Thread by @CryptoTakai

My personal reflections on the $Luna $UST collapse.

This is a post-mortem from the perspective of a retail pleb from crypto class of 2021 during arguably the most hellish week of crypto history🌑

1/26

#Luna #UST #Terra #Crypto #Cryptocurrency

I considered myself a relatively conservative investor. I had exposure to $Luna and $UST but knowing the risks of algo stablecoins, I made it a daily routine to check the important indicators:

1. Anchor deposits and yield reserve 🏦
2. Top aUST wallets 🛅
3. Curve pools 🚰

2/26

All the signs were there:

1.Anchor’s UST deposits started decreasing since 8 May and accelerating.

2.A top UST holder has been sending UST to CEXs aggressively.

3.The % of UST in Curve pools has been increasing, means less liquidity for exit out of UST.

3/26

So why did I see the data and yet still expose myself to the bank run? @DegenSpartan would call me a retart. Hence, I reflected on my mental biases:
1.Lazy thinking
2.Confirmation Bias
3.False sense of safety
4.Sunk-cost fallacy

4/26

https://twitter.com/DegenSpartan/status/1523171661746679808?s=20&t=cdjH_AOkdujYQsqvnRW-kw

1.Lazy thinking

Luna is endorsed by reputable VCs like Polychain, Jump, Galaxy, 3AC and Delphi. If billionaires are getting Luna tattoo and naming their daughter Luna, they wouldn’t let it fail right?

5/26

Wrong. They are humans too and will suffer the same bias. VCs also have a different investment model from you. They buy at cheap seed prices with the expectation that they might go to zero. Even with token lockups, they can always cut their losses and hedge with futures.

6/26

2.Confirmation Bias

People tend to believe what they want to believe. I wanted $UST peg to be restored. Hence I subconsciously place an emphasis on info that favored me.

$UST recovered from the May 2021 flash crash and the Frog Nation debacle, so was battle tested.

7/26

$UST first depeg-ed on 9 May this week, closing at 75cents. The next day it dump to 60cents, but daily closed 92cents. Pegging mechanism was working. There were many twitter posts celebrating their gains easy 50% gain, all seemed good and the worst was over. Till it wasnt.

8/26

3. False sense of safety

Since Terra is an L1 and not just one degen defi app. With so many apps and community built on this top 5 market cap L1 ecosystem, it is too big to fail, right? Sth like one chopstick is easily broken while a bundle of chopsticks are not, right?

9/26

Wrong. If the foundation is weak, adding more buildings and Legos on top does not make the base stronger. In fact, it only amplified the damage and increased the number of casualties.

10/26

LFG has also been accumulating $BTC, the prime collateral of the crypto space, so it should be safer, right?

@ercwl and @ErikVoorhees explained in @Unchained_pod (at around 1hr mark) that perhaps $BTC reserve actually escalated the bank run.

11/26

The $BTC was more about being a narrative and building trust. 3bil $BTC was too small and not ready to be deployed to cushion the debt burden of 18bil $UST. People were confused that they need to get out quick before the $BTC reserve runs out, causing more panic.

12/26

4. Sunk-cost fallacy

I think I really bought the idea and strategy that “decentralized economies require decentralized money”. All of us in crypto understand how important and powerful stable coins are.

13/26

I agree with @samkazemian that "stablecoins are one of the three trillion dollar narratives of crypto". Stable coin adoption is part of my main investment thesis and until last week, $Luna $UST was the best at it in driving growth.

14/26

The confusion here was mixing the investment thesis with the tail risk of a particular asset. The investment thesis can stay and you don’t have to make the right predictions, but you can still make the beneficial decision.

15/26

Even if you didn’t expect $Luna to go to zero and $UST remain depeg-ed, make the decision that optimize for surviving to fight another day.

16/26

https://twitter.com/shuennnyyy/status/1523717799968866304

So how does one make sure not to repeat the same mistakes and improve our faulty human biases?

I think one way is to have a system. Automate your decisions so you don’t make emotional ones.

17/26

This system can apply to many crypto projects -

Step 1: Identify if this a Ponzi or has a Ponzi-like economy?

Step 2: If yes, what is the exit plan? What are the data to look at and thresholds to set?

Step 3: If the thresholds are broken, stick to the plan and exit.

18/26

Taking this UST debacle for eg;

Step 1: Yes, UST is under backed and is debt owned by the system, supported by Luna as the “equity”. Main demand for UST is to earn Anchor yields which are partially unsustainable yields. If you still want to invest, proceed to Step 2.

19/26

Step 2: Metrics to look at are those mentioned at the start of the thread. Set yourself some thresholds.

Eg. Anchor deposits dropped by >2bil or the proportion of Curve 3pool exceeded 60%.

20/26

Step 3: Stick to the plan and ignore the noises. Things like initiating 4pool incentives or LFG deploying $BTC and getting more funding are just new information that favor what you want to believe (Confirmation bias).

21/26

Last thing I want to add is that the timing of how it all went down was definitely suspicious. The attack was perfect timing, executing during the transition of Curve 3pool to 4pool. But I do not believe it was Wall Street.

22/26

https://twitter.com/OnChainWizard/status/1524123935570382851

Whatever the case maybe, Terra ecosystem let themselves be vulnerable to an attack, so they will be attacked by any player that sees it was +EV for themselves.

Murphy's law: "Anything that can go wrong will go wrong."

23/26

It has been said ad nauseam in CT that crypto is in a PvP market. I think that an understatement in terms of scale. It’s also Player vs Whales vs more Whales vs Funds vs more Funds vs Marco.

24/26

@stablekwon and his backers let the ego and euphoria get into their head. LFG showed too much of their hand, was ill-prepared, and lost the war.

But most imptly, to paraphrase @hsaka, when titans fight it’s the civilians that get hurt.

25/26

https://twitter.com/HsakaTrades/status/1524109498989879296

The main point of this thread is for me to document down the mistakes and not repeat them. Never would I expected my first crypto account thread will be about my biggest L (so far, lol).

I will take this as rite of passage for my crypto journey.

Stay safe, players.

26/26

Some of my favorite Defi content accs also covered the $Luna $UST collapse extensively. Do check them out for more:

@0xHamz @DegenSpartan @gametheorizing @TaschaLabs @jonwu_ @tbr90 @thedefiedge @Route2FI @danku_r @OnChainWizard @alpha_pls @maestroatcrypto @ercwl

/End

Back to the top of the thread:

#terraluna #lunacoin #ust #LUNAtics #luna #Terra_Luna #Lunacrash #Lunausdt #bitcoin #btc

https://twitter.com/CryptoTakai/status/1525729590190424065?s=20&t=4oqB-J03DuLL4Ki0o1_t8w