon a time, someone came along, let's call him Do.. and he said "Let me start a new country". I shall call it #TERRA because my country will have digital land

And he did.

2/ But like any country, Do needed a currency. Since the whole world (off chain) used USD, he said. Let me make my own currency, #UST. It will be worth 1:1 to USD and therefore he pegged to this currency and #UST was born

3/ But #UST was worthless because his country had no value. It was just a fake land sitting in the Internet. So Do said "I shall raise money for my country". And to do that I will issue a token called #LUNA and tell people they're all going to the moon with me

4/ So he did. And some people bought #LUNA because they believed in Do and his vision of his digital land and all the riches it will bring. And so #TERRA finally had something, it had some USD. And so he now could back his #UST with the USD that he raised

5/ And while this was nice. #TERRA was a small land and he needed more people to come join. He asked... "How do we get more people to love #LUNA."
"How do we get them to use our great currency #UST?"

6/ "A Ha" someone said. Let's create a bank called Anchor and promise everyone 20% yield if they give us their money. So like any bank, he started it by seeding it with the money he raised and giving the bank some #LUNA tokens, which at this point really wasn't worth anything

7/ Do really wanted everyone use #UST. So he decided #ANCHOR will only receive #UST and give #UST. But that's ok, because he promised that #TERRA would use everything in their power to make sure 1 #UST is always equal to 1 USD

8/ And to get #UST you could only get it by trading in #LUNA. Because well, he wanted people to drive up the price of #LUNA (more on why later)

9/ And so the people saw this great land of #TERRA and it's 20% yield. And they came rushing.
So bought #LUNA. And so #LUNA went up
And then they traded it for #UST and put it in #ANCHOR
And laughed at the people of Earth and their measly 0.5% yield

10/ And all was good in the land of #terraluna

#ANCHOR deposits became billions. And each #LUNA token was worth more than $100. Everyone was on Do's rocket and everyone was really going to the moon

11/ But #ANCHOR needed money to keep giving 20% yield. But that was OK, because #TERRA had a big treasury of #LUNA tokens. And #LUNA tokens were going up from all the demand. They would sell some and give it to #ANCHOR

12/ And all was again good with the world of #TERRA

Until... #ANCHOR was too big. It had grown too much and the 20% yield could not be supported anymore.

So Do and the people of Terra decided. This free money thing can't last forever. Let us lower the yield over time...

13/ But this wasn't very attractive to people. They were only on the land of #TERRA because of this great yield they got.

So some people left...

And then some more...

And then someone REALLY big left...

14/ But you had to leave the way you came in. So... they took their money out of #ANCHOR.

And then they traded their #UST in for #LUNA

And then they would sell #LUNA.

15/ Which then made #UST price to fall.

And also made #LUNA price to fall.

16/ And this was a problem! Because people had been putting #ANCHOR had been giving #UST (not USD) to people and they had been depositing it back in to make more of that great 20% yield

17/ And as #LUNA fell. Everyone looked around and realized... all of #LUNA was worth less than all of the #UST in circulation.

Which means... if you don't take your money out ASAP, then you might be left with a #UST that can never ever be turned into USD

18/ It would just be you, in this land of #TERRA with #UST. No shops. Nothing Just you, Anchor, Do, and the rest of the people who didn't change their money in time. Living in a lonely digital planet with nothing to spend your #UST on

And so you panic...

19/ And so you also take your money out...

And #LUNA falls further...

And therefore #LUNA is worth a LOT LESS than all of the #UST in circulation. Which is scary, because now more people will never get their money out...

And so on and so forth...

20/ ... until everyone leaves the land of #TERRA because there was nothing there to begin with.

All there ever was... was a bank. That paid you money by taking in other peoples' money. Till they couldn't do that anymore.

21/ Short version of story... this is a #ponzi scheme. It was just made so complicated that you couldn't see it.