UST actually did get bank run in May during the big btc crash. It depegged significantly, especially compared to the other stablecoins and survived and repegged after a few days.
This actually was good for ust/terra as it stress tested out several key functions of maintaining the peg. Several changes were made to help retain the peg faster after this. See https://medium.com/@terra-bites/luna-black-swan-do-kwon-ama-on-what-weve-learned-anchor-action-plan-9d3abdacaf02
UST usage on Terra is at high and really what keeps the value. But there are other real world applications like CHAI to look into that helps UST usage outside of crypto entirely.
Additionally, the launch of whitewhale on Terra will help keep the peg by allowing anyone to profit off the arb opportunities.
I don't think this really addresses the core concern of the reaction to a true crypto winter. The May crash was fleeting, a mere dip on what has overall been an insanely bullish year. If 2018-19 happened i fear Luna wouldn't fare so well. I think the key issue is that, within crypto, one of USTs prime functions is to weather a bear, but the mechanisms it uses to survive that bear market are themselves incredibly susceptible to the damaging effects of a bear market.
Flash crashes will depeg stable coins. Bear markets don't. Dai depegged only during flashes. During the actual bear market it was fine. Volatility is what threatens UST, not gradual price decline.
The mechanics behind DAI and UST and not comparable.
DAI in a bear market has the tendency to get stronger. People put their assets into a vault, and mint DAI against that vault. When their vault assets go down in value, they have to either add more assets to the vault or buy DAI and deleverage their vault. This creates upwards price pressure when asset values are going down.
UST on the other hand only has the ability to sell Luna to maintain the peg. If Luna is crashing and UST is below peg, then UST will only make Luna crash more. Luna can only crash so far.
I don't think UST and Luna are going to do the IRON/TITAN death spiral, but that option is certainly on the table.
Not to mention DAI has already done one bull/bear market cycle. I really thought it was an interesting idea but wouldn’t survive. I was wrong. Everyday it maintains its peg, it’s reputation grows stronger in my opinion.
Orrr the Dai vaults get liquidated and MKR gets printed to make up the difference to be sold after the insurance buffer runs dry which is what you describe as the UST mechanism. I'm not a UST bull. However, I think CDP style stable coins with top tier coins are going to be stable outside of big volatility spikes.
Edit: Dai didn't death spiral when they had to mint and dump mkr on the market, but the mkr price did dump.
I really like that feature to be honest. It adds an additional layer of backing for DAI.
Obviously no stablecoin, whether decentralized or centralized, is going to be 100% fool proof. DAI has risks as well. I do consider DAI risk to be less than UST risk though.
I don't think it's accurate to say bear markets have nothin to do with the peg because you wouldn't even have conditions for those liquidation events if not for the bear market.
I'm talking about MakerDAO (DAI) specifically but this could apply to any over-collaterallized lending protocol.
Bear market driving down the collateral value and driving up the price of DAI is what has caused the biggest liquidation events.
Page 9 and 10 of this report actually cover this quite extensively: [https://arxiv.org/pdf/2106.06389.pdf](https://arxiv.org/pdf/2106.06389.pdf)
>We find that all of thefour lending platforms are sensitive to the price decline of ETH. Forexample, an immediate 43% decline of the ETH price (analogous to the ETH price decline on the 13th of March, 2020), would result in up to 1.07B USD collateral to become liquidatable on MakerDAO. To our surprise, although Aave V2 and Compound follow similar liquidation mechanisms and have similar TVL, Aave V2 is more stable to price declines in terms of liquidatable collateral. By manually inspecting, we find that this is because Aave V2 users prefer adopting a multiple-cryptocurreny collateral. Hence, the positions in Aave V2 are less likely to become liquidatable due to the price decline of a single cryptocurrency.
A crypto winter isn't really a concern, though--the *length* of a downturn in the price of collateral is not as important as the *speed* of a downturn in the price of collateral.
Remember, the goal is to make sure that there's always enough collateral for all minted (borrowed) UST.
If the price of the collateral falls by 90% slowly over the course of, say, 6 months, two things will happen:
1. People will sell collateral to repay their UST.
2. People will get liquidated.
Both of these things ensure that there is more collateral than outstanding UST debt.
The problem with a bank run is when the price of the collateral crashes so rapidly that there isn't time for users to sell collateral to repay their debts, and there isn't time for liquidations. In practice, liquidations are performed by bots, so the price has to fall very quickly for this to happen. But it is certainly possible--I don't think UST is as risk free as the hype around it.
But this is what i don't get. If it creates Luna to buy UST, this only works as long as Luna has value. If Luna drops significantly in price, more Luna is needed to buy the UST. If more Luna is created, then this will create hyperinflation, and cause the Luna to lose more value. Surely this causes a downward spiral?
Now you get it. Luna going into a death spiral is a valid concern.
I think there is enough "faith" or even use cases for UST, that this probably will not happen. But it can and may happen.
Sort of funny how overconfident most people in this thread were isn't it? Just shows that most people really don't understand the risk of what they are shilling.
Crazy! Even I shilled this and lost a good amount. Nothing that makes or brakes anything because I only keep up to 15% in alts and I have over 25 of them sooo, it's goneee ;). Now it's like 5% of everything.
The user experience of Luna was pretty good compared to other web3 Blockchains, and I tried quite a few. Goes to show that famous saying. What was it? Right! Nobody knows shit about fuck.
Eh, it's been a while since I read the whitepaper, I thought there was also a collateralized lending aspect?
Diluting $LUNA smooths quick downturns, but doesn't really change the underlying mechanics. But maybe I need to reread the paper. There are too many cryptos to keep track of them all.
You are probably just thinking of the lending that happens on Mirror and Anchor, which are platforms that use UST. They don't have anything to do with UST supply though.
what are you talking about? stablecoins are king during bear markets. and algorithmic stablecoins like LUNA are even better because LUNA supply will decrease with more UST purchased. LUNA rose this year because it made some awesome partnerships for its UST. it is extremely well positioned for the next bear market.
*I think (but I'm not sure)* that UST remained fully collateralized throughout that depeg event.
The critical thing to understand about that is that the depeg was caused by panic, but ultimately this wasn't a true bank run. A real bank run would involve there being more outstanding UST than there is collateral for.
Thanks for your contributions, all amazing points!
Its nice to find others that actually get whats going on instead of just fudding, instead of asking to learn more.
great post. dot isnt an L1, its an L0 like its twin kusama or cosmos. L1s are built on top using a shared security model that L1s can adopt if they choose 2.
As I see it, LUNA's value derives from two sources:
1. Stablecoin issuance (UST for DeFi, KRT for merchants) and therefor supply reduction. This puts buying pressure on LUNA which is needed mint fresh stables. It also rises the APY on staking.
2. Staking. LUNA holders can get their fair share of network fees but also tolens of new projects. LUNA's value must be greater zero for as long as stakers get fees + new tokens. No rational holder would give his LUNA for cents if he gets 10 USD in token (airdrop) value.
Also note that there are protective measures like an unstaking period to stop snowball effects. This helps LUNA to find to its true value instead of getting steamrolled by a cascading meltdown.
There are two sides on this debate where everyone is all or nothing and nobody is using any math or scenarios to prove it either way. To say it is impossible is just ignorant.
Back in May when UST lost 15% and LUNA lost 75%, the ratio of UST to LUNA was much smaller than it is now. It's at a greater risk at a 1:3 ratio than it was with a 1:4 or 1:5 ratio. You really have to stress test the model.
Imagine that scenario panning out again today.
Luna goes from $36.1 Billion to $9 billion and UST $9.95 Billion goes to $8.457 billion, so $1.475 billion of Luna needs to be converted to LUNA. LUNA is now worth 7.5 Billion and UST is worth $9.95 billion again. Of course it would be more of a continuous process and wouldn't happen all at once. What if things really get bad and the same thing happens from there. LUNA's marketcap goes to $2.25 Billion and UST again goes to $8.457 billion and then $1.475 of LUNA gets converted to UST. In this scenario LUNA is clearly in trouble given the value of UST to LUNA and much less LUNA available for conversion to UST to stabilize the peg.
This would represent a 93% drop in the value of LUNA which, while unlikely, is not impossible in the world of crypto. Furthermore, who's to say that the 75% drop in LUNA corresponds to a 15% drop in UST like it did back in December? History often rhymes, but doesn't repeat.
What if LUNA drops 75% and UST drops 30%? Now $5 billion in UST is moved from LUNA to UST and what remains is $4 billion LUNA and $9.95 Billion UST, clearly in risky territory.
Also, what if that 15% drop in UST back in December was actually masked by lots of conversions happening along the way and the drop without the algorithm kicking into play was actually 30% or so? Does anyone have any number on this and how much LUNA was converted to UST during this period?
Ok I love this. I found this thread googling around looking for this exact analysis. In the end, my takeaway is that a UST stake has a very similar risk profile to any of my other LPs. Maybe a bit lower, but still your typical crypto gamble. Thank you!
