Luna Cryptocurrency Collapse: How UST Broke | Hacker News Reader

Luna Cryptocurrency Collapse: How UST Broke

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396 pointsCharlesW796 comments

LUNA is trading at below $0.00001, that is below 1/1000th of a cent right now. For many, getting rid of it may be much harder than just ignoring it. A few weeks ago the price people were willing to pay for it hovered around $100.

I say "the price people were willing to pay" instead of "value", because now that nobody wants to speculate with LUNA, it did fall down to its intrinsic value: Practically zero. Nobody needs it for anything besides buying and selling it from and to other people, which is not happening anymore.

Cryptocurrency is gambling, plain and simple. The difficulty that fiat currency faces is inflation, which roughly means diluting the economy that backs it too much. The difficulty with cryptocurrency is that there is nothing of worth backing it. Factor in the horrifying externalities, and its worth is negative.

For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.

Actually, the fact that Bitcoin can't inflate is the biggest tell it will never work as a currency. There are a set number of bitcoins that can be mined and no more after that. It's fundamentally incapable of inflating. And that's f**ing dumb for a currency. Inflation at certain levels is good and necessary. A deflationary currency makes certain low margin economic activity extremely unattractive versus just sticking your money under the mattress ('hodl' in other words). Inflation encourages spending, your money is worth more now then it is later, so if you're going to build that new building or design that new product, better to do it now. You want inflation low enough that it doesn't punish people for saving but still provides an incentive to spend now. Economists put that number at around 2 percent. Perfectly possible to save for a house or retirement but still enough to give a push. Deflationary currencies punish economic activity- if you have to take out a loan to accomplish something every day that goes by afterward the money you owe represents more and more real value without the numbers changing, representing a significant deterrent. Some of the worst economic crises in history, including the great depression, were marked by significant deflation.

I'm no bitcoin defender, but that's not really how inflation works. Inflation is not just an increase in the base money supply. For example, a supply chain crisis can cause inflation without the money supply changing at all. And central banks can control inflation by controlling lending without printing or destroying money. Lending creates "virtual money" that contributes to inflation, so one of the ways central banks control inflation is by increasing or decreasing interest rates.

Bitcoin makes these things much more difficult, of course, and would never be a good currency compared to what we have now. But the gold standard has almost exactly the same properties as bitcoin, and gold-backed currency worked okay in the US for a long time.

Indeed, the book Money by Jacob Goldstein, co-host of NPR podcast Planet Money, talks precisely about this in regards to the gold standard. One reason that it was taken off the gold standard was because monetary policy could not be fully leveraged well when every dollar was worth some amount of gold. One couldn't print new money during recessions to restart the economy, and one couldn't remove dollars from the money supply in a boom period.

> A deflationary currency makes certain low margin economic activity extremely unattractive versus just sticking your money under the mattress

We can't say that is a bad thing. A lot of that marginal economic activity is probably consuming resources that could have been better saved for a rainy day.

I'm all for economic activity, but the trying to incentivise people to consume everything they can is a bad outcome - someone doing something productive then putting money under a mattress is a fine outcome. If something unexpected comes up they'll have savings.

If I earn a dollar I want its value to be as stable as possible for as long as possible. Why would anyone want to submit to top-down technocratic social engineering projects designed to change their behavior by manipulating the value of their money?

All those doom and gloom you describe only happens if Bitcoin is the only currency in the world. It doesn’t happen when Bitcoin is supplementary to USD, EUR, CNY, etc.

This is similar to how the proponents of free market and central plan both think the other side is pure evil. In the real world, a functioning economy is a mixture of both.

Bitcoin can inflate. It's just that in order to change the current agreement on what Bitcoin is and how it works, you need a majority of mining power to agree, but the Bitcoin community has been famously conservative and unwilling to any kind of change. The reason? Probably a small amount of fear, and a huge investment in ASICs that would not be able to work if Bitcoin changes.

To be fair its just software and they can increase the block count at any point if people agree to the upgrade.

This is why I take dogecoin more seriously than most coins out there. Most coins have some built in deflation as a scheme to make money, such as Bitcoin's limited number of coins or Ethereum's burn mechanism. If you want people to spend money, you can't have hoarding it be the most incentivized means of using it. Dogecoin has a ~3% long term inflation, which is pretty inline with real world currencies.

Disclaimer: I may be absolutely in the wrong here, as I may be missing some fundamental economics knowledge.

From my understanding, inflation is not really a property of the currency, but a property of market in which given currency is used. It's not the USD that loses value, it's the specific prices that increase, not that some products get cheaper. If some country suffered from hyper-inflation, they may start using USD instead of their original currency, and local products would end up with a different inflation in USD, than USD in US.

In Bitcoin and other crypto, I doubt there is huge market which has prices set in those cryptos - they are used as a courier money for markets in specific fiat currencies, like USD. I doubt people pay 0.001 BTC for a server, they pay $100 but in BTC.

> A deflationary currency makes certain low margin economic activity extremely unattractive

There's absolutely nothing that prevents low margin activity from becoming high margin activity. You just need to raise the price. And if there's no consumer willing to pay the raised price, is that activity a really good idea?

> Inflation encourages spending > Incentive to spend.

So less crap being produced and bought in a whim and more decision making process on purchasing long lasting quality products (like it used to be). Less cheap plastic trinkets, less planed obsolescence.

Please sign me up for that wonderful deflationary world!

gold doesn't inflate, salt doesn't inflate unless you mine more of it but at some point it's deflationary.

> You want inflation low enough that it doesn't punish people for saving but still provides an incentive to spend now.

Does it work? Inflation makes me spend less, not more, because I save more, because I’ll need more later…

The real effects of a deflationary currency are unknown. The side effects of a change of this nature are, likely, so vast that they are impossible to anticipate. That's the general problem with revolutions of this nature, they sound good on paper but it's mostly first level thinking. Ok, you got your change. What next? I see things like communism and anarchism the same way. It's laser focusing on a very small number of the ills of the current system without considering any of the good things that come with it and how to, at least, maintain them.

>Inflation at certain levels is good and necessary.

This is just flat-out misinformation! The US currency experienced deflation though much of the late 19th century yet GDP grew faster than nowadays, which clearly falsifies the notion that inflation is "necessary".

> Some of the worst economic crises in history, including the great depression, were marked by significant deflation.

But literally "the worst economic crisis in history" happened on the watch of an inflationary central bank.

Moreover, during the greatest worldwide deflationary period ever the united states went from literally a war ravaged country that had just decimated (lost 10%) of its population to "world power" in 50 years, while also enjoying decreasing economic inequality and increasing quality of life across the board not to mention managing to manumit a huge chunk of its population.

Cryptocurrencies still have the unique property of being able to function as permissionless digital cash between parties. There is nothing else in broad use that can perform this function (there were viable cryptographic proposals in the 90s but nothing ever took hold).

Personally I think that's enough to justify a small market cap and a volatile price, but I agree it is speculation that has driven it to insane heights.

Thing is, it can't be it's only function - because in order for something to be able to actually function as permission digital cash it needs to have at least some value to someone who is a net recipient of that cash (i.e. they manage to receive more of it than they intend to send today). That value proposition can be stupid, but it has to be there, people have to agree in a social consensus that it has some value.

You can have something whose primary function is cash between parties and a secondary, minority function is being melted down for jewelry - since that provides a backstop ensuring that it stays viable cash, that there is some value for it.

You can have something whose primary function is cash between parties and a secondary, minority function is used to pay taxes or tarriffs to some party (starting with quite ancient times) - since that provides a backstop ensuring that it stays viable cash as long as that tax collector stays relevant.

That minority use can be relatively small and rare, however, if it does not exist at all, then it's a poor medium for cash.

You can have something whose primary function is permissionless digital cash between parties and a secondary, minority function is a speculative investment bubble - which ensures that it stays viable cash as long as that bubble does not pop. But not really after that.

There's been a huge macro bubble in govt that has been coming whereby the govt spends ever larger and larger percentage of GDP. We're now over 40% in the US and that's just going to continue going up, if you look at the pattern over the last 100 years. They can't increase taxes and they can't cut spending. And yet the spending keeps increasing ever more and more. Who's paying for it all? everyone holding Cash and Bonds. Look at the govt deficit as percentage of GDP, it's been increasing more and more. in the last decade: it was 3-4% in the good years and 10-15% in the bad ones. That's going to continue. GDP is mostly inflation. Which means if the deficit average 6-8% then inflation will need to match that too in the long term, otherwise debt as percentage of GDP keeps increasing.

i know this will get downvoted but I'd rather take an occassional 25% loss with the knowledge that I'll regain it in the future, rather than a guaranteed loss of 6%+ per year for the next 20 years that I will never regain. When fiat and the dollar goes down the tubes, people are going to want something else that can't be inflated away.

There's something to be said for diversification. Now that cash and bonds are finished, that only leaves equities and gold. for some people that's not enough. and if you want more diversification then you'll need some crypto.

Crypto is 1.5 trillion (bitcoin is 600B) and there are 300 trillion dollars in the world worth of assets. if the world invested 10% of assets in crypto, that's 30T. Gold is about 10T. How is 1.5T or even 3T insane?

