So what went wrong? Was the problem that Luna was worth 0? If Luna was mined by consuming energy, would it be then worth something?
You can read the rest of the article, I donât think we know the details, but there was a loss of confidence (maybe triggered by external event, itâs also slightly more complicated since theyâre trying to sustain the rate with BTC reserves that were built over time as well, which also adds pressure to BTC).
As mentioned, those coins are sustained by confidence in the end the terra is worth 0 or 1 (and probably wonât stay very long in the middle).
So maybe thatâs a buy opportunity, if the magic is reoccurs, UST will double.
Thereâs no reason it would change anything, how you create coin doesnât add to the value.
The videos by Coffeezilla on LUNA and UST are quite interesting. If everything is true, this was a massive scheme that ended right where it ought to.
And now a hopefully related question. I am borrowing USDT to open leveraged crypto positions. If the price of USDT drops, nice for me, my loan is lower. But: is it possible to organize a short squeeze or whatever itâs called, by pushing the price of USDT much higher than 1 USD? Because if for example USDT goes up to 2 USD, my positions would be liquidated.
First of all: Iâm no expert on stablecoins. I can only tell you from what I know and read, plus connecting some missing dots from my gut feeling.
2nd: please donât take my words as criticism or offense. Iâm trying to be as kind as I can (doesnât always work).
Iâm pretty sure this is not possible (1 USDT = 2 USD). If it would be - everyone would immediately sell all his USDT positions to get double the amount of real US dollars. Which means USDT would drop like a stone. Yes, you might say âthatâs what happened with USTâ, but itâs a different story. UST dropped against USDT, not the real US dollar. On another note: there is no USDT/USD currency pair (at least on KuCoin and Binance - just quickly checked).
Personally I donât think that this scenario is possible. As said above: everyone would immediately sell all USDT to get a risk free 2x
This is the part where I am worried. Yes, if the price of USDT drops, your loan is going to be lower. Please note that it will drop for pair like USDT/BTC or USDT/ETH or other crypto/crypto pairs. Another option would be USDT/EUR and USDT/CHF, if itâs a crypto/FIAT pair.
The part which is worrying me is that you are using leverage in crypto. This is something which can massively backfire. You have market makers on CEXs, you have crypto whales, you have all sorts of scams going on. So even if you pick the right coin and get your assumption correct, you can still get stopped out (assuming you are using SL/TP - which you should do if you are using leverage) by scam wicks etc. Leverage is something which is risky in traditional stock markets already. In crypto, itâs playing with fire next to a gasoline tank. Just take my words as a warning.
wouldnât that be true for every currency ? In most cases even the cash is worth less than the material inside. Even gold mining is only fueled by itâs perceived value, since industrial and jewellry needs could be covered by recycling at lower costs.
Yes, that is true. All FIAT currencies are sustained by confidence. BUT: you have whole economies and governments backing most of those FIAT currencies. Take the US, EU or Swiss economey for instance - they are all producing something.
For cryptocurrencies, thereâs nothing. No intrinsic value - and also no backing by a government etc.
The problem is how you try to pay out the people in the stablecoin with a fluctuatin asset.
Lets do an example; we have 10 people, everyone bought UST for 1$, the pool has given out 10$, those people are now staking and locking those funds for 20% apr.
The price of LUNA is now at 1$ and in theory can cover the locked funds.
Now, someone comes, short or sell LUNA, the price is now 0.8$, 12.5 LUNA have to be sold to cover the initial 10$.
The price falls further, it sits at 0.5$, 20 LUNA have to be sold to cover the same UST. You see where this is going.
Now the sell pressure (just like the buy pressure), comes from 2 parties, the guys trying to get out of UST, converting UST to LUNA (in thisexample 1UST is converted to 2 LUNA at a price of 0.5$) and the guys that bought LUNA as a speculative asset (and some shorters on top).
The Algo behind the coin will continue to produce LUNA to try and cover the needed funds, but since it canât stabilize, and on the open market you cant recover the needed 10$ to cover all the issued UST you will just produce more and more coins.
We could probably say that in an optimal scenario this could work in favor of luna, since in a uptrend there is an overflow of Luna value to locked UST.
Say Luna is trading at 10$, total locked UST is 20, this makes it possible to have just 2 buyers and recover all the locked UST.
Hope this made it more clear?
You can just buy usdc with it and have 0 delta (or arb the exchange USDC/USDT)
Price of USDC/USDT spiked to 1/1.2 yesterday morning, so itâs unfortunately itâs not 0 delta. Another problem of USDC is that you canât use it for buying other cryptocurrencies on most central exchanges. They usually have COIN/BTC, COIN/ETH and COIN/USDT pairs (or COIN/BUSD, if weâre talking about Binance).
thats what i say, you borrow usdt, change them to usdc.
now you can profit on the spike, sell your usdc at a profit, cover the usdt debt.
Ok, now I got it. Iâm sure CEXs where you can borrow USDT would stop borrowing if this continues. Otherwise: whatâs stopping you from creating your own money printing machine?
There is at Kraken, FTX, and many other exchanges. And it seems yesterday USDT went as low as 0.92 USD at Kraken.
Ok, so you are counting on the fact that there are more USDT holders than borrowers? Fair enough.
Well, I am surely not counting on this as a part of my investment strategy 
. Was just thinking about possible disaster scenarios.
âI know what I am doingâ should be probably the reddest flag of them all, but this time I am confident that I am. I am investing according to an adjusted market capitalization index, and not in some individual coins, large or small. In fact UST was so far the only scam I fell for in last, oh, 12 years, and it was partially intentional, as I want to ramp up the risk with the crypto portfolio. I was going to start selling it after my 30 days fixed deposits would run out, but it turned out differently.
My total portfolio is so little that in case of troubles I can massively deleverage by transferring a relatively small amounts.
Whatâs the point? I am as well not counting on USDT to depreciate significantly as a part of my investment strategy. And my attempt to execute carry trades with UST ended in a disaster 
.
In fact I keep telling myself over and over again that my portfolio size is too insignificant to generate any reasonable yield in comparison to what the price appreciation can bring, but I keep falling for an idea to have some easy additional income from crypto.
well, you could have made an easy 20% gain with basically 0 risk yesterday.
The upside is there (5-20 or even 100% if usdt collapses), and the downside is basically 0 (also you get usdt basically for free).
So the way I understand the way this automated algo works:
- UST demand
UST price (> 1 USD) - Algo buys and destroys LUNA
- LUNA supply
LUNA price
- Algo mints and sells UST
- UST supply UST price = 1 USD
And:
- UST demand UST price (< 1 USD)
- Algo mints and sells LUNA
- LUNA supply LUNA price
- Algo buys and destroys UST
- UST supply UST price = 1 USD
So yeah, it only works if there is some value in LUNA. Otherwise it will keep printing LUNAs forever, because not only the increased supply is diluting the LUNA, also the LUNA holders are panic selling. This looks like an elaborate Ponzi scheme 
.
You are right. I usually check KuCoin and Binance first, personally I trust them more. Kraken is just a fiat on-ramp for me.
I also checked ftx.com - how can such a crappy website be one of the biggest crypto exchanges in the US? I really donât get it. Anyway, just checked history (daily chart) for USDT/USD, and the maximum it ever reached (March 2020) was 1USDT = 1.05 USD. So I guess the probability of 1 USDT reaching 2 USD is really really low.
Iâm counting on common sense here. Everyone holder of USDT whoâs not selling his 1 USDT for 2 USD, doubling his money risk-free, is not too smart. Thatâs regardless if there are more borrowers than holders or not.
No problem with me. If you think you know what you are doing - go for it. I just wanted to raise those words of warning.
Sure, so I should wait for something that happened twice in three years. In fact on USDT/USD chart from Kraken, the price is more often goes above 1 USD than below. Liquidity issues I suppose.
Partly, central banks have reserves (stocks, gold, other currencies). Initially UST was only backed by its own coin (Luna) with no other reserve.
Well, there are some people who claim that BTC value comes from the fact that itâs hard to mine one. But yeah, I think this could just be an illusion. It reminds me a bit of public works in Keynesian Economics: you pay a bunch of people to dig holes and then to fill them back in, just so that you donât hand out money for free.