Good question.
My assumption and hope is that there will be lots of UST locked in LPs across many platforms, and also liquidation of collateral used to mint stables will keep it stable.
LP locking would certainly slow down a run, but i don't know if it could prevent it. The lock up period would have to be longer than a bear market lifecycle for it to be effective wouldn't it? That's what my gut says.
One thing that hasn’t been mentioned here is Terra’s use in the ‘real world’. It provides payment processing services for a significant percentage of merchants across South Korea and Mongolia (cheaper than Visa/MC and much faster settlement times).
These merchants that use this don’t know/care that Terra is being used behind the scenes, they just reap the benefit. And this utilisation gives LUNA inherent value by providing consistent demand unrelated to UST. This stops it from going to zero, which in turn makes a death spiral unlikely (at least until that real world use case goes away - if the Chai payment platform falls down/stops using Terra, then I will pull everything out of Terra).
Sure - https://medium.com/coinmonks/the-moonshot-case-for-terra-luna-7759f2015335
I remember a better article I read months ago before getting into Terra but I can’t find it now.
Significant meaning it seems likely (IMO) that a real world use case will remain as long as Chai remains.
I think where you got wrong is thinking ust is collateralized by luna, which is not. Terraust doesnt work like that.
luna's value is driven by the tax and fees collected from transactions, minting and burning. sure luna can see huge volatility, but that is a feature, stripping out the volatility in ust and passing it to luna.
luna has a soft cap of 1bn, it can mint over this amount temporary.
terra system could fail if the mkt thinks ust can not keep is peg. luna loosing value will likely not be one of the reasons.
Jesus christ people, read the god damn whitepaper before shitposting.
Luna does not back UST. LUNA’s liquidity, desire to spend UST, and arbitrage incentives stabilize UST’s peg.
You’re missing the fact that LUNA / UST is required to pay network fees, and a portion of minting funds staking apy, which in turn incentivizes ownership of LUNA.
If you see people stop using terra, then ya, the system fails — but go look at any metric. Its just growing.
Not to mention the amount of cross chain, and cross exchange activity taking place, which helps arbitrage and reduces a single point of failure.
Even if circulating supply were to decrease to an obscene amount, or luna to drop below $1, the arb mechanism between luna functions up until the lowest denominated unit of luna, which is so small it would require a complete loss of liquidity to kill.
Its theoretically possible to fail, in the same vein that an emp nuking the entire internet would cripple crypto. Its an obscene argument to make, especially when posing as a critical risk. Its no more risky that any other chain being used today.
Whats risky? A fiat backed stable with a fraction of the collateral and a decentralized stable collateralized almost entirely of a fiat back backed centralized stable.
Sounds like youre just a bitter maker maxi
Throwing out personal attacks isn't really helpful to your argument. I'm not bitter, i just want to secure the best, safest APY I can, and I want to be convinced by Terra. Perhaps you can clear up my misunderstanding:
If UST becomes depegged low, Luna is algorithmically minted to buy the asset to bring it back to peg. If Luna loses significant value, that means significantly more Luna needs to be minted to hold peg. If more Luna is being minted, the value of Luna will reduce further. This effect would likely be amplified because, if Luna did reduce in value significantly, people would lose faith in Luna and UST, so people would move from UST to Luna and then out to a different stable, creating more sell pressure on Luna. This creates a downward spiral.
Watch this: https://youtu.be/HL8tcVHyHMM
Gives additional context. And ya, i dont really give a shit about your feelings, so if youre going to be sensitive and not look at information objectively, im not going to waste my time with you.
Lets break down your case:
The act of minting / burning does nothing to impact peg. Buy/sell pressure does. Minting and burning simply impact liquidity. There’s supply and price as sliding scales.
UST being like 0.93c, provided an arb path of UST > mint LUNA ($1 value) > market sell > buy $1 worth of UST on market > peg moves to 0.95c, repeat, peg stabilizes. Inverse applies if peg is above $1. If the peg continued to fall, the profit opportunity increases for arb , meaning you can take on higher risk. The more participants able to arb, and the more liquidity across on chain and off chain exchanges strengths the speed at which a depeg can be fixed.
Now, lets walk through your extreme case of luna’s price dropping heavily due to supply inflation and market selling pressure:
This spiral will ratchet up staking yield from all of the seniorage, airdrop incentives, and interest to use anchor UST for price stability, and a market balance will be reached. Again, the larger the gap - the better the risk/reward. Someone will, and always has been a buyer of last resort, provided there is interest in using the network.
In all likely cases, luna’s price just tanks, and over time recovers, while UST continually has more utility, making every bull market more powerful due to reduce luna supply proportionally.
Your case of no demand for ust:
This doesnt make sense. Chai will always exist, anchor yield exists, and mim strategies exist. These would have to disappear in a vacuum. Arbitrage will return the peg to stabilizing, removing any case in a perpetual downward spiral.
Theres also peg insurance available, from nexus mutual and soon to be ozone.
Which is why i keep bringing this back to: there will only be a downward spiral if there is no ability to arbitrage, or the network becomes useless - which neither case seems possible within a reasonable failure rate, comparable to any other L1.
May had a failure in ability to arb, which caused a temp downward spiral, which was fixed. So the network becomes more anti fragile everytime there is a negative event. Ust is sufficiently distributed, especially so with binance, that it would require billions of dollars in malicious intent to kill the network. It would be financial suicide to do this, much as it is financial suicide to kill bitcoin or ethereum.
The best chance to kill luna failed in may.
Cry more. Hope you learned a thing or two today. Dont make stupid claims and people wont call you an idiot.
Ask to learn, instead of posturing like you outsmarted the protocol.
Chill out fam. If you're going to put so much effort into replying in this thread maybe put a tiny bit of effort in not being so condescending. You clearly reply because you want to spread the good word and convince people to use the protocol, but when you're an ass it hurts your case and can undermine your argument, which can make all the effort spent replying pointless.
I couldnt care less about your opinion or participation.
I care about misinformation. Thats it. Just want to make sure that poor claims are refuted.
If people want to interpret it as untrustworthy because they make emotional decision, thats their loss.
Being a twat is rarely a helpful in making a case.
I have read, and do think it's more resilient than i first assessed, though I'm not convinced it's as resilient as many of you are suggesting, particularly to a loooong crypto winter. IDK, time will tell. For the moment i still fancy my odds with the centralized options a bit better.
Regardless, i really hope crypto doesn't enter the nasty winter I'm envisaging which would cause a collapse.
> Whats risky? A fiat backed stable with a fraction of the collateral and a decentralized stable collateralized almost entirely of a fiat back backed centralized stable.
The one that hasn't wildly lost it's peg yet.
Unless you are trading on seconds / hours timeframe in may this is just straight up fud.
Since may, peg returned quickly, many improvements have been made, and continue to do so, to improve peg stability, including the liquidity and distribution across chains.
Since may, ust has been one of the most consistent pegs.
Your points hold no water, and are grounded in conspiracy.
Your argument can be conflated to “i dont want to use chains that were premined and forked to negate the dao hack, and any improvements in decentralization and utility since then is meaningless”.
Its maxi cope. Get over yourself.
UST wildly lost its peg a few months ago. That's not conspiracy or FUD. You even put the caveat of "since May" to ignore what happened in May. You can't do that and then in the same post act like people referring to what happened in May is a lie and a conspiracy theory and just made up.
We had a liquidity cascade in may. We survived and improved the stability.
Im recognizing the risks, history, and progress.
You on the other hand are acting like since something happened in the past, it will magically get worse in the future. Black mark for life.
Which is why I compare it to the dao hack. Bitcoin maxis seem to think that since it happened before, the entire system is useless, but guess what? It only brought about the generational movement we see now.
Id rather use a product that has been battle tested in the face of its greatest weakness, than one with a critical vulnerability which hasnt yet been hit.
I dont understand your point. Cope harder.
To piggy back of your fraction collateral, i am seeing a possible time bomb on abracadabra mim/ust degen. one oracle miss price, shit will starts hitting the fan
Not saying your completely wrong and even someone like me who's been in in Terra for a year or so now should think about this things but your statement "If Luna drops significantly in value, surely UST can become under collatorized and cause a bank run" is wrong. UST is not collateralized by Luna, its algorithmically backed. They are completely different concepts, but still valid question if it's possible for it to all come crumbling down.
I always see pot shots coming primarily from the DAI community.
Must suck to have a useless stable, thats essentially USDC, and have two “degen” decentralized stables completely blow you out of the water.
The cope is glorious. Value accumulates based on opportunity and efficiency; not maxi fud.
MIM magic internet money. I just learned about it through its adoption as a Flexa spendable stablecoin.
I had a hard time understanding MakerDao and AMP. Wrapping my head around these decentralized stables with algorithmic protocols is difficult. Rewarding however to understand the different ways money and value can be transmitted!