EDIT: when i say crypto, i mean Bitcoin because the supply is limited.

> i know this will get downvoted but I'd rather take an occassional 25% loss with the knowledge that I'll regain it in the future, rather than a guaranteed loss of 6%+ per year for the next 20 years that I will never regain.

You're making the claim that you have the "knowledge" that you'll regain any losses with crypto. I'm not sure what the basis for that is.

The comparison is flawed anyway, the point of cash isn't supposed to be an investment with returns, it's currency you buy stuff with! Even with inflation running at over 8%, the dollar is still good as currency, you don't need to convert it to get paid in it and buy things with it.

Crypto can be either a currency or a volatile investment, not both. The gold standard famously linked the price of gold with our currency, and it forms part of the reason the Federal Reserve didn't act to stop the Great Depression - they couldn't just print more gold to increase the money supply (to grossly oversimplify)!

If inflation is your problem, then the solution is to make central banks' inflation mandates stronger, not to pick the next commodity-like thing to link our currency to, completely ignoring lessons learnt from Depression-era monetary policy. This problem doesn't have to involve crypto as a solution, even wacky stuff like the balanced budget amendment is closer to a solution to inflation than crypto.

If you're advocating crypto as a high yield investment, then that's something different and you shouldn't compare it to the dollar.

I don't know what will happen in one, three, five, or 10 years. But I do know this: the performance of your crypto investments will be measured in fiat, just like they have always been.

Nobody cares about how many Bitcoins they have. They care how many USD those coins are worth.

Uh, no. The 40% number is completely wrong. We only topped 40% during WWII. We've been very consistently around 20% during non-recession years where it goes up largely because GDP goes down. We topped 30% for 2020 during a massive contraction and countercyclical stimulus. It will be back down in the low 20s for 2022. We not only are not on a runaway spending trend and we have survived shocks really, really well. Fiat has served society incredibly well. I'd sooner take a year of 8% inflation over bread lines due to deflationary spiral.

https://fred.stlouisfed.org/graph/?g=O7F4

Edit: This chart is federal spending only, total gov spending is higher but OP is still probably looking at 2020 as the most recent data and it's a huge outlier due to the pandemic.

We need something to invest in. Cryptocurrency is something, therefore we should invest in it.

Isn't your assessment forgetting something more fundamental about currency itself? I'm no economist, but the way I see it, all currency is "we owe you".

The real work is actual physical production and services. Currency tries to measure the worth, and later other people might recognize that you provided a lot of useful things in the past which afford you this thing that they're making now in return.

In my opinion, the most stable thing would be something of real value, like ownership over land, or production. If you own part of a business that makes real goods, or own land, or own raw sources of material, etc.

Like inflation might sound stupid, but inflation is kind of asking everyone to work harder for each other to get over a rough patch.

A dollar is worth less because we weren't able to produce enough things for enough people that wanted them.

It's all a bit vague in my head, but concretely, it's all an agreement between people of a society that decide to work together instead of against each other.

We used to barter, I want X, I have Y, let's trade, but that wasn't as convenient if no one that wants Y has an X, things would get complicated. So we kind of all agree, okay fine, let's say Y is worth some amount of a universal currency, and the price of everything will reflect the demand for each. But what if the production isn't keeping up? Isn't that when inflation kicks in? Seems like it's a good thing no? There's not enough things for everyone anymore so everything is worth more all at ounce.

What would happen with Bitcoin? Things would cost more no? Say there's major food supply issues, the amount of groceries you used to be able to buy for 1 Bitcoin, now it'll cost you 2 for the same amount. Isn't that just inflation?

How did you come to the 300T? Back when I looked into this I found around 45T (by just adding M0, M1, M2, and physical cash) [1]. Note that the numbers are from march 2021. The large difference with your number makes me suspect I’m missing something

[1] https://money.howstuffworks.com/how-much-money-is-in-the-wor...

If you are so scared of inflation (which is fair, so am I), just buy inflation indexed bonds.

As for crypto, there is no fundamental mechanism that guarantees it will appreciate more than inflation on the long run.

The occasional 25% loss? You mean an average month? Or a 99.9999% loss, as this very thread you are commenting on?

You are not decoupling anything. A minor correction in the real life markets caused huge parts of crypto to implode. You are leveraged, not diversified.

> Crypto is 1.5 trillion (bitcoin is 600B) and there are 300 trillion dollars in the world worth of assets. if the world invested 10% of assets in crypto, that's 30T. Gold is about 10T. How is 1.5T or even 3T insane?

Isn't it 520 trillion now?

25% loss with the *knowledge that I'll regain it in the future

The word knowledge is... not applicable here.

> i mean Bitcoin because the supply is limited

Capped vs uncapped supply is not as big of a difference as you make it out to be [1].

[1] https://john-tromp.medium.com/a-case-for-using-soft-total-su...

Your analysis fails to account for increases in productivity.

> Personally I think that's enough to justify a small market cap and a volatile price

Perhaps for some currency, but why that one?

There's no realistic function for an infinite number of them; there probably isn't a realistic function for more than a very small number of them.

>> there is nothing of worth backing it

Every day people say this as if it's a new insight.

There are many things that are valuable that don't derive that value from some other asset "backing" it.

Money is a social construct that is valuable because people agree it's valuable. When people decide it's no longer valuable, then it's not.

> Cryptocurrencies still have the unique property of being able to function as permissionless digital cash between parties.

Unless the top few network operators get together and decide otherwise, as happened with Luna this week when the chain was forcibly halted by the validators.

It’s not permissionless or really decentralised.

There's one place where I think this may become useful: international trade.

Inside a country with an functioning economy people are willing to trust the government and companies to handle their transactions. When you move to the scale of countries trading, sometimes there's no one "above" that can be trusted.

Currently this is "solved" by just using the USD and trusting the US to not go crazy with it. The US and their allies are of course very happy with that and won't move away from it willingly, but some other countries are not.

Between countries that can't trust each other's economic policies it's harder to find a way to trade other than barter, and that's not very convenient. Look at Iran or Venezuela, for example, or countries that wish to trade with Russia currently but don't want to keep large reserves of Rubles. I could see some of these eventually trying out using Bitcoin to trade. And if it works well for that case, it may start to spread. Maybe countries that aren't too close to the US will start to think that maybe Bitcoin is a better option than being "subject" to another nation's economic policy.

The problem is that volatility and a small market cap make it a worse unit of exchange.

(One of the big reasons is that you need liquidity to be useful, if you can't easily exchange them for something else when and where you need to, the permissionless digital exchange isn't very interesting)

I don't see the advantage of circumventing government controls via crypto over the alternative of laundering the money. Or is it that crypto helps with the laundering process?

Stunningly, there are some people still trying to swing trade Luna. To a dyed-in-the-wool crypto investor the price is just a number that could go up or down. And people get dollar signs in their eyes thinking "If it's $0.00001 now, it only needs to go up to $0.001 for me to make 100X"!

Of course, they usually miss that there is no liquidity left in Luna to realize that 100x on an investment larger than pocket change, even if the market swings in their favor for a moment.

We won't see the bottom of crypto in general until more of the speculators with that mindset have been separated from their dollars.

Yep it's basically a game of musical chairs to see who will be left holding the bags. There will be tons of speculators speculating on the actions of other speculators.

E.g. If you're a speculator, you assume that hundreds of others are thinking just like you and are also wanting the price to 100X for just a moment. Which might drive the price slightly up. It's just a race to see who can execute the second to last trade before the whole house of cards comes crumbling down. Crypto is a pyramid scheme and a roulette wheel all in one.

The prices of Luna and Terra remains disconnected: their market caps should be equal, but right now, Terra is worth a lot more (on paper) that Luna. So the obvious arbitrage opportunity is to buy worthless Luna, swap it for Terra, and cash out.

The problem is that it's increasingly hard to do any of those three necessary steps, because exchanges like Binance have delisted the lot and the Terra blockchain itself keeps being halted (so much for being decentralized!).

If you're a market maker, why wouldn't you? Your whole value-add is that you provide liquidity to folks who want to sell but can't find a buyer (a service in pretty high demand for LUNA right now), sell it at a later time point when there are relatively fewer sellers and relatively more buyers, take on the risk that there will never be fewer sellers and more buyers, and pocket the difference in spread. There's obviously risk in this, but if your business is market-making, you presumably have statistical models of this risk that you incorporate into the price you're willing to pay.

Shit, I bought some. Never know what might happen.

Yeah but it's $10, who cares?

> Cryptocurrency is gambling, plain and simple

Cryptocurrency is a lot of things. Bitcoin, Ethereum, Monero and LUNA are very different technologies/products/networks/concepts. The decentralized aspect is the only overlapping theme.

The fact that your factual, noninflammatory comment is being downvoted reflects very poorly on the state of intellectualism on HN. Every time crypto drops 30% you see the same tired arguments and cringeworthy jealousy / schadenfreude. I'm not even pro-crypto and it's painful to watch.