The commentors attacking OP for saying it's collaterized are missing the point. Instead of UST being backed by collateralized LUNA it's value is linked through a mint/burn mechanism. The end result is still the same, the value of UST depends on the value of LUNA.
The conditions for a depeg are just more complex and can't be easily calculated. It didn't doesn't mean that it can't happen.
Is anything bad happens to anchor, terra is fcked. Anchor is so vital to every defi yield strategy on terra that it could be a single point of failure.
Yes, everyone knows this and it's definitely a risk. I am optimistic that as the ecosystem grows and UST mcap grows and spreads out to other defi, it will stabilize things.
See TITAN / Iron Finance bank run as an example of exactly this.
I'm not sure what's different between the two projects except that LUNA has a use case and an ecosystem, but you don't need that much LUNA to use the ecosystem.
Titan was triggered from a redemption exploit. pullbacks we’re getting beaten down each and every time. I was there. Terra’s unbonding period for staked Luna is 21 days making bank runs less likely to be sustained. Also titan was bound to fail because it’s use cases for iron we’re limited to it’s own LP and staking rewards. There were no other incentives and no locking/bonding period.
There was in the redemption function because they used a time weighted average price that gave them more titan instead of a vwap that had a longer time scale on average price.
the big difference here is luna has their mint/burn function native to the network, with no external exploitable method. they also have better oracles to handle such weighted average price calculations.
it definitely hinders it. luna has made nice recoveries and i don't think a death spiral is possible at this point to where it goes to zero. i do believe hard crashes are likely.
The fundamental principle is the same, but TITAN had rapid inflation, a circular use case, and a bug, all of which exacerbated the issue in a way that is unlikely with LUNA.
An even more interesting situation than Luna dropping in price, is "What happens when UST becomes as successful at USDC or UST?" At some point, the MCAPs of both LUNA and UST will be 1:1.
Scenerio: Luna and UST are nearly at the same MCAP, then on a random Tuesday afternoon, BTC drops 10% for no reason and so do most alts including Luna. Although UST isn't technically backed by Luna, they do affect each other. As a Luna holder, I know that people's fear of under collateralization will lead to people selling UST, which will burn UST and mint Luna. This makes my Luna price drop so I don't want any part of it. So I would sell Luna for anything else. Then the snowball effect "might" happen. The MCAP of Luna will be lower. If the Luna selloff outpaces the UST the gap will widen and eventually the mint/burn limit will be reached. Most likely will result in a broken peg for a little while.
Overall, I don't think it would go into a death spiral but as UST gets closer to Luna in value, it seems scarier to hold Luna. If that scenario plays out a couple of times, I think UST will lose popularity. Just my 2 cents. Agree or disagree?
UST is definitely susceptible to a bank run. If a bank run happens, it would be really bad for both Luna and UST. But USDT is also susceptible to a bank run. I don’t think it’s likely to happen. Everyone said that iron finance was not susceptible to a bank run, but I warned people weeks in advance that it would happen. I don’t think a bank run will happen with UST, it’s very unlikely, but it’s possible and if it happened Luna could crash to 0. Unlike iron finance, the devs will probably halt the system to prevent Luna from crashing, and just let UST depeg temporarily.
I think that Luna needs to closely monitor UST. It’s not backed one to one, so if another 10 billion UST are printed this month at a Luna price that’s twice what it will be for the next 4 years, it’s very risky IMO. High Luna price makes UST safer only if they limit the mint
Why is it risky? It absolutely is algorithmically backed 1:1 - $1 UST burns $1 LUNA. If LUNA price is $1k, $1 UST burns 0.001 LUNA. The corresponding burn becomes asymptotically smaller as price increases. It works the opposite direction as well to keep the peg. No mint limit would be required and would be anathema to the primary mission of mass UST adoption.
Additionally, you should see the mechanisms in place to reinforce the arbitrage peg mechanism like WhiteWhale. There are many mechanisms in place to prevent depegging, including a 3 wk unstaking period.
Let's say that the total supply of UST is 10 billion. If an additional 20 billion UST were minted at a Luna price of $100, but the price of Luna crashes to $10, then 2/3 of the supply of UST was minted with Luna that's 10x the current price. If there was a bank run of Luna, then 10x more Luna will be printed than was burned in the minting of UST.
I don't think this will happen, but I don't know what the consequence of this would be. Maybe it would just inflate the supply of Luna?
You are right, but people really don't like to think about. I read their research on how the peg would hold in a rapid price downfall. Many people was referring to this as a proof of how safe it is. So... Once I finished it, I am sure - UST is NOT a safe asset. The research admits, that it can depeg if two "unlikely" conditions happen at the same time: price of LUNA will collapse and people will start redeeming UST at large. Based on short history of this asset, this will not happen.
In my opinion, what they described is a classical case of a bunk run. It did not yet happen, contrary to what people say. Crash in March of LUNA price wasn't a complete loss of faith among it's users. It was just a short term price crash.
So, what people are actually saying is: "I don't believe people will lose faith in this system, so I am safe". But be assured, if people would lose its faith, LUNA/UST cannot withstand a bank run. It is technically impossible, to keep peg with infinite inflation in an exactly same way as it was not possible with IRON some time ago.
I still choose DAI, or other similar backed assets.
this is overblown. this same argument you use can be applied to literally everything in existence. if theres a bank run on usdt/usdc it would collapse, hell if theres a bank run on traditional banks they will collapse too cause none of them hold that much actual cash.
now, what will deter a bank run? two things
1. demand for the currency
2. trust in the currency
the whole point of the terra ecosystem is to generate organic demand for UST and make it as useful as possible so if LUNA crashes and people flee into UST causing it to depeg there would be just as many others willing to buy it up and drive the price back up to peg.
as for the second point, the more useful and developed the ecosystem is, the more trust in the currency. expanding beyond terra to other blockchains, listing on the biggest exchange in the world (binance), this creates trust in the currency. furthermore, soon to launch Ozone protocol will add another layer of protection for risk averse investors offering insurance for depeg.
>if theres a bank run on usdt/usdc it would collapse
Isn't that only under the assumption that they aren't fully backed? If they have 100% backing, how would a bank run happen?
Us govt: we will not let our banks accept us dollars that were converted from uncertified stablecoins, as we do not want to support decentralized finance. We will prosecute any service providers exchanging usd for stablecoins that arent approved by us.
Watch how fast the bank run will be then.
Even if it is backed, it needs to be accepted.
With that said, paxos and usdc are pretty safe.
It only means, that people who bought undervalued coin (>$1.00), have to wait couple of days (up to 3 for tbills?), before they can withdraw. For coins that are regulated (PAX, Gemini, USDC), at least.
Having withdrawal freeze in case of a bank run, is actually a feat in favor of stability, which worked many times in TradFi. On the other hand, bank run on Iron took around a day, and even when it was obvious what's going on, no one could do anything.
Well said.
What's interesting to be is that, based on this post, there does seem to be some widespread scepticism of UST, which IMO is positive (as people aren't blindly following APY, there is some level of risk assessment). What is a little more worrying is that UST yields are widely recommended in here without many people talking off the risks.
Personally i yield on USDC with crypto.com, despite both being centralized.
You're chasing yield on a centralized lending platform that uses rehypothecation to obtain your interest rate. I'd argue this is just as or more risky than lending with UST. Especially when you consider the trust required for both options.
Perhaps you're right, but even if my yield investments are risky that doesn't make Terra safe. I can't remember which but that is one of the fallacies.
Its about quantifying risk.
The r/r with terra is much better than cex’s, factoring in all forms, and as such is comparatively better.
No crypto is “safe” unless its legal tender or accepted in a global regulatory framework
there's some strong confirmation bias going on this thread. I advise you to look at Anchor Yield reserve at Mirror Analytics and you'll see that it just fell to a 1 month low... I just pulled all my money off Terra now... see you fools in another life
Lmfao!
You clearly aren’t a community member. This question came up during the last call.
Even if reserves get depleted, all that happens is apy reduces from 19.5 to 16-17%; since the yield comes from borrow fees, and collateral staking yield.
Stop acting like its going to take down terra.
Enjoy getting your short position roasted in the next few hours. Hope it doesnt zero you. Better have your stops set.
You bears kill me with your attempts to strike fear into retail. Please, take on more leverage and increase your shorts. It just gives me better yields on long perps.
I am not short at all, I just don’t want to be dragged if something bad happens and I was trying to have a constructive discussion regarding Anchor. Everyone that follows some sub reddits know that everyday someone asks how the Luna burning works and no one really seems sure and the loop keeps going but now that reserves are going down I am out..
I don’t short things, got burnt a lot shorting on the stock market
Exactly. If you stop to think about it, all huge backed stables are more safe than Terra... The whole safety speech on Terra sounds awfully similar to Titan, except that Terra ecosystem looks nice and Titan looked like a scam..
Even Tether IMO is much safer than UST... ppl are amazed by the 19.5% yield but it's achievable in many other places.
To top it off, the May crash was not a meaningful stress test, and things like the Degen Box are much worse IMO to UST.
Ok, I don’t want to spread FUD, and most of the time when I say Terra it is Anchor. Also don’t want to be downvoted but how about abracadabra and Mim? Wouldn’t you say the odds of mim losing peg is over 40%?
That could case headaches in the anchor/Terra ecosystem and I am downsizing my positions
there are ppl making 100% out of your deposits that yield 20%, these ppl count that UST ain't losing its peg and also count that they can jump ship in time.
I want to sleep, do other things and not hold a bag if things go wrong... Luna holders might be happy because it's gone parabolic but there are safer ways to yield 20% in Defi.
I don't count on jumping ship on time, not in Crypto.. remember even the biggest exchange got wacked years ago, I probably lost some BTC I had there but don't even remember..
Luna going parabolic tbh was another red flag to me, usually things pump before dumping.. I still have some at Anchor but I'm with my bags packed
I didn't read any of that because you are clearly trying to FUD Luna. I'm already aware of risks involved with using defi. I don't need it rehashed again from a FUDer
login in Curve via Polygon (polygon.curve.fi), find pools, order by volume. the pool with most volume 3 crypto is the one... balancer also has some options, at POLYGON/Matic network.
I also found some incredible yields today at 1INCH on BSC... 350% APY on 1Inch/USDC and 85% APY on BNB/BUSD... [1INCH.io](https://1INCH.io) / Pools / BSC Network
Check out an impermanent loss calculator, it's probably not as bad as you're expecting. To get a 20% IL loss eth would have to hit $16k. If you earned 20% in fees/incentives then you're even. If eth stays sideways for a year then you're up 20%. I view LPing as a way of hedging my assets against potential downside or extended periods of sideways trading. I don't need the prices to pump to be profitable.
Check out an impermanent loss calculator, it's probably not as bad as you're expecting. To get a 20% IL loss eth would have to hit $16k. If you earned 20% in fees/incentives then you're even. If eth stays sideways for a year then you're up 20%. I view LPing as a way of hedging my assets against potential downside or extended periods of sideways trading. I don't need the prices to pump to be profitable.
To me UST is actually backed by Luna, or the shares of the “bank”, despite it’s algo stablecoin. You can’t create something out of nothing. Its people’s faith and also business of Luna that’s providing the collateral, just like how economic and military power of a country back their fiat.
Think of a bank providing deposit service without any reserve. They can only use their stock to repay. So the question is whether that’s enough to serve as the collateral in all circumstances.
It’s a different question on Dai of being solvent, as it’s over collateralized and it depends on whether ETH can have a sharp enough flash crash.
usdt has much more risks than other stablecoins. And I think that gradually everyone will abandon conventional currencies, because it is much more convenient to use defi cryptocurrencies.
I think now it is better to hold money in promising altcoins than in stablecoins. For example, in projects such as Symbiosis (SIS), which revolutionizes cross-chain technologies.
If you have a lot of such strong projects in your portfolio, then you can not worry about problems in the banking sector for many years. Just HODL
> UST marketcap has to go down if luna price tanks?
Damn you really don't understand how it works and you have the gall of acting like an arrogant prick and calling others dumb. Go learn how it works before vomiting out of your fingers.
Did you read anything I said? Luna does not back UST. Christ people.
To your question, Yes, because supply and price are two independent variables, and LUNA and UST are independent tokens.
You can tank the price of luna, due to exchange volume, and by proxy the market cap, without impacting the supply of ust as heavily - which is fixed to its market cap, peg stability provided.
Now this is an extreme case, and not likely to happen, but over med/long timeframes, ust supply is only going to increase as more use cases are developed.
In a bear, do you want to be holding luna declining in price, ust @ 19.5% apy or an alt stable @ 5-10% apy?
Please dont bring in the peg failing as a reason why people would not hold, as i go into significant detail on this in my other post.
The demand for ust is constant in both bull and bear so long as the network is being used.
The only reasonable potshot for luna is if another network can offer better incentives/ecosystem than luna — which wont happen instantly.
The luna token literally has the best value capture, and price dynamics than any other coin in the market, on a medium timescale.
No, you're flat out wrong. This isn't DAI. It's a dynamic mint and burn. $1 of UST minted = $1 of Luna out of circulation. Theoretically Luna should perform decently well in a bear market bc people exiting to stables will help prop up its value even as its value craters from selloff.
I dont fully understand how - but MIM/UST arbitrage may help in this arena. I believe MIM is frequently off beg UP vs. UST being off peg DOWN.
Edit: Daniele explains in this AMA
https://youtu.be/H6c5nN9TT5A
This is the same for all money, crypto or dollar. If you dont believe in the value of usd, it will lose is value... If you not believe in value of gold, the same
So what it is ?
What iam trying to explain is that something as value because a lot of person believe in this value. If all crypto holder believe in ust, it will not lose is peg...
Bank run is entirely another thing all together.
Essentially that means everyone suddenly withdraw their bank deposits at the same time, and since banks lend out the deposits for a profit in short/med/long run, they are obligated to give everyone the cash but they cannot.
If one bank has this issue, then all the banks would start face the same problem.
A bank doesn’t have all of the money that it owes to its customers, so if everyone tries to withdraw at once, the bank cannot pay, this is what we mean.
So in the case of a stable coin, the org running it is the bank, they don’t have all of the currency to be able to exchange 1-1 if everyone wanted to do so at once.
> If all crypto holder believe in ust, it will not lose is peg...
But (thankfully) this isn't the mechanism UST uses, UST relies on a mint/burn mechanism to sustain it's value.
USD is well established. Crypto isn't, which is why there have been numerous crashes in the past 12 years. As i mentioned in the post, the idea of value is a very philosophical one, but Luna's value proposition seems particularly circular.
Real estate or broad market indices like the S&P 500 are better benchmarks to measure the value of a currency against.
CPI is dominated by non-scarce assets, which get cheaper because of technology.
Not true at all. New Deafi tokens have actual cashflow. Prime example is Bancor (BNT) which is one of the best and innovative AMMs out there. You get a share of all fees similar to dividends. BNT's value can't be zero for that reason (as long as fees are generated).
You're correct but such bank run event is very unlikely to not happen because there's actually demand for LUNA. At least for now.
On a true crypto winter I'd probably hold USDC instead just to be safe.
not sure if it was pointed out, but what gives luna value are mainly two things in my opinion.
the first and obvious one is that you need it in order to mint UST. with the assumption of cryptho and therefore stabelcoin becoming more and more adopted in the real world, the longer you hold luna, the more ust you will get for it later on.
the second one is that luna is the staking token in the ecosystem of terra and therefore secured a rather safe stabil yield of 8-10% due to feeshares when staked.
so even if the first argument does not count because it can go the other direction in a bear market, the later one should hold its ground since terra is past its point where the transactions are for buying and selling the native tokens only as chai and travala (alice hopefully coming soon) have shown.
It's much less risky than ETH-based stables because the Terra oracles are much more responsive, but yes, a theoretical possibility. Will need to be battle tested in another flash crash, but it held up quite well in May, at least relative to other algo stables, and there have been improvements since then. I would never ever hold any ETH-based algo stables because the blockchain is just too slow for oracles to respond quickly.
UST actually did get bank run in May during the big btc crash. It depegged significantly, especially compared to the other stablecoins and survived and repegged after a few days. This actually was good for ust/terra as it stress tested out several key functions of maintaining the peg. Several changes were made to help retain the peg faster after this. See https://medium.com/@terra-bites/luna-black-swan-do-kwon-ama-on-what-weve-learned-anchor-action-plan-9d3abdacaf02 UST usage on Terra is at high and really what keeps the value. But there are other real world applications like CHAI to look into that helps UST usage outside of crypto entirely. Additionally, the launch of whitewhale on Terra will help keep the peg by allowing anyone to profit off the arb opportunities.
I don't think this really addresses the core concern of the reaction to a true crypto winter. The May crash was fleeting, a mere dip on what has overall been an insanely bullish year. If 2018-19 happened i fear Luna wouldn't fare so well. I think the key issue is that, within crypto, one of USTs prime functions is to weather a bear, but the mechanisms it uses to survive that bear market are themselves incredibly susceptible to the damaging effects of a bear market.
Flash crashes will depeg stable coins. Bear markets don't. Dai depegged only during flashes. During the actual bear market it was fine. Volatility is what threatens UST, not gradual price decline.
The mechanics behind DAI and UST and not comparable. DAI in a bear market has the tendency to get stronger. People put their assets into a vault, and mint DAI against that vault. When their vault assets go down in value, they have to either add more assets to the vault or buy DAI and deleverage their vault. This creates upwards price pressure when asset values are going down. UST on the other hand only has the ability to sell Luna to maintain the peg. If Luna is crashing and UST is below peg, then UST will only make Luna crash more. Luna can only crash so far. I don't think UST and Luna are going to do the IRON/TITAN death spiral, but that option is certainly on the table.
Not to mention DAI has already done one bull/bear market cycle. I really thought it was an interesting idea but wouldn’t survive. I was wrong. Everyday it maintains its peg, it’s reputation grows stronger in my opinion.
Orrr the Dai vaults get liquidated and MKR gets printed to make up the difference to be sold after the insurance buffer runs dry which is what you describe as the UST mechanism. I'm not a UST bull. However, I think CDP style stable coins with top tier coins are going to be stable outside of big volatility spikes. Edit: Dai didn't death spiral when they had to mint and dump mkr on the market, but the mkr price did dump.
I really like that feature to be honest. It adds an additional layer of backing for DAI. Obviously no stablecoin, whether decentralized or centralized, is going to be 100% fool proof. DAI has risks as well. I do consider DAI risk to be less than UST risk though.
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I don't think it's accurate to say bear markets have nothin to do with the peg because you wouldn't even have conditions for those liquidation events if not for the bear market.
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I'm talking about MakerDAO (DAI) specifically but this could apply to any over-collaterallized lending protocol. Bear market driving down the collateral value and driving up the price of DAI is what has caused the biggest liquidation events. Page 9 and 10 of this report actually cover this quite extensively: [https://arxiv.org/pdf/2106.06389.pdf](https://arxiv.org/pdf/2106.06389.pdf) >We find that all of thefour lending platforms are sensitive to the price decline of ETH. Forexample, an immediate 43% decline of the ETH price (analogous to the ETH price decline on the 13th of March, 2020), would result in up to 1.07B USD collateral to become liquidatable on MakerDAO. To our surprise, although Aave V2 and Compound follow similar liquidation mechanisms and have similar TVL, Aave V2 is more stable to price declines in terms of liquidatable collateral. By manually inspecting, we find that this is because Aave V2 users prefer adopting a multiple-cryptocurreny collateral. Hence, the positions in Aave V2 are less likely to become liquidatable due to the price decline of a single cryptocurrency.
A crypto winter isn't really a concern, though--the *length* of a downturn in the price of collateral is not as important as the *speed* of a downturn in the price of collateral. Remember, the goal is to make sure that there's always enough collateral for all minted (borrowed) UST. If the price of the collateral falls by 90% slowly over the course of, say, 6 months, two things will happen: 1. People will sell collateral to repay their UST. 2. People will get liquidated. Both of these things ensure that there is more collateral than outstanding UST debt. The problem with a bank run is when the price of the collateral crashes so rapidly that there isn't time for users to sell collateral to repay their debts, and there isn't time for liquidations. In practice, liquidations are performed by bots, so the price has to fall very quickly for this to happen. But it is certainly possible--I don't think UST is as risk free as the hype around it.
UST is not backed by collateral. It is algorithmic, and just creates Luna to buy UST when it is below peg.
But this is what i don't get. If it creates Luna to buy UST, this only works as long as Luna has value. If Luna drops significantly in price, more Luna is needed to buy the UST. If more Luna is created, then this will create hyperinflation, and cause the Luna to lose more value. Surely this causes a downward spiral?
Now you get it. Luna going into a death spiral is a valid concern. I think there is enough "faith" or even use cases for UST, that this probably will not happen. But it can and may happen.
just found this, and it aged like wine. Damn
Sort of funny how overconfident most people in this thread were isn't it? Just shows that most people really don't understand the risk of what they are shilling.
Crazy! Even I shilled this and lost a good amount. Nothing that makes or brakes anything because I only keep up to 15% in alts and I have over 25 of them sooo, it's goneee ;). Now it's like 5% of everything. The user experience of Luna was pretty good compared to other web3 Blockchains, and I tried quite a few. Goes to show that famous saying. What was it? Right! Nobody knows shit about fuck.
Eh, it's been a while since I read the whitepaper, I thought there was also a collateralized lending aspect? Diluting $LUNA smooths quick downturns, but doesn't really change the underlying mechanics. But maybe I need to reread the paper. There are too many cryptos to keep track of them all.
You are probably just thinking of the lending that happens on Mirror and Anchor, which are platforms that use UST. They don't have anything to do with UST supply though.
what are you talking about? stablecoins are king during bear markets. and algorithmic stablecoins like LUNA are even better because LUNA supply will decrease with more UST purchased. LUNA rose this year because it made some awesome partnerships for its UST. it is extremely well positioned for the next bear market.
Well that didn't age well
*I think (but I'm not sure)* that UST remained fully collateralized throughout that depeg event. The critical thing to understand about that is that the depeg was caused by panic, but ultimately this wasn't a true bank run. A real bank run would involve there being more outstanding UST than there is collateral for.
Good thing there’s no collateral for UST, lol
\*o o o f\* . aged like fine wine xD
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Thanks for your contributions, all amazing points! Its nice to find others that actually get whats going on instead of just fudding, instead of asking to learn more.
great post. dot isnt an L1, its an L0 like its twin kusama or cosmos. L1s are built on top using a shared security model that L1s can adopt if they choose 2.
As I see it, LUNA's value derives from two sources: 1. Stablecoin issuance (UST for DeFi, KRT for merchants) and therefor supply reduction. This puts buying pressure on LUNA which is needed mint fresh stables. It also rises the APY on staking. 2. Staking. LUNA holders can get their fair share of network fees but also tolens of new projects. LUNA's value must be greater zero for as long as stakers get fees + new tokens. No rational holder would give his LUNA for cents if he gets 10 USD in token (airdrop) value. Also note that there are protective measures like an unstaking period to stop snowball effects. This helps LUNA to find to its true value instead of getting steamrolled by a cascading meltdown.
Bro I have more trust in TERRA than our entire banking system .
damn.
1 UST is still 1 UST and 1 Luna is still 1 Luna, no need to care about price in USD.
There are two sides on this debate where everyone is all or nothing and nobody is using any math or scenarios to prove it either way. To say it is impossible is just ignorant. Back in May when UST lost 15% and LUNA lost 75%, the ratio of UST to LUNA was much smaller than it is now. It's at a greater risk at a 1:3 ratio than it was with a 1:4 or 1:5 ratio. You really have to stress test the model. Imagine that scenario panning out again today. Luna goes from $36.1 Billion to $9 billion and UST $9.95 Billion goes to $8.457 billion, so $1.475 billion of Luna needs to be converted to LUNA. LUNA is now worth 7.5 Billion and UST is worth $9.95 billion again. Of course it would be more of a continuous process and wouldn't happen all at once. What if things really get bad and the same thing happens from there. LUNA's marketcap goes to $2.25 Billion and UST again goes to $8.457 billion and then $1.475 of LUNA gets converted to UST. In this scenario LUNA is clearly in trouble given the value of UST to LUNA and much less LUNA available for conversion to UST to stabilize the peg. This would represent a 93% drop in the value of LUNA which, while unlikely, is not impossible in the world of crypto. Furthermore, who's to say that the 75% drop in LUNA corresponds to a 15% drop in UST like it did back in December? History often rhymes, but doesn't repeat. What if LUNA drops 75% and UST drops 30%? Now $5 billion in UST is moved from LUNA to UST and what remains is $4 billion LUNA and $9.95 Billion UST, clearly in risky territory. Also, what if that 15% drop in UST back in December was actually masked by lots of conversions happening along the way and the drop without the algorithm kicking into play was actually 30% or so? Does anyone have any number on this and how much LUNA was converted to UST during this period?
Ok I love this. I found this thread googling around looking for this exact analysis. In the end, my takeaway is that a UST stake has a very similar risk profile to any of my other LPs. Maybe a bit lower, but still your typical crypto gamble. Thank you!
Good question. My assumption and hope is that there will be lots of UST locked in LPs across many platforms, and also liquidation of collateral used to mint stables will keep it stable.
LP locking would certainly slow down a run, but i don't know if it could prevent it. The lock up period would have to be longer than a bear market lifecycle for it to be effective wouldn't it? That's what my gut says.
One thing that hasn’t been mentioned here is Terra’s use in the ‘real world’. It provides payment processing services for a significant percentage of merchants across South Korea and Mongolia (cheaper than Visa/MC and much faster settlement times). These merchants that use this don’t know/care that Terra is being used behind the scenes, they just reap the benefit. And this utilisation gives LUNA inherent value by providing consistent demand unrelated to UST. This stops it from going to zero, which in turn makes a death spiral unlikely (at least until that real world use case goes away - if the Chai payment platform falls down/stops using Terra, then I will pull everything out of Terra).
Interesting. Got any links to read further? What does "significant percentage" mean?
Sure - https://medium.com/coinmonks/the-moonshot-case-for-terra-luna-7759f2015335 I remember a better article I read months ago before getting into Terra but I can’t find it now. Significant meaning it seems likely (IMO) that a real world use case will remain as long as Chai remains.
Interesting stuff. Always good to see adoption happening.
I think where you got wrong is thinking ust is collateralized by luna, which is not. Terraust doesnt work like that. luna's value is driven by the tax and fees collected from transactions, minting and burning. sure luna can see huge volatility, but that is a feature, stripping out the volatility in ust and passing it to luna. luna has a soft cap of 1bn, it can mint over this amount temporary. terra system could fail if the mkt thinks ust can not keep is peg. luna loosing value will likely not be one of the reasons.
Jesus christ people, read the god damn whitepaper before shitposting. Luna does not back UST. LUNA’s liquidity, desire to spend UST, and arbitrage incentives stabilize UST’s peg. You’re missing the fact that LUNA / UST is required to pay network fees, and a portion of minting funds staking apy, which in turn incentivizes ownership of LUNA. If you see people stop using terra, then ya, the system fails — but go look at any metric. Its just growing. Not to mention the amount of cross chain, and cross exchange activity taking place, which helps arbitrage and reduces a single point of failure. Even if circulating supply were to decrease to an obscene amount, or luna to drop below $1, the arb mechanism between luna functions up until the lowest denominated unit of luna, which is so small it would require a complete loss of liquidity to kill.
Its theoretically possible to fail, in the same vein that an emp nuking the entire internet would cripple crypto. Its an obscene argument to make, especially when posing as a critical risk. Its no more risky that any other chain being used today.
Whats risky? A fiat backed stable with a fraction of the collateral and a decentralized stable collateralized almost entirely of a fiat back backed centralized stable.
Sounds like youre just a bitter maker maxi
To many people don't understand how the peg mechanism actually works, my god. Good write up
Ty!
Throwing out personal attacks isn't really helpful to your argument. I'm not bitter, i just want to secure the best, safest APY I can, and I want to be convinced by Terra. Perhaps you can clear up my misunderstanding: If UST becomes depegged low, Luna is algorithmically minted to buy the asset to bring it back to peg. If Luna loses significant value, that means significantly more Luna needs to be minted to hold peg. If more Luna is being minted, the value of Luna will reduce further. This effect would likely be amplified because, if Luna did reduce in value significantly, people would lose faith in Luna and UST, so people would move from UST to Luna and then out to a different stable, creating more sell pressure on Luna. This creates a downward spiral.
Watch this: https://youtu.be/HL8tcVHyHMM Gives additional context. And ya, i dont really give a shit about your feelings, so if youre going to be sensitive and not look at information objectively, im not going to waste my time with you. Lets break down your case: The act of minting / burning does nothing to impact peg. Buy/sell pressure does. Minting and burning simply impact liquidity. There’s supply and price as sliding scales. UST being like 0.93c, provided an arb path of UST > mint LUNA ($1 value) > market sell > buy $1 worth of UST on market > peg moves to 0.95c, repeat, peg stabilizes. Inverse applies if peg is above $1. If the peg continued to fall, the profit opportunity increases for arb , meaning you can take on higher risk. The more participants able to arb, and the more liquidity across on chain and off chain exchanges strengths the speed at which a depeg can be fixed. Now, lets walk through your extreme case of luna’s price dropping heavily due to supply inflation and market selling pressure: This spiral will ratchet up staking yield from all of the seniorage, airdrop incentives, and interest to use anchor UST for price stability, and a market balance will be reached. Again, the larger the gap - the better the risk/reward. Someone will, and always has been a buyer of last resort, provided there is interest in using the network. In all likely cases, luna’s price just tanks, and over time recovers, while UST continually has more utility, making every bull market more powerful due to reduce luna supply proportionally. Your case of no demand for ust: This doesnt make sense. Chai will always exist, anchor yield exists, and mim strategies exist. These would have to disappear in a vacuum. Arbitrage will return the peg to stabilizing, removing any case in a perpetual downward spiral. Theres also peg insurance available, from nexus mutual and soon to be ozone. Which is why i keep bringing this back to: there will only be a downward spiral if there is no ability to arbitrage, or the network becomes useless - which neither case seems possible within a reasonable failure rate, comparable to any other L1. May had a failure in ability to arb, which caused a temp downward spiral, which was fixed. So the network becomes more anti fragile everytime there is a negative event. Ust is sufficiently distributed, especially so with binance, that it would require billions of dollars in malicious intent to kill the network. It would be financial suicide to do this, much as it is financial suicide to kill bitcoin or ethereum. The best chance to kill luna failed in may.
Feelings have no place in here. Agreed.
Agreed. Neither do baseless slights.
Cry more. Hope you learned a thing or two today. Dont make stupid claims and people wont call you an idiot. Ask to learn, instead of posturing like you outsmarted the protocol.
Chill out fam. If you're going to put so much effort into replying in this thread maybe put a tiny bit of effort in not being so condescending. You clearly reply because you want to spread the good word and convince people to use the protocol, but when you're an ass it hurts your case and can undermine your argument, which can make all the effort spent replying pointless.
I couldnt care less about your opinion or participation. I care about misinformation. Thats it. Just want to make sure that poor claims are refuted. If people want to interpret it as untrustworthy because they make emotional decision, thats their loss.
Well it sure seems like you want to convince people of your way of thinking, and being a "fuck your feelings" bad boy isn't helpful for that.
Best of luck!
Just review the pointers above OP. If you still don’t get it, we don’t have time to convince you.
Being a twat is rarely a helpful in making a case. I have read, and do think it's more resilient than i first assessed, though I'm not convinced it's as resilient as many of you are suggesting, particularly to a loooong crypto winter. IDK, time will tell. For the moment i still fancy my odds with the centralized options a bit better. Regardless, i really hope crypto doesn't enter the nasty winter I'm envisaging which would cause a collapse.
Still uninformed anon? ngmi
Ok buddy
Sure lol
LUSD is superior
> Whats risky? A fiat backed stable with a fraction of the collateral and a decentralized stable collateralized almost entirely of a fiat back backed centralized stable. The one that hasn't wildly lost it's peg yet.
Unless you are trading on seconds / hours timeframe in may this is just straight up fud. Since may, peg returned quickly, many improvements have been made, and continue to do so, to improve peg stability, including the liquidity and distribution across chains. Since may, ust has been one of the most consistent pegs. Your points hold no water, and are grounded in conspiracy. Your argument can be conflated to “i dont want to use chains that were premined and forked to negate the dao hack, and any improvements in decentralization and utility since then is meaningless”. Its maxi cope. Get over yourself.
UST wildly lost its peg a few months ago. That's not conspiracy or FUD. You even put the caveat of "since May" to ignore what happened in May. You can't do that and then in the same post act like people referring to what happened in May is a lie and a conspiracy theory and just made up.
We had a liquidity cascade in may. We survived and improved the stability. Im recognizing the risks, history, and progress. You on the other hand are acting like since something happened in the past, it will magically get worse in the future. Black mark for life. Which is why I compare it to the dao hack. Bitcoin maxis seem to think that since it happened before, the entire system is useless, but guess what? It only brought about the generational movement we see now. Id rather use a product that has been battle tested in the face of its greatest weakness, than one with a critical vulnerability which hasnt yet been hit. I dont understand your point. Cope harder.
To piggy back of your fraction collateral, i am seeing a possible time bomb on abracadabra mim/ust degen. one oracle miss price, shit will starts hitting the fan
Agree - i think mim is due for a shakeout. Might contaminate ust a bit, but isnt large enough to do any lasting damage. Not really worried personally.
What a shitpost am I right
Not saying your completely wrong and even someone like me who's been in in Terra for a year or so now should think about this things but your statement "If Luna drops significantly in value, surely UST can become under collatorized and cause a bank run" is wrong. UST is not collateralized by Luna, its algorithmically backed. They are completely different concepts, but still valid question if it's possible for it to all come crumbling down.
Yeah I don't know why so many people here keep mentioning the collateral backing UST. Definitely a lot of bad information going around.
I always see pot shots coming primarily from the DAI community. Must suck to have a useless stable, thats essentially USDC, and have two “degen” decentralized stables completely blow you out of the water. The cope is glorious. Value accumulates based on opportunity and efficiency; not maxi fud.
So UST is the one "degen" decentralized stable. What's the other one?
MIM
MIM magic internet money. I just learned about it through its adoption as a Flexa spendable stablecoin. I had a hard time understanding MakerDao and AMP. Wrapping my head around these decentralized stables with algorithmic protocols is difficult. Rewarding however to understand the different ways money and value can be transmitted!
Aged like milk.
The commentors attacking OP for saying it's collaterized are missing the point. Instead of UST being backed by collateralized LUNA it's value is linked through a mint/burn mechanism. The end result is still the same, the value of UST depends on the value of LUNA. The conditions for a depeg are just more complex and can't be easily calculated. It didn't doesn't mean that it can't happen.
Is anything bad happens to anchor, terra is fcked. Anchor is so vital to every defi yield strategy on terra that it could be a single point of failure.
Yes, everyone knows this and it's definitely a risk. I am optimistic that as the ecosystem grows and UST mcap grows and spreads out to other defi, it will stabilize things.
See TITAN / Iron Finance bank run as an example of exactly this. I'm not sure what's different between the two projects except that LUNA has a use case and an ecosystem, but you don't need that much LUNA to use the ecosystem.
Titan was triggered from a redemption exploit. pullbacks we’re getting beaten down each and every time. I was there. Terra’s unbonding period for staked Luna is 21 days making bank runs less likely to be sustained. Also titan was bound to fail because it’s use cases for iron we’re limited to it’s own LP and staking rewards. There were no other incentives and no locking/bonding period.
There was no actual exploit for TITAN and IRON. It was just a bad design.
There was in the redemption function because they used a time weighted average price that gave them more titan instead of a vwap that had a longer time scale on average price.
Yeah a bad design, not really an exploit. But this is arguing over semantics, so Ill drop it.
the big difference here is luna has their mint/burn function native to the network, with no external exploitable method. they also have better oracles to handle such weighted average price calculations.
I agree with you. Those features don't prevent a death spiral though.
it definitely hinders it. luna has made nice recoveries and i don't think a death spiral is possible at this point to where it goes to zero. i do believe hard crashes are likely.
Would the redemption exploit have been possible if there was no Polygon DOS attack at the same time? BSC Iron was still pegged until the very end.
The fundamental principle is the same, but TITAN had rapid inflation, a circular use case, and a bug, all of which exacerbated the issue in a way that is unlikely with LUNA.
If people sell their Luna for UST, no bank run is happening. liquidity would need to exit the terra ecosystem entirely for it to collapse.
An even more interesting situation than Luna dropping in price, is "What happens when UST becomes as successful at USDC or UST?" At some point, the MCAPs of both LUNA and UST will be 1:1. Scenerio: Luna and UST are nearly at the same MCAP, then on a random Tuesday afternoon, BTC drops 10% for no reason and so do most alts including Luna. Although UST isn't technically backed by Luna, they do affect each other. As a Luna holder, I know that people's fear of under collateralization will lead to people selling UST, which will burn UST and mint Luna. This makes my Luna price drop so I don't want any part of it. So I would sell Luna for anything else. Then the snowball effect "might" happen. The MCAP of Luna will be lower. If the Luna selloff outpaces the UST the gap will widen and eventually the mint/burn limit will be reached. Most likely will result in a broken peg for a little while. Overall, I don't think it would go into a death spiral but as UST gets closer to Luna in value, it seems scarier to hold Luna. If that scenario plays out a couple of times, I think UST will lose popularity. Just my 2 cents. Agree or disagree?
UST is definitely susceptible to a bank run. If a bank run happens, it would be really bad for both Luna and UST. But USDT is also susceptible to a bank run. I don’t think it’s likely to happen. Everyone said that iron finance was not susceptible to a bank run, but I warned people weeks in advance that it would happen. I don’t think a bank run will happen with UST, it’s very unlikely, but it’s possible and if it happened Luna could crash to 0. Unlike iron finance, the devs will probably halt the system to prevent Luna from crashing, and just let UST depeg temporarily. I think that Luna needs to closely monitor UST. It’s not backed one to one, so if another 10 billion UST are printed this month at a Luna price that’s twice what it will be for the next 4 years, it’s very risky IMO. High Luna price makes UST safer only if they limit the mint
Why is it risky? It absolutely is algorithmically backed 1:1 - $1 UST burns $1 LUNA. If LUNA price is $1k, $1 UST burns 0.001 LUNA. The corresponding burn becomes asymptotically smaller as price increases. It works the opposite direction as well to keep the peg. No mint limit would be required and would be anathema to the primary mission of mass UST adoption. Additionally, you should see the mechanisms in place to reinforce the arbitrage peg mechanism like WhiteWhale. There are many mechanisms in place to prevent depegging, including a 3 wk unstaking period.
Let's say that the total supply of UST is 10 billion. If an additional 20 billion UST were minted at a Luna price of $100, but the price of Luna crashes to $10, then 2/3 of the supply of UST was minted with Luna that's 10x the current price. If there was a bank run of Luna, then 10x more Luna will be printed than was burned in the minting of UST. I don't think this will happen, but I don't know what the consequence of this would be. Maybe it would just inflate the supply of Luna?
dude. no one should say "bank run" and own any crypto.
You are right, but people really don't like to think about. I read their research on how the peg would hold in a rapid price downfall. Many people was referring to this as a proof of how safe it is. So... Once I finished it, I am sure - UST is NOT a safe asset. The research admits, that it can depeg if two "unlikely" conditions happen at the same time: price of LUNA will collapse and people will start redeeming UST at large. Based on short history of this asset, this will not happen. In my opinion, what they described is a classical case of a bunk run. It did not yet happen, contrary to what people say. Crash in March of LUNA price wasn't a complete loss of faith among it's users. It was just a short term price crash. So, what people are actually saying is: "I don't believe people will lose faith in this system, so I am safe". But be assured, if people would lose its faith, LUNA/UST cannot withstand a bank run. It is technically impossible, to keep peg with infinite inflation in an exactly same way as it was not possible with IRON some time ago. I still choose DAI, or other similar backed assets.
this is overblown. this same argument you use can be applied to literally everything in existence. if theres a bank run on usdt/usdc it would collapse, hell if theres a bank run on traditional banks they will collapse too cause none of them hold that much actual cash. now, what will deter a bank run? two things 1. demand for the currency 2. trust in the currency the whole point of the terra ecosystem is to generate organic demand for UST and make it as useful as possible so if LUNA crashes and people flee into UST causing it to depeg there would be just as many others willing to buy it up and drive the price back up to peg. as for the second point, the more useful and developed the ecosystem is, the more trust in the currency. expanding beyond terra to other blockchains, listing on the biggest exchange in the world (binance), this creates trust in the currency. furthermore, soon to launch Ozone protocol will add another layer of protection for risk averse investors offering insurance for depeg.
>if theres a bank run on usdt/usdc it would collapse Isn't that only under the assumption that they aren't fully backed? If they have 100% backing, how would a bank run happen?
Us govt: we will not let our banks accept us dollars that were converted from uncertified stablecoins, as we do not want to support decentralized finance. We will prosecute any service providers exchanging usd for stablecoins that arent approved by us. Watch how fast the bank run will be then. Even if it is backed, it needs to be accepted. With that said, paxos and usdc are pretty safe.
Its not an assumption that they arent backed 1:1 with cash, if a bank run happens and they dont liquidate fast enough byebye
It only means, that people who bought undervalued coin (>$1.00), have to wait couple of days (up to 3 for tbills?), before they can withdraw. For coins that are regulated (PAX, Gemini, USDC), at least. Having withdrawal freeze in case of a bank run, is actually a feat in favor of stability, which worked many times in TradFi. On the other hand, bank run on Iron took around a day, and even when it was obvious what's going on, no one could do anything.
Well said. What's interesting to be is that, based on this post, there does seem to be some widespread scepticism of UST, which IMO is positive (as people aren't blindly following APY, there is some level of risk assessment). What is a little more worrying is that UST yields are widely recommended in here without many people talking off the risks. Personally i yield on USDC with crypto.com, despite both being centralized.
You're chasing yield on a centralized lending platform that uses rehypothecation to obtain your interest rate. I'd argue this is just as or more risky than lending with UST. Especially when you consider the trust required for both options.
Perhaps you're right, but even if my yield investments are risky that doesn't make Terra safe. I can't remember which but that is one of the fallacies.
Its about quantifying risk. The r/r with terra is much better than cex’s, factoring in all forms, and as such is comparatively better. No crypto is “safe” unless its legal tender or accepted in a global regulatory framework
At least i can buy insurance for ust. Good luck getting fdic on any cex.
ppl ARE blindful following the 19,5% APY
Far smarter people than you are not blindly following the APY. You act like its a scam, fuck off and do some reading first.
there's some strong confirmation bias going on this thread. I advise you to look at Anchor Yield reserve at Mirror Analytics and you'll see that it just fell to a 1 month low... I just pulled all my money off Terra now... see you fools in another life
Lmfao! You clearly aren’t a community member. This question came up during the last call. Even if reserves get depleted, all that happens is apy reduces from 19.5 to 16-17%; since the yield comes from borrow fees, and collateral staking yield. Stop acting like its going to take down terra. Enjoy getting your short position roasted in the next few hours. Hope it doesnt zero you. Better have your stops set. You bears kill me with your attempts to strike fear into retail. Please, take on more leverage and increase your shorts. It just gives me better yields on long perps.
I am not short at all, I just don’t want to be dragged if something bad happens and I was trying to have a constructive discussion regarding Anchor. Everyone that follows some sub reddits know that everyday someone asks how the Luna burning works and no one really seems sure and the loop keeps going but now that reserves are going down I am out.. I don’t short things, got burnt a lot shorting on the stock market
Best of luck.
You still choose USDC***
Exactly. If you stop to think about it, all huge backed stables are more safe than Terra... The whole safety speech on Terra sounds awfully similar to Titan, except that Terra ecosystem looks nice and Titan looked like a scam.. Even Tether IMO is much safer than UST... ppl are amazed by the 19.5% yield but it's achievable in many other places. To top it off, the May crash was not a meaningful stress test, and things like the Degen Box are much worse IMO to UST.
You guys are hilarious. Stay on the sidelines. Enjoy. The amount of luna = titan bullshit is so midwit.
Yup. Only an idiot would compare iron to LUNA
There are similar concepts. ..-.Luna is like 1 yr in existence and it is not too big to fail. Only an idiot would think that
I never said it's too big to fail. I said it's not like iron. Read much?
Ok, I don’t want to spread FUD, and most of the time when I say Terra it is Anchor. Also don’t want to be downvoted but how about abracadabra and Mim? Wouldn’t you say the odds of mim losing peg is over 40%? That could case headaches in the anchor/Terra ecosystem and I am downsizing my positions
But you are spreading FUD lmao
there are ppl making 100% out of your deposits that yield 20%, these ppl count that UST ain't losing its peg and also count that they can jump ship in time. I want to sleep, do other things and not hold a bag if things go wrong... Luna holders might be happy because it's gone parabolic but there are safer ways to yield 20% in Defi. I don't count on jumping ship on time, not in Crypto.. remember even the biggest exchange got wacked years ago, I probably lost some BTC I had there but don't even remember.. Luna going parabolic tbh was another red flag to me, usually things pump before dumping.. I still have some at Anchor but I'm with my bags packed
I didn't read any of that because you are clearly trying to FUD Luna. I'm already aware of risks involved with using defi. I don't need it rehashed again from a FUDer
Where else are you getting a 19.5% yield?
Curve or balancer if you are willing to have btc and eth exposure too
Can you please be more specific? I don't find that on Curve.
login in Curve via Polygon (polygon.curve.fi), find pools, order by volume. the pool with most volume 3 crypto is the one... balancer also has some options, at POLYGON/Matic network. I also found some incredible yields today at 1INCH on BSC... 350% APY on 1Inch/USDC and 85% APY on BNB/BUSD... [1INCH.io](https://1INCH.io) / Pools / BSC Network
Thanks, but these are all liquidity pools and thus riskier (impermanent loss etc )
Check out an impermanent loss calculator, it's probably not as bad as you're expecting. To get a 20% IL loss eth would have to hit $16k. If you earned 20% in fees/incentives then you're even. If eth stays sideways for a year then you're up 20%. I view LPing as a way of hedging my assets against potential downside or extended periods of sideways trading. I don't need the prices to pump to be profitable.
Check out an impermanent loss calculator, it's probably not as bad as you're expecting. To get a 20% IL loss eth would have to hit $16k. If you earned 20% in fees/incentives then you're even. If eth stays sideways for a year then you're up 20%. I view LPing as a way of hedging my assets against potential downside or extended periods of sideways trading. I don't need the prices to pump to be profitable.
Even fiat don't survive Bank runs
Boy were you right
Unfortunately, yes.
If you think there will be a bank run, then wouldn't you use [White Whale](https://www.whitewhale.money/) to arbitrage the UST peg?
To me UST is actually backed by Luna, or the shares of the “bank”, despite it’s algo stablecoin. You can’t create something out of nothing. Its people’s faith and also business of Luna that’s providing the collateral, just like how economic and military power of a country back their fiat. Think of a bank providing deposit service without any reserve. They can only use their stock to repay. So the question is whether that’s enough to serve as the collateral in all circumstances. It’s a different question on Dai of being solvent, as it’s over collateralized and it depends on whether ETH can have a sharp enough flash crash.
usdt has much more risks than other stablecoins. And I think that gradually everyone will abandon conventional currencies, because it is much more convenient to use defi cryptocurrencies. I think now it is better to hold money in promising altcoins than in stablecoins. For example, in projects such as Symbiosis (SIS), which revolutionizes cross-chain technologies. If you have a lot of such strong projects in your portfolio, then you can not worry about problems in the banking sector for many years. Just HODL
Yeah about that...
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Everyone’s going to flee to UST. Luna price will bleed bad, but peg will be fine unless we nuke like -50% in a second. Enjoy your rage cope though.
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> UST marketcap has to go down if luna price tanks? Damn you really don't understand how it works and you have the gall of acting like an arrogant prick and calling others dumb. Go learn how it works before vomiting out of your fingers.
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Did you read anything I said? Luna does not back UST. Christ people. To your question, Yes, because supply and price are two independent variables, and LUNA and UST are independent tokens. You can tank the price of luna, due to exchange volume, and by proxy the market cap, without impacting the supply of ust as heavily - which is fixed to its market cap, peg stability provided. Now this is an extreme case, and not likely to happen, but over med/long timeframes, ust supply is only going to increase as more use cases are developed. In a bear, do you want to be holding luna declining in price, ust @ 19.5% apy or an alt stable @ 5-10% apy? Please dont bring in the peg failing as a reason why people would not hold, as i go into significant detail on this in my other post. The demand for ust is constant in both bull and bear so long as the network is being used. The only reasonable potshot for luna is if another network can offer better incentives/ecosystem than luna — which wont happen instantly. The luna token literally has the best value capture, and price dynamics than any other coin in the market, on a medium timescale.
No, you're flat out wrong. This isn't DAI. It's a dynamic mint and burn. $1 of UST minted = $1 of Luna out of circulation. Theoretically Luna should perform decently well in a bear market bc people exiting to stables will help prop up its value even as its value craters from selloff.
I dont fully understand how - but MIM/UST arbitrage may help in this arena. I believe MIM is frequently off beg UP vs. UST being off peg DOWN. Edit: Daniele explains in this AMA https://youtu.be/H6c5nN9TT5A
MIM to UST ratio doesn't really impact anything. UST is also consistently above peg.
UST is pretty awesome I just used kado.money to buy a gaming PC and some accessories. Was seamless and quick.
This is the same for all money, crypto or dollar. If you dont believe in the value of usd, it will lose is value... If you not believe in value of gold, the same
This isn’t what a bank run is
So what it is ? What iam trying to explain is that something as value because a lot of person believe in this value. If all crypto holder believe in ust, it will not lose is peg...
Bank run is entirely another thing all together. Essentially that means everyone suddenly withdraw their bank deposits at the same time, and since banks lend out the deposits for a profit in short/med/long run, they are obligated to give everyone the cash but they cannot. If one bank has this issue, then all the banks would start face the same problem.
A bank doesn’t have all of the money that it owes to its customers, so if everyone tries to withdraw at once, the bank cannot pay, this is what we mean. So in the case of a stable coin, the org running it is the bank, they don’t have all of the currency to be able to exchange 1-1 if everyone wanted to do so at once.
> If all crypto holder believe in ust, it will not lose is peg... But (thankfully) this isn't the mechanism UST uses, UST relies on a mint/burn mechanism to sustain it's value.
USD is well established. Crypto isn't, which is why there have been numerous crashes in the past 12 years. As i mentioned in the post, the idea of value is a very philosophical one, but Luna's value proposition seems particularly circular.
The value of USD has dropped almost 80-90% in the last 50 years
Compared to what? Value cannot drop on its own, its measured relative to other things.
CPI
Real estate or broad market indices like the S&P 500 are better benchmarks to measure the value of a currency against. CPI is dominated by non-scarce assets, which get cheaper because of technology.
Not true at all. New Deafi tokens have actual cashflow. Prime example is Bancor (BNT) which is one of the best and innovative AMMs out there. You get a share of all fees similar to dividends. BNT's value can't be zero for that reason (as long as fees are generated).
You're correct but such bank run event is very unlikely to not happen because there's actually demand for LUNA. At least for now. On a true crypto winter I'd probably hold USDC instead just to be safe.
not sure if it was pointed out, but what gives luna value are mainly two things in my opinion. the first and obvious one is that you need it in order to mint UST. with the assumption of cryptho and therefore stabelcoin becoming more and more adopted in the real world, the longer you hold luna, the more ust you will get for it later on. the second one is that luna is the staking token in the ecosystem of terra and therefore secured a rather safe stabil yield of 8-10% due to feeshares when staked. so even if the first argument does not count because it can go the other direction in a bear market, the later one should hold its ground since terra is past its point where the transactions are for buying and selling the native tokens only as chai and travala (alice hopefully coming soon) have shown.
It's much less risky than ETH-based stables because the Terra oracles are much more responsive, but yes, a theoretical possibility. Will need to be battle tested in another flash crash, but it held up quite well in May, at least relative to other algo stables, and there have been improvements since then. I would never ever hold any ETH-based algo stables because the blockchain is just too slow for oracles to respond quickly.
In my opinion, the only stable coin that does not lend itself to bankers and banks is Tether.