Luna never had a limited supply. That was its achilles heel. Bitcoin is inherently supply-limited. Whether Bitcoin will suffer a similar fate remains to be seen, but it certainly won't happen on the same timeframe (99.9% drop in a matter of days) without SHA-256 breaking or some other double spend vulnerability being successfully realized.

As I understand, the value of Bitcoin is in an expectation that in future it will become a widespread payment method, and you can buy it cheap (well, relatively cheap) today in order to sell it later to those who will want to use it for transactions.

If my understanding is correct, then as soon as it becomes clear that there are better alternatives or Bticoin is unfit for this purpose, the price will drop.

> Bitcoin is inherently deflationary

Bitcoin is inherently inflationary - the number of coins increased each epoch. Monetary inflation is just increasing the money supply. Price can go up or down. Price inflation is an increase in price.

Agreed, but only partly. The GP's past reply history is telling: it is a typical pro-crypto reaction against everyone else (not just anti-crypto), just happened to be okay this time. The part I agree is the prevalence of stock arguments, which would be more entertaining if arguments themselves are evolving, but sadly that's not happening here.

> I say "the price people were willing to pay" instead of "value"

The price people are willing to pay is how you estimate the value of something.

> For Bitcoin, the most popular one, on the order of 100.000.000.000.000.000.000 of hashes get calculated to mine a single block, multiple trillion per second. Within ten minutes, only a single one of those 100.000.000.000.000.000.000 hashes is actually used, depending entirely on luck. The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.

You need to dig through 1 million gram of ore to find 1 gram of gold, depending entirely on luck. The rest is thrown away entirely. The energy is of course not lost but was necessary to find something of value (which also creates a lower price boundary). In contrast to gold, Bitcoin mining ensures provably fair probability of winning, has a tremendously lower barrier of entry, provides incentives to be run on renewable energy and produces far less waste.

The culprit here is likely that you don't consider Bitcoin to be something of value. Particularly for those with less financial privilege, Bitcoin can provide uncensored access to financial services and a long-term hedge against inflation.

I really like that comparison with the gold to raw ore ratios as a frame of reference, but isn't mining hashes in general just a completely arbitrary selection for a definition of work and wouldn't harnessing some more useful proveable activity tied to a lottery system be better ?

Even all the Miners locking cash in a single account with a constant reward function could be put to some real use and still generate the same return outcome of new minted coin to investment/work; just with fewer steps and without all the electric overhead.

> Bitcoin can provide uncensored access to financial services

Example needed here, how are people with less financial privilege censored by fiat? Loan conditions? Definitely not, that's just the financiers not wanting to issue risky loans.

> long-term hedge against inflation

lmao. no it's not.

it failed as a currency, failed as a hedge and failed as a store of value. for 99% of holders like me it's just a speculative asset. nobody really cares about the pie in the sky idealism or libertarian nonsense spouted by maxis.

Here's another stat: Over the past month, the entire cryptocurrency market lost over $1T USD in market capitalization; about 50%.

There's different ways one can look at this situation. I take a bit of a grim view, for crypto as a whole. This was a "come to jesus" moment for institutional investors. Remember; Luna was a top 5 coin by market capitalization; over $50B USD in capitalization. Its unclear exactly what happened, but the prevailing thesis right now is that it was an "attack"; a valid one, by an extremely well capitalized entity, which played within the rules of the game.

This wasn't a loss of faith; it was a failure of technology. The rules were bad; and scarily similar to the rules all coins play by. A loss of faith can stay isolated to a single security; but a much more fundamental failure, like this, is a mark against the asset class. Now, investors will look across the entire ecosystem and start questioning whether any coin is safe. The technologists will say "BTC, ETH, they're proven, they're safe", and they're not wrong, but they also said the same thing about Luna.

What I think we'll see is: the crypto ecosystem will enter a depression over the next 12 months. Larger coins (BTC/ETH) will stabilize. Most other coins will struggle; and with their prices in a depressed state, they become tempting targets for attack by well-capitalized entities. We'll probably see more attacks like this one; not just against algorithmic stablecoins, but also more traditional consensus compromise attacks. Pressure will be applied to both USDT and USDC; Tether may implode, as many have predicted for a while, and USDC's future is also questionable if Coinbase has financial issues due to a drop in consumer & institutional activity.

In short, I would evacuate any non-BTC/ETH crypto positions. Some people may look at today as the "end of the crash". I think it was a signal; that crypto's Dark Forest security model isn't working; it got big; it developed derivative securities which enable shorting; and now has drawn the attention of well-capitalized entities who can move against chains with no repercussion.

Currently it's literally impossible to get rid of for any price, given that Terra have officially halted the blockchain at block 7607789 https://twitter.com/terra_money/status/1524935730308456448

You can't even pay people to take your LUNA - it simply cannot be transferred.

12 hours ago they said

> The Terra blockchain has resumed block production.

> Validators have decided to disable on-chain swaps, and IBC channels are now closed."

Does this mean you can sell it (for practically zero?) now?

https://twitter.com/terra_money/status/1525095111389945857

You obviously don't understand crypto. Permissionless. Decentralised. You can't "shut it down". :diamond_hands: /s

What does “halting a blockchain” mean? It smells of central control?

I mean, I could give you my wallet key and a contract not to use it myself, but then I wouldn't be a cryptocurrency fanatic :p

All of those hashes and the energy required to generate them represent work that would need to be redone (along with all subsequent work) by an attacker in order to double-spend the transactions in that block. It's the most efficient way to use energy for security that there is.

False. The regular banking and payment card system is far more energy efficient while maintaining a higher level of security.

By this metric, asymmetric cryptography is billions of times more efficient, as an attacker has to do tons of work, but I need to do very little.

So no, it is incredibly inefficient compared to many other forms of security.

They are not thrown away. They directly represent the security/reliability of the consensus model. That’s the whole point.

> It's the most efficient way to use energy for security that there is.

After a halving, when BTC pays half as much to miners, does it get twice as efficient? Or half as secure?

I always chuckle at the term "fiat currency." The USD, while at risk for inflation, is backed by the institution that is the United States of America and all its potential and resources. Sure it's not pegged to gold and is subject to inflation. But the purest form of "fiat currency" is crypto, which is only worth something because some people say it is. Bitcoin doesn't have an army and navy, and land from sea to shining sea.

You realize that “fiat currency” really means “by fiat” as in “by law”.

The law says the dollar is the legal currency of the US and they will (or would) literally take away your liberties if you threatened their monopoly over money.

And nobody is forced to pay their taxes in Bitcoin.

I was a user of a defi dapp that ran on the LUNA blockchain and allowed me to go short or long on various stocks. The LUNA price didn't matter to me, but their blockchain and the dapp was useful. Not wasting time to go through KYC/AML in order to go long or short on a stock is a good thing.

Interesting. I didn't know much about the LUNA ecosystem outside of UST, but it looks like they had built quite a bit of applications: https://www.terra.money/ecosystem

I don't know what stages these projects were in, but it is pretty sad to see all the engineering effort go to waste. I hope some of these will be salvaged and ported to other blockchains somehow.

The difficulty of computing the hashes is the entire point of them, to enforce scarcity. It's not wasted if you belief that scarcity has worth, which in the digital world it certainly does.

The price people are willing to pay for something _is_ the value of something.

Cryptocurrencies are gambling in a similar manner to how owning risky stocks is gambling. A cryptocurrency provides various services, and the utility of those services is what ultimately drives the price. Bitcoin's services for example include borderless, permissionless value transfers. The reduction in friction is immense---if you're operating in Bitcoin. Thus one of the incentives to own Bitcoin.

> The reduction in friction is immense---if you're operating in Bitcoin

This "friction" is 100% intentional. We don't want free flow of capitals across countries, just like we don't want free flow of people. If we wanted it, we would have signed specific treaties to that effect, and those "frictions" would have gone away. This is what they did in the EU for example, where international payments within the union are seamless.

> The difficulty of computing the hashes is the entire point of them, to enforce scarcity. It's not wasted if you belief that scarcity has worth, which in the digital world it certainly does.

A very succinct and clear indictment of the entire cryptocurrency space.

hashing has nothing to do with scarcity. mining is only hard to ensure that the canonical transaction order is set by the majority of the computing power in the network. otherwise you get double spends. hashing is an ugly, wasteful way of doing this; Proof of Stake would be another if anyone ever figures out how to make it work.

scarcity is an implementation detail.

"Cryptocurrency is gambling, plain and simple." I actually view it as a collectible, and find it a bit annoying when people assert that it is simply not valid to view it as anything but gambling (which it certainly can be). It has a certain aesthetic to me and I enjoy having it (if it needs to be said, I do not encourage anyone to buy it, and if you already do want it, I encourage a small position). Yes it is not rational. There is an aspect of 'this is inherently worthless', but that's been true of collectable cardboard for a long time. So has in-signalling and speculation.

If collectable cards were algorithmically printed into oblivion they would lose all value too.

Gambling is exactly how crypto is being used. Crypto is nothing more than a big casino and to anyone who just lost their shirt I say that's what you get for trying so desperately to get something for nothing.

> The difficulty with cryptocurrency is that there is nothing of worth backing it

There is not much backing any other currency either, apart from the fact that:

- the government forces their currency on you

- the banks forces you to save that currency with them

- people "trust" the fact that the currency will be worth something in the future

But in fact what backs up every fiat currency is pure air. Let's say the dollar stops being the international currency, good luck explaining everyone what it's "worth" when nobody else wants it.

> But in fact what backs up every fiat currency is pure air. Let's say the dollar stops being the international currency, good luck explaining everyone what it's "worth" when nobody else wants it.

This is a pretty simplistic view of how things work. Even if the dollar stopped being the main reserve currency, it would still have value, just like smaller reserve currencies like the Euro and Pound, because people trust the governments to be able to pay their debts later. Until the US government can’t pay its debt and really defaults (and not the default that happens due to political stalemate) the dollar will have value.

Bitcoin and other cryptocurrencies will never have this, especially if over the span of a few days it can lose a significant chunk of its value because of a sale of a few tens of thousands of Bitcoin.

> There is not much backing any other currency either, apart from

Men with guns.

> But in fact what backs up every fiat currency is pure air.

No. It's literally backed by the threat of force.

Yes , but the fact that we built societies on those things means there is great incentive for keeping it going (as even critics of capitalism eepeatedly keep noting).

The problem with cryprocurrencies is, that the one thing they are really not good at is being a practical, efficient replacement for fiat currency, which is why building societies on them is hard. You could as well speculate on the unique shape of certain types of sheashells and develope whole subsystems of people analyzing their shape, building seashell storage sacks and fake seashell prevention agency and it would be still be more efficient than crypto.

> Cryptocurrency is gambling, plain and simple.

Say what you will but when I was living in a Third World country with a pegged controlled currency (no access to international payments) it was thanks to bitcoin that I was able to pay for goods and services online (books, hosting, etc.). Never before then did I ever feel connected to the rest of the world. Nothing will change that in my mind. Bitcoin is a currency.

>The rest are thrown away entirely. They do not form part of the final hash or anything else, the energy spent on them is lost.

I can see that you're trying to paint this as some sort of tragedy, but I'm not really seeing it. How is what you described any different than all the rocks that are "thrown away" when mining for minerals? Is it supposed to be better that the energy went towards terraforming the earth (ie. open pit mines) and therefore created something tangible?

A car uses roughly 40 kWh to go 100 miles.

Bitcoin transactions uses 1,719 kWh every 10 minutes.

I don't know that I understand the rock analogy - any unused rocks that are "thrown away" are easily repurposed if desired. The energy used in the other examples is lost to entropy and contributes to global climate change.

> The difficulty that fiat currency faces is inflation

Is inflation bad? Some inflation is healthy! If your “currency” is deflationary, it’s not a currency because the house you bought will be worth less in 10 years.

Hasn’t deflation always lead to mass unemployment?

>I say "the price people were willing to pay" instead of "value"

That's what value is, though.

That's how the "people believe this box is worth a million dollars, so it's worth a million dollars" crowd would like to define "value".

There are other definitions of "value" though, which are usually a lot more useful and a lot less dangerous to lead you into pyramid schemes.

The energy spent on the others is used to make sure that the lucky one is honest.

At the end of the day, it's either proof of work or proof of force. You can't have a good society build on force, implicit or explicit. In a perfect world we could go with proof of stake, but the world is what it is.

Proof of stake is far from perfect https://news.ycombinator.com/item?id=31366245

> The difficulty that fiat currency faces is inflation

Not just inflation. How many fiat currencies from 100 years ago still exist today? And for the one that still exist, how much value have they lost? I'll let you ponder on that.

> How many fiat currencies from 100 years ago still exist today?

I don't know. How many? Fiat didn't even exist 100 years ago. Everyone was on the gold standard back than.

I would argue its not even gambling, they're just slightly more complicated ponzi/ pyramid schemes.

On Bitfinex it is trading at 0.02 (2 cents) it never dropped below 0.005.

So if this is the top comment and there doesn't seem to be anyone correcting you it seems HN has no skin in the game but loves to talk about stuff they can't even get accurate data on

Bitcoin has nothing to do with Luna. They are as similar as two unrelated Internet companies, like Google and eToys.

Inflation doesn't dilute the economy. Rather, it grossly distorts resource allocation. How do we pay for endless wars? Fiat funny money. How do we pay for $110 Luna? Again, fiat funny money. Luna is actually a symptom of our underlying system being broken---the system you are kind of defending.

Luna is intertwined with Bitcoin. The reserved to defend the peg were at least partly held in Bitcoin, which made the two asset correlated to at least some small degree.

That's still more energy efficient than the regulat fiat system.

Is there electrical energy just burnt for no purpose in fiat systems? You are talking about efficiency, not absolute value. The transactions of fiat systems are orders of magnitude more than the bitcoin chain's.

wat

You have contradicted yourself. By your own admission, Bitcoin is backed by the world's energy and computing resources (at least what is used on the network)

All energy and computing resources used on mining Bitcoin are spent and cannot be used for anything else. The concept of "backing" means that resources are available, and the entity backing them merely represents them. Stock is backed by the services and products a company provides. Fiat currency is backed by their respective part of the world economy. Resources are not depleted by backing those.

Saying Bitcoin is "backed" by the world's energy and computing resources is like saying that a wildfire is "backed" by a state's forestry reserves.

Bitcoin isn't backed by energy,.it burns it. If a real estate bond was backed by physical buildings the same way that Bitcoin is backed by energy then the bond would be created by burning the buildings down.

What, are you going to squeeze your bitcoins and get energy out of them? Get real.

The opposite is the case: whatever backs up Bitcoin's current valuation, it's all that allows the system access to those energy resources. Those energy resources in no sense support Bitcoin's valuation.

I prefer Matt Levine from his newsletter today:

"Safe assets are much riskier than risky ones. This is I think the deep lesson of the 2008 financial crisis, and crypto loves re-learning the lessons of traditional finance. Systemic risks live in safe assets. Equity-like assets — tech stocks, Luna, Bitcoin — are risky, and everyone knows they’re risky, and everyone accepts the risk. If your stocks or Bitcoin go down by 20% you are sad, but you are not that surprised. And so most people arrange their lives in such a way that, if their stocks or Bitcoin go down by 20%, they are not ruined.

"On the other hand safe assets — AAA mortgage securities, bank deposits, stablecoins — are not supposed to be risky, and people rely on them being worth what they say they’re worth, and when people lose even a little bit of confidence in them they crack completely. Bitcoin is valuable at $50,000 and somewhat less valuable at $40,000. A stablecoin is valuable at $1.00 and worthless at $0.98. If it hits $0.98 it might as well go to zero. And now it might!

"I have in the past told the story of TerraUSD and Luna by saying: The weakness in TerraUSD is Luna. One UST can be exchanged for $1 of Luna, but that only works if people continue to have confidence in Luna; if Luna goes to zero then TerraUSD will follow. But you could also tell the story by saying: The weakness in Luna is TerraUSD. Luna, as the cryptocurrency of a blockchain ecosystem, would rise or fall with the value of that ecosystem. But Luna, as the thing supporting a stablecoin, could go to zero in a week if that stablecoin needed support. Terra was so unstable because it was trying to be stable."

Yeah, as someone who didn't know about Luna or Terra a week ago I think he did a good job of explaining the system, and the way it would fail, pretty well 2 days ago on Wednesday:

https://www.bloomberg.com/opinion/articles/2022-05-11/terra-...

You can read down through where he details the Death Spiral. I also haven't paid much attention to other stablecoins, but I imagine the systems are similar, based on faith in the system, and only good as long as there's not a run on the system and more than some percentage try to get their money out.

It's absolutely true of other algorithmic stablecoins.

When it comes to "backed" stablecoins like USDT the scam is even simpler: you just say it's backed by cash when it's not.

Yeah but something happened when USDT was in the unpeg crisis 2 days ago.

See, if it fails then the big exchanges become insolvent, full stop.

Now here's the thing. With some exchange APIs you can see market order statuses, whether they're settled or not.

You can use this to determine market latency. If I want a market buy, how long does it take to settle.

So here's the thing, the latency on USDT buys was on the millisecond scale as best I could determine.

The latency on USDT sells was near minute scale.

It's a giant accusation so I'm not going to name-drop the exchanges I'm talking about and I'm just a single data point but if anyone else saw it contact me.

It looks like they "narrowed the channel" and put their thumb on the scale to prefer buys and float the price, pushing it back up.

Now this was at a time that the gas price was about 250/300gwe because of the massive UST exit and network delays were 15/20 minutes or so.

So even if you wanted to arbitrage it wouldn't have been worth it because the network was going way slower then exchange latency.

This started basically right when Tether tweeted about the billion in Avax and ran for about 12 hours or so

Ultimately it doesn't matter. These are unregulated securities and the exchanges can run their markets as the please and, if what I'm saying is right, good job keeping the thing you need to stay in business afloat. Coinbase stock (which I'm using as proxy for general sentiment) climbed 50% after tether got repegged and contagion appears to have been averted

I'm just wondering if anyone else saw this. It could be a coding defect on my part, a fluke because of the craziness of the market, me projecting and fooling myself, etc.

Please don't go around repeating this as fact, it as of now, needs independent verification

Tether isn't backed by cash but by a combination of short and long term loans and potentially even crypto. Fiat deposits are likely a small allocation. Calling it a scam is still disingenuous, it is backed by reserves (the more pertinent question is how liquid they are). People have been waiting for Tether to "collapse" for over 5 years now.

> When it comes to "backed" stablecoins like USDT the scam is even simpler: you just say it's backed by cash when it's not.

This is such a silly argument. USDT is definitely backed by USD. To claim that it isn’t is just a lie. I think what you meant to imply is that it’s not backed 1:1. This isn’t only an issue with Tether. This is the case with any fractional reserve banking system.

> I also haven't paid much attention to other stablecoins, but I imagine the systems are similar, based on faith in the system, and only good as long as there's not a run on the system and more than some percentage try to get their money out.

No, that's not true. There are categories of stablecoins. There are some in the category of Luna/Terra, there are some stable in name alone, there are many that work perfectly and some of those would be able to do 100% redemptions of the entire float automatically or in a crisis of confidence.

TerraUSD was a joke. People warned of the death spiral the whole time. Its merely amusing it got that big.

Matt Levine is usually great. But the reason why UST at 0.98 makes the whole thing collapse is not because people “rely on them being worth what they’re worth”. It’s because you can sell UST into Luna for arbitrage minting new Luna in the process, thus inflating Luna.

But Matt knows this. He describes the whole mechanics in his newsletter like 3 days ago. So not sure why the stretched analogy here…

So you sell UST into Luna, buy more UST with Luna, sell UST into even more Luna, rinse and repeat?

Yes, this is the nature of arbitrage opportunities. You are leveling the price of two assets by moving liquidity. You keep doing it until the prices normalize and the arbitrage opportunity dissapears.

In this case "normalizing" was going to zero for luna because that is what became the shared understanding of the value of what it was backed by.

but UST burning for luna is capped at $100m/day

Those weren't AAA mortgage securities that went bust in 2008, though some were fraudulently marketed as such. They were liar loans on second-rate properties chopped up into a bunch of tiny pieces and re-sold, based on the notion that real estate would only go up forever, so if people failed to pay the lender would foreclose and own real estate with more value than the original loan.

Seems similar to some methods of stabilizing a "stablecoin": back it by a traditional cryptocoin and assume that this other coin can only go up.

People who had only bank deposits didn't lose anything.

Those chopped-up pieces of crap got lumped together in big collections which got rated AAA, because the people rating them assumed that not too many of the little pieces would fail at the same time.

I think GP covered that with:

> though some were fraudulently marketed as such

Dead wrong. This is the major take away from 2008 that has been widely reported on in pop media. The junk was repackaged so it could be stamped AAA

off topic, but I wouldn't have understood anything that happened in the last few weeks without Levine. now most of my days are waiting for him to post so that I know wtf just happened

Link?

Edit: Found it, it's https://www.bloomberg.com/opinion/articles/2022-05-13/elon-m...

Surely no one through stablecoins were low risk?

That’s what the whole crypto industry has been saying for years. If they didn’t think it was stable (or didn’t want you to believe it was), it wouldn’t be called stable. Millions of people at this point have been led to believe a stable coin is stable.

Including overcollaterized ones? They are not risk-free, but DAI has survived much worse market swings that the one from this week.

Stable is right there in the name.

By the folks who put “safe” in safemoon.

lol

Apparently, you could even get 'depeg' insurance! Multiple levels of Ponzi...

I interviewed with Terraform Labs less than a year ago. The guy interviewing me was a pretty standard eng manager who'd left Amazon for the excitment of a crypto startup. I tried to prep for the interview by researching their white papers to figure out how the various balancing and investment mechanisms actually functioned on a technical level. But it was difficult to make sense of their white paper, which was fairly general, and different portions of their documentation seemed to contradict one another. When I asked what I'd been misunderstanding, he told me that I hadn't misunderstood anything: their white paper was not a full spec, and their documentation was out of date. In that case, I asked, how could one actually understand the protocol? "It's probably not possible at this point," he told me, "These things are in motion all the time." I thought his answer was pretty eye-opening.

Their interview question was: design a simple app which allows one to query the effect of crypto price changes on the supply & price of LUNA. I gathered that the upshot was, how big a movement would be required to break the $1 peg? I wonder if their models weren't good, or if their models were good, and they were just accepting a high level of risk?

Plot twist. Hiring manager was the one who broke the peg by crowdsourcing the necessary information on how to do it.

>how big a movement would be required to break the $1 peg

This is the sort of question that's important if you are managing capital for the long term and need to ensure that you remain in the black rather than being grounded on the shoals of fate.

Good old sensitivity analysis! :)

>Their interview question was: design a simple app which allows one to query the effect of crypto price changes on the supply & price of LUNA. I gathered that the upshot was, how big a movement would be required to break the $1 peg?

Lol it’s like a version of that xkcd[1]: “Oh, and if you could hurry up on those figures, that would be great, we’re not sure if the underpinning of our platform is at risk or not.”

[1] https://xkcd.com/1897/

i wonder if these kind of things happen within the cardano ecosystem given their focus on peer reviews

As someone who spent many years in academic computer science, I have zero confidence in the peer review system. Zero.

Hoskinson talking up peer review for Cardano makes him look, to me personally, like more of a fraud.

My micro-specialty was worse than some others, though. The quality of peer review is not a constant across all of computer science.

Computer Science has a large reproducibility problem.

The crux of the problem is not Luna itself, but the Anchor Protocol (19.5% yield), which enticed users to burn Luna by investing in UST through a, for lack of a better phrase, Ponzi scheme. I get it - people like decentralization. But without some form of regulation, either by the broader crypto community itself or by governments around the world, situations like the LUNA/UST collapse will keep happening.

There are also rumors of a Terra fork: https://agora.terra.money/t/terra-ecosystem-revival-plan/870.... Thanks, but no thanks.

It is a ponzi scheme. There is no production to provide for this 19.5% yield. It is all taken from incoming investments into the system. And it is well known that ponzi schemes collapse when the influx of new money starts becomes insufficient to pay the yield. It is very natural for ponzi schemes to collapse even without any government involvement.

I think the article should have examined that possibility in addition to speculating about an attack.

It is very possible that the $2 billion that was removed on the weekend was simply a holder that having seen worldwide retreat from risky assets had decided to pull his/her money out.

Except those incoming investments are all matched by an equal amount selling . That’s not something you see in a Ponzi scheme.

> It is very natural for ponzi schemes to collapse even without any government involvement.

I read it as government involvement would stop the collapse of ponzi schemes by regulating them out of (legal) existence rather than by somehow propping them up.

It wasn't a Ponzi.

Yields came from outside investment. It's closer to Ubers incentives in new markets than Ponzi

Patrick Boyle argues fairly convincingly in my mind that the problem with this was the design of Luna itself[1]. TL;DW TerraUSD maintains its price by minting $1 worth of Luna in exchange for one TerraUSD coin. But this assumes that there are always going to be willing buyers for Luna, even if its price is in free-fall. When the price of Luna drops suddenly, desire to hold Luna decreases, causing TerraUSD to lose its peg, causing confidence in Luna to drop further, leading to the death spiral we currently observe.

[1] https://youtu.be/iisPX_xVMV8

> minting $1 worth of Luna

One thing I’m not clear on: what oracle is deciding how much Luna is worth $1? How do you calculate a market price in a manner that the chain itself can rely on to function? I assume there is a smart contract doing this minting, but if that smart contract depends on an oracle…how smart is it, really?

It sounds like the fundamental problem with it is that it was founded on the idea that scarcity necessarily generates demand.

Seems like something that should be so easy to catch in a simulation/test

I disagree. Anchor was a dumb-money trap that increased the fallout of UST’s collapse by at least an order of magnitude, sure, but it was not responsible for the collapse: algorithmic stable coins are fundamentally flawed, they’re a perpetual motion machine, they’re based on the belief that you can artificially create and sustain a market within a set of very narrow parameters. Luna was doomed to fail regardless of Anchor — and the founders knew that, because they’d failed in the same way before, anchor was their attempt to shore up the ruse (which worked… until it didn’t).

> Anchor was a dumb-money trap

What % of current crypto climate/culture is "dumb money trap"?

DAI works fine. Over-collateralization with a looming threat of liquidation has proven to be resilient against all imaginable forms of market turbulence. It still leans heavily on oracles that are basically run by humans, so there is risk, but the incentives seem to be about right to keep enough people honest.

UST was an obvious bad idea. This exact scenario was warned about over and over again, and Do Kwon did what he could to try to delay the inevitable, but here we are.

> people like decentralization

I submit that very few people give a shit about decentralization. They want their currency to work and not drop 90% of its value overnight.

Agreed. People like the idea of getting rich. And if they happen to get rich, they like the idea of getting richer.

Right, but that's like saying "people don't care about how a company treats workers", "people don't care about privacy" -- speculators/shareholders occupy the most craven beliefs in all markets generally.

Decentralization is an _ethos_ that _can be found_ in crypto but you have to look for it, which means you care about it. If you don't care, fine, don't bother with it.

Meanwhile decentralization is actually an excellent measurement of the honesty of a given crypto scheme, and surprise surprise, only a few projects are willing to put decentralization before profits. But they do exist, just like there are a few tech cos that aren't extractive ad machines (not many).

Problem with regulation is that the term itself is ambiguous. What does it mean, who will do it, what are their limits and on what authority do they act?

I am not familiar with this specific crypto, but when I am offered to join a business that pays 19% in USD, I immediately know it can not possibly not fail. Regulations or not, you can't offer such dividend without major risk.

Then the subject of jurisdiction comes up. Who issued the tokens? If it is a USA company or person, it is one story, and they are likely already subject to some regulations. If it is an international community like ethereum, its another story. USA can probably ban it's distribution in USA, but not regulate.

Then, why would the regulations have to be mandatory? Organizations can voluntarily approach SEC and ask them to regulate the crypto they are about to issue. Submit to the appropriate rules and be an investor grade business. No new laws are really required for that. This way you could have trusted that if Luna fails, someone would go to jail. It's just wouldn't have been 19% dividend in that case, following rules comes with a price tag.

But do you need regulation? Promises to produce 20% interest out of thin air when banks don't offer a single percent are suspicious enough in my opinion.

It doesn't make sense. If there was a risk-free way to get 20% income without doing anything then people could stop working and live just from their savings.

Agreed! I would emphasize (and empathize) that there are muuuuuuch higher yields in the crypto space, so, many of these people felt like they were being responsible in a happy medium.

(The other yields are not fixed yields and very temporary, but it is easy to come out ahead. Not for passive investment chasers)

Regardless it was still up to them to be more discerning. Amazing it got that big.

About half the yield came from loan interest. The other half was from Luna Foundation dumping money into Anchor's reserves. Users could take out collateralized loans against Luna, Ethereum, Atom, Avalanche, and Solana tokens. Anchor isn't what brought down Terra. The way UST was supposed to remain stable is what killed the whole thing when it backfired.

> But without some form of regulation, either by the broader crypto community itself or by governments around the world, situations like the LUNA/UST collapse will keep happening.

I don't understand what's so bad about just letting it happen continuously. People will eventually learn and if they don't, they don't.

Because the winners gain real money/weapons/power to continue to exploit the low-IQ and eventually the crime spills over into your safe world.

Same reason we have laws against Ponzi schemes and other fraud.

As I understand it: Anchor is the only reason UST was (briefly) workable to begin with. There wasn't enough liquidity in the UST/Luna system to support a major stablecoin; Anchor was how they dragged that liquidity in: by giving people free money to help prop it up.

Take away Anchor and you're stuck at Step 7 of Matt Levine's Algorithmic Stablecoin Analysis: "if you do a good enough job marketing Luna, its price will not be zero. If the price is not zero, you're in business". As I understand it, the price of this whole ecosystem was driven largely by Anchor.

https://twitter.com/tqbf/status/1524509243587575808/photo/1

> But without some form of regulation, either by the broader crypto community itself or by governments around the world, situations like the LUNA/UST collapse will keep happening.

That's right, and that's OK. Capitalism allows failure. A free society allows failure. This is healthy. Luna was not a systemic risk. There has been no contagion. Nobody has lost their house or their job. When you don't allow failure, you get Lehman and the 2008 crisis. You get the Fed inflating assets to the point that it's actually dangerous, because they won't let the stock market fall.

People definitely have lost their house on crypto.

There’s allowing failure and there’s allowing Ponzi schemes. I don’t want to live in a society where those are legal.

What a mess. And now I just saw this. What?

"Leading crypto exchange, Crypto.com, has announced that its users who traded embattled Terra’s native token, LUNA, on May 12 at around 12:40 – 13:39 (UTC) did so with the wrong price.

Crypto.com, one of such exchanges, has revealed that traders involved in the concerned transactions would have their transactions reversed, and a $10 reward in CRO, the native token of the platform, would be given to them as compensation for the inconvenience."

https://watcher.guru/news/crypto-com-reverses-traders-luna-m...

Wild guess - the wrong price they were able to sell at was much higher than the 0.00001 it’s at now.

Why do think that? It's not like crypto dot com would benefit if everyone was trading at a higher price vs a lower price.

Its not weird for exchanges to reverse transactions done on their exchange if the price is wrong. Happens in the stock market all the time. TD Ameritrade, Etrade, Schwab, the clearing house. They all do this if things get too out of wack from the rest of the market.

I'm just not sure what you think you read, what did it mean to you and why was it interesting/absurd to you, compared to completely benign and ignorable.

These people should just file a complaint with the regulator that manages this stuff.

Oh, wait...

Crypto.com is a heavily regulated entity.

First there were MLM, HYIPs and other bullshit and now we have NFTs, Stablecoins, various cryptocoins and cryptotokens.

I think this Ponzi crypto assets are something like the evolution of fraud in a sense that scams are no more secretive, obscure and somewhat straightforward investment programs but more wrapped up in a sophisticated talk about cryptography, blockchain and DeFi which should bring you confidence that you should invest in them because they are more technologically advanced.

Somebody should write a book about Fraud in Crypto Assets from the more academic point of view and tbh I would very much like to read it. For example explaining the history of crypto fraud and scams, investigating them deeper and dissecting them from economical and financial point of view with the addition of explaining the basics of cryptography, blockchains and DeFi.

Here's the book you're looking for. It's the same patterns going back to the 1700s, just with different instruments:

https://www.amazon.com/Lying-Money-Legendary-Frauds-Workings...

Recommend you check out https://web3isgoinggreat.com.

Luna is a sideshow. Sad for the people who got caught up in it and lost their savings, but Tether is the real game. When Tether blows up the entire crypto system is going to blow up. And this is why Luna was important, because it caused a loss of confidence in stablecoins across the board. For a while this week, it looked like Tether might actually lose its peg and start a death spiral.

DISCLAIMER: Never hold Tether, for obvious reasons

That said, Tether can't pop the way LUNA/UST did. UST was basically propped up by the value of LUNA such that when the UST peg is lost, more LUNA gets printed to buy back the difference. This causes the LUNA price to crash when the peg is lost, so people who know better try to sell before the rebalancing, crashing the price further, meaning more LUNA needs to get minted for every UST burned, causing rapid deflation. This is all done in a smart contract, and can't really be turned off.

Tether is run by humans. Turning USDT back into USD requires actual human interactions. The peg can be lost, and maybe permanently, but it's not going to suddenly go to zero over night.

> "The peg can be lost, and maybe permanently, but it's not going to suddenly go to zero over night."

Commenting for posterity.

If Tether isn't redeeming fast enough for the traders who want to cash it in, won't the market price drop quickly in the meantime, due to the run on it?

The problem is the same as with other bank runs: when people withdraw and there are not enough reserves (lets say temporarily - for example when the reserves are too illiquid) the ratio of reserves to obligations diminishes further - so when people get suspicious it will get into the same death spiral - more suspicious -> more people withdrawing -> the rations become worse -> it gets more dangerous -> more suspicious. Eventually there will only be illiquid assets left and a fire sale will get a small fraction of value back.

But yeah - initially it should go slower than LUNA.

Isn't Tether actually backed by dollars though? Edit- here are current reserves: https://tether.to/en/transparency

Oh good lord no. It's backed by something they originally said was dollars, they then relented after people poked around a bit and confessed it's just a basket of stuff they consider equivalent to dollars (plus probably some dollars I guess?)

> Isn't Tether actually backed by dollars though?

No [1].

[1] https://en.wikipedia.org/wiki/Tether_(cryptocurrency)#Questi...

Most of Tether's MC increase has come since the pandemic started. Since then roughly $70B+ USD has been handed to Tether, who have used that $70B+ to purchase backing assets at heavily inflated pandemic valuations, corporate paper of suspect ratings, loans of USD for BTC at high prices, etc.

This all works if the assets are stable and inflation continues. If the assets behind Tether are deflating or turn to junk they'll increasingly be unable to redeem.

Part of keeping this going is not allowing average retail to redeem their Tether for USD (imagine a one-way bank where you can deposit but not withdraw) and working with the larger crypto trading shops to shore up short-term liquidity issues.

A partial asset backing is not necessarily a bad thing (fractional reserve banking), but banks are far more firmly backed and regulated by the USG and have FDIC guarantees. The longer assets deflate and recessionary pressures increase the higher statistical likelihood of an eventual bank run on Tether.

People have been concerned about this for quite some time. It seems the answer that question is definitely not. Here is a somewhat dramatic write up: https://www.singlelunch.com/2021/05/19/the-tether-ponzi-sche...

It's like a fractional reserve situation.

I am just waiting for the day Tether is attacked is some coordinated way like this which tanks the value. It will be chaos, unless USDC, USDP, maybe DAI can replace it before it happens.

The problem with attacking Tether is, how do you keep your money if by crashing Tether you also bankrupt all the major exchanges?

It’s certainly possible but much less likely than the attack on Luna. Attacking Luna gives the attacker enormous amounts of profit shorting due to the catastrophic failure inherent in Luna/UST design. Attacking USDT requires much larger capital with much fewer profits and may even backfire.

its value will go back up as its value tanking opens a giant arbitrage opportunity where you cash it out for USD.

The funny thing is whenever people attacked tether in the past there was always someone who shilled UST because it was "decentralised" and "not a scam"

People have been absolutely positive that Tether is going to collapse any second now for about 6 years now and so far it hasn't happened.

General idea of having two balanced cryptocurrencies doesn't look bad by itself. But the promises to pay 20% of interest per year are super suspicious. Where would that money come from? What kind of goods or services do they produce? Do developers of cryptocurrency expect to receive exorbitant fees from users?

If there is no valid business model explaining where that 20% come from then it is just a Ponzi scheme.

It's an intrinsically flawed concept even without the 20% interest rate.

The algorithmic balancing between UST/LUNA doesn't help at all with maintaining a LUNA/USD market. UST is pegged to USD indirectly through LUNA, and LUNA itself isn't pegged to anything. Nor is there a big market maker willing to buy/sell LUNA at any price.

A stablecoin that isn't pegged to USD by a 1:1 cash backing by the issuer just can't work. Putting an extra cryptocurrency and an algorithm in between the stablecoin and USD makes the system seem more legitimate to users but doesn't solve the fundamental issue with an unbacked stablecoin.

Yeah, the important thing to understand is the balance only in a simplistic model that assumes unlimited liquidity. If there isn't enough liquidity then it just death spirals.

Now the reason the ponzi was needed should be clear. (To generate the required demand for LUNA)

There are a ton of these schemes that promise 10-20%. At best it’s like those 2008 loans that won’t be paid back due to the crash, at worst it’s a ponzi. Celsius and Gemini and a hundred others. There’s a lot more tears left to be spilled

It wasn't a guaranteed 20% APY. APY for defi protocols are constantly in flux and change based off how much money it makes and how many people are providing liquidity. APY is typically calculated per block and is based off how much everyone made in that block. It doesn't mean that it will be able to keep up that rate for a year. For a time Anchor was able to make more than enough to pay out 20% APY and it built a fund to pay out when it didn't make enough. There wasn't enough demand for Anchor to support a 20% APY so they were lowering the target over time while the previous profit made up a portion of what was being paid out.

>Where would that money come from?

The money came from staking rewards from tokens people deposited as collateral and from interest on loans people took out against the collateral they deposited.

>it is just a Ponzi scheme

Anchor itself was not a Ponzi scheme. You could withdraw your investment at any time. Your money wasn't paying out other people's returns.

Thank you for clarification, but I still don't get this part:

> and from interest on loans people took out against the collateral they deposited

To be able to pay out 20% interest rate on deposits you need to issue loans at higher rate. But who would take such a loan when they can go to a traditional bank? Furthermore, the borrower needs to provide a collateral.

Money cannot appear out of nowhere. There should be somebody buying something, like products or services (not just cryptotokens). Or at least a reasonable expectation of someone buying them.

If anyone is really serious about creating an alternative currency which is capable of revolutionising finance make it impossible to profit from speculation with it. As it stands cryptocurrency is just more of the same from the little man's perspective - another toy for rich kids to try to take from society without giving anything back.

I remember kicking myself for exiting LUNA at 20 dollars early on before it blew up. As I left I kept hearing whispers and sketchy things about it.

In hindsight I’m glad I pulled out when I did.

You got lucky. Be happy enjoying an upward curve, you don’t need to find the trough and peak.

if humans were any good at taking that specific piece of advice, the world would be a better (and very different) place.

A great breakdown of Luna and Terra, notably recorded a week before the collapse. It's very amusing watching the hosts trying to figure out how this coin is supposed to remain stable while promising 20% guaranteed interest.

https://www.youtube.com/watch?v=V16U4J65xkM

USDD next? Just announced yesterday by Justin Sun. 40% APR!

https://twitter.com/justinsuntron/status/1524726284399480832

There are only a few ways to make consistent >15% yields in this world:

- Buy Treasury bonds in 1980

- Invest in shaky emerging market debt

- Be a credit card lender

- Invest in the early phases of a Ponzi scheme before it blows up

Good luck to USDD investors.

the S&P 500 will get you pretty close to that if you're in it for the long run

There’s a sucker born every minute. Anyone who sees 40% interest and doesn’t think it’s a scam would’ve lost that money on some other scam

The only way a true collapse to zero could happen for any other cryptocurrency is via a similar mechanism (either an unprotected mechanism to mint unlimited amounts of the currency in a rapid manner, which some mid-tier cryptocurrencies do have, or a bug/vulnerability that allows attackers to duplicate/double spend reliably).

Luna didn't collapse 99.999% in a matter of days because of a loss of faith in 99.999% of ITS value by speculators, but because of a ~50% loss of faith that triggered exponential inflation (printing of Luna tokens) based on the simple algorithm governing the ex-stablecoin. The fact that the supply of Luna started multiplying exponentially every minute that the stablecoin remained underpriced flooded the market with insane amounts of Luna. By virtue of the total amount of new Luna minted, its market cap is still around 300M (a "mere" 98.5% loss).

Bitcoin could go to near zero, but it would take DECADES and be a very drawn out process without SHA-256 breaking or every relevant country jointly criminalizing its existence. You could look at the values of any of the other deflationary early cryptos that clearly are now not going to play a pivotal role in the crypto landscape (e.g. LTC, BCH) and yet have essentially maintained their values and slightly grown with the market, slowly ceding market share to more relevant coins. In reality, coins like LTC and BCH should have lost 99% of their 2017 value, but because they are not inflationary like Luna, it hasn't happened and won't anytime soon.

Contrast this with a company that can clearly, unambiguously go bankrupt. These go to zero all the time when their value is essentially nothing by virtue of no longer doing business, they are legally disbanded, and removed from exchanges.

LTC is down 70% from its 2017 peak, during which time BTC doubled. What will happen to LTC when BTC loses 50%?

BTC already lost 50% from its peak, so I guess this has been answered.

> This matters for three reasons. ... First, over $15 billion in crypto value has been wiped out through luna and UST alone. ... Second, it raises questions about other stablecoins. ... Lastly and possibly most signifcantly[sic], the collapse of UST has caught the attention of powerful politicians and regulators.

To oversimplify, it only matters if you care about crypto. And if you do, you already cared about this.

There will absolutely be contagion into the rest of the economy. A lot of funds are long crypto, they will have received margin calls so will have to liquidate other assets driving those prices down etc. It's still to be seen how much contagion there will be, but there will be some.

Tesla and micro strategy for example holds billions in crypto. If that gets more common then that would cause major contagion

Whenever people lose of money, that money has to be paid back to wherever they borrowed it from.

Expect to see some more bank bailouts down the line to cover the cost of all this.

The thing is that this "money" never existed in the first place. It was created out of thin air, and it vanished just the same.

There are very few banks lending money to crypto speculators.

People may have mortgaged their houses etc., but in those cases the bank gets the house.

This isn't a matter of debt though, is it? The absolute worst case for a retail crypto investor is that they lose all of the money they put in. I can't imagine a bank signing off on a big loan to buy speculative assets.

So the money is already "paid back". Right?

What is puzzling me right now:

Why LUNA is now trading at $0.033 at Bitfinex - but $0.0004 at Kraken? I understand that it is probably impossible to arbitrage it now - but two orders of magnitude? Come on!

Why UST is still trading at $0.16 - even without arbitrage mechanism to stabilize it? Some people still have hopes. This might go on for some more time.

The revival plan is to emit a new token and give away some of it to UST holders (https://agora.terra.money/t/terra-ecosystem-revival-plan/870...) - even if that new token gets the $1 value (which is probably not possible any more for algorithmic stable coins) - than still the 10% of $1B would mean $100M - that is 20 times less than the current market cap - so the UST price should be about $0.008 assuming that it all works. It is impossible to short it at Bitfinex right now though.

There might still be some value of the Terra ecosystem - so many talented people working on it, even a bankrupt startup can get some price via acquihire - but the Terra ecosystem was a ponzi schema maybe its value should be negative? https://twitter.com/zby/status/1525407557371691008

"The cryptocurrency market isn't pretty right now. Look anywhere and you'll see red"...

I saw green today just like on the stock market... and red yesterday just like on the stock market

Doesn't seem to address the "why it matters" portion of the headline.

Stablecoins are the grease for CEXs the gateway (drug) for - since a lot of people trust their keys in the hands of the exchanges themselves - "claims" on listed cryptocurrency tokens.

In service of efficiency and maximizing profits: claims on cash with claims on digital tokens. I will leave out the massive inflationary use of cryptocurrencies themselves like CEXs issuing their own tokens as a bonus sideline. At this point one could easily argue that the market cap lists are advertisement panels controlled by CEXs disguised as score boards (filled with "sponsors".)

As we know from the practices of centuries old fractional reserving (how much does a bank has to hold on reverseves to create some amount money (credit) out of thin air?) "traditional" stablecoins are most certainly backed by (intransparent) fractional reserves, the most infamous one being Tether. For all we know they could be running at whatever is needed (some percent) to keep the machine barely running by people cashing out.

Sooner or later triggering events will briefly pause the music on those merry trips to Jerusalem - but on this scale of course not equally for all so that those at the centralized sources themselves have enough time and the insight to react accordingly by taking everything they can and run; which again leaves the rest with basically nothing.

So, in short exactly the opposite of what were/are the stated goal of cryptocurrencies. From that perspective I am eagerly awaiting the next iterations of CEXs and at some point after a lot of financial casualties the growing awareness of their abusive ecosystem of playing into the addictive and destructive nature of gambling fueled by the financial insecurities and disillusionment of social mobility a lot of people are facing in the real world. But I guess, this will be a long fight.

just listen to this, it's insane:

https://twitter.com/101_buckets/status/1525347695505850368?s...

Is there anyone who understands LUNA/UST setup so well that can explain it without using crypto/fin babble?

EDIT:

Somebody here posted this: https://www.bloomberg.com/opinion/articles/2022-05-11/terra-...

It's a pretty decent explanation.

How it broke is pretty well understood. Is there a path forward to save the ecosystem? I think this is the more interesting question

I never owned UST, never got asked if I accept it or anything. I never understood why the currency seems so relevant. Now I know it's because a few big investors.

The only stablecoins I see actively used in the real world are Tether and Binance.

My point is, nothing changed and nothing of value was lost for a big part of the crypto community.

What these smart contracts and whatnot aren't taking into account is that people are dumb.

Not sure how many more examples are needed before people realize the rules need to be a bit more flexible to accommodate human mistakes.

Those products are meant to cause financial losses on first bug which obviously doesn't work.

There were no human errors or bugs at play here.

What mistakes should have been accomodated here?

“It all started this weekend. Over $2 billion worth of UST was unstaked”

Someone with $2B did the math using the new higher rate of inflation and pulled out of an asset that doesn’t produce anything because it has simply become less attractive. This pattern will keep repeating until inflation drops.

It would be funny if someone issues a stable coin for usd and then turns around and levers up on treasuries. And then interest rates go up and they get margin called on their treasuries position by their bank, oops !

I think the elephant in the room is the self harm that is happening. It may be very rare, but it is happening, and it happens in stock market crashes too (not just in crypto). Even if you don't care about crypto, even if you think people who trade in crypto are idiots, please remember there are real humans behind these things.

If you're licking your wounds, remember that things come and go. I know that's a shitty thing to deal with (I've lost my ass is crypto before too so I know first hand), but don't do something to yourself that is permanent and can never come back from. It's absolutely NOT worth it.

If you dodged this one, now is the time to be full of compassion to your fellow humans, not dancing on graves and gloating in "I told you so."

I think one can have compassion but there is also no need to infantilize people. It's not idiocy that drives people to this, it's greed. It's the idea of obtaining wealth without work, of speculation, and the thrill of what is plainly gambling. That is a vice in many traditions for a reason, and we would do well rather than just being compassionate to create a culture that doesn't tolerate it.

Protecting people from foreseeable disaster is not the same as infantilizing them, and greed doesn't explain why we need laws requiring seat belts and prohibiting unsubstantiated claims on herbal "remedies" and warnings that hot coffee is hot. A big part of the value of society is the accumulated experience of "seemed like a good idea at the time but wasn't", but only if we make sure that experience is shared with the next generation of tulip bulb speculators or beanie baby collectors before things get out of hand again.

>It's not idiocy that drives people to this, it's greed. It's the idea of obtaining wealth without work, of speculation, and the thrill of what is plainly gambling.

Is it greedy to have a 401k? People and companies have been pushing crypto as a reasonable investment for years. For example, it felt like crypto took the place of beer as the primary advertiser during this year's Super Bowl. It isn't all crypto assholes sitting at the top of Ponzi schemes who have been and will be hurt. Plenty of normal people only put their money in because they saw Matt Damon and Larry David talk about it on TV like any other traditional investment vehicle.

I put up with four years of drive by trolling on r/buttcoin from the "have fun being poor" crowd.

And when I post on this forum that crypto is just a worthless decentralized Ponzi scheme that doesn't solve any problems I'll get neckbeards explaining down to me that I just don't understand. Don't get me started on the ones who think that crypto is some kind of radical utopian political solution.

There's literally nothing there, it is all smoke and mirrors, and if you don't understand that and consistently shit on the people telling you that the digital tulips aren't wearing any clothes, don't be surprised when those people don't give a fuck when you lose it all.

I will absolutely dance on graves over this. I'm that deeply exhausted with all of it.

Bitcoin is worth 3x what it was when you started posting there … after the past week’s crash.

What I want is these crypto charlatans who were giving malicious financial advice to go to jail.

Yes. The US SEC puts about two of them out of business each month, and often claws the money back, but jail is rare. Too rare.[1]

The IRS sometimes comes in after the SEC if someone operating a fraud didn't pay their taxes. They put people in jail for years.[2]

Remember, Al Capone was sent to Alcatraz for tax evasion.

[1] https://www.sec.gov/spotlight/cybersecurity-enforcement-acti...

[2] https://www.irs.gov/compliance/criminal-investigation/founde...

We see how many went to jail in 2008 when the ‘real’ economy had trouble…

I don't think this is the end of crypto. I expect it to become a permanent competitor to casinos and the lottery. So I hope that people who have been wiped out understand that they can jump in again someday and hopefully pick the next winner.

> I hope that people who have been wiped out understand that they can jump in again someday and hopefully pick the next winner.

The National Problem Gambling Helpline (1-800-522-4700)

I really hope you forgot a /s

> I think the elephant in the room is the self harm that is happening

What is this even supposed to mean? Any large enough institution that involves risk is going to involve suicide, because some people when harmed will choose suicide. Some sports fans are harmed when their team loses, some are harmed so greatly that they commit suicide. Is fan suicide the elephant in the room for professional sports? Some people are harmed when a relationship breaks up, _many_ of them are harmed so much that they commit suicide. Is suicide the elephant in the room of interpersonal relationships? Is there some fundamental problem with romance or sports that must be addressed to prevent further suicides?

I think the loss of personal finances is far more acute than sports, but Sam Anderson, in the book Boomtown, conflates Timothy McVeigh's disillusionment with the Buffalo Bill's Super Bowl loses in the early 90s. It's a good little section of writing.

the r/terraluna sub is pretty wild right now

They locked all new threads. You can still post in an existing thread but you can't create a new one.

I've been angry about it since the beginning. This was predictable, and now people are asking for compassion?

Compassion was us yelling about this since the beginning.

Compassion was the folks who developed Dogecoin as a satire coin to explain the problems involved in the system.

Asking people to 'be full of compassion' is fine, and dancing on graves is terrible, but the time for compassion was the warnings that were years back, in the face of 'have fun being poor' taunts, while never ever folding or letting up. The sentiment here was the same type of nice but not kind nonsense that has gripped much of the culture.

I try to think of the people I convinced not to speculate in these markets. The fortunes not lost because people came to me as a life long investor, asking my opinion of cryto markets, and me carefully arguing that they were a commodity, not an investment vehicle, and you don't generally invest in rocks, because rocks don't produce anything.

Those of us out there that saved people from losing their life savings will never be acknowledged, because humans do not care to think about the lives that were saved by safety precautions, only the lives that were lost due to negligence.

https://medium.com/@philberent1/why-the-terra-luna-protocol-...

https://twitter.com/jordonaut/status/1352363163686068226

There are a variety of non-tech circles that I incidentally run in. Biking, skiing, gaming, etc. Because I'm the "tech founder" of the group I regularly get questions like, "Soooo... know of any good crypto I should invest in?"

My response eventually consolidated to, "When making an investment, don't buy things you don't understand. Because odds are someone selling it to you as an investment does understand it, and that difference in your respective understandings is their investment."

Just pointing out 1 dogecoin is still worth 1 dogecoin.

Wow!

(Also 100% agree on the compassion thing: schadenfreude for ostriches who thought sticking their head in the sand would make the objections false is only natural.)

As the article mentions, the drop for BTC and ETH was nothing unusual. This was a problem specific to UST/LUNA. Plenty of people in crypto warned about them. Algorithmic stablecoins like this have been tried before on Ethereum and all of them have failed.

I'll just point out that talking about being "kind" (under this nonstandard definition) isn't doing it. It's great that you gave your friends good advice, but is that what you're doing when you're bringing it up today?

None of us are doing anything material by talking about it on Hacker News, but the person you replied to seems closer to being kind at this moment?

Yeah, when even cryptocoin bulls consider these ponzis... you have to wonder if there is any rational reason for holding them is a greater fool and a belief that you can get out faster than others. I do wonder how you calculate the psychic cost of constantly monitoring your "stable coin", or maybe the answer is just the 20% annual returns on Anchor?

Almost the exact thing happened with ironfinance a year ago! https://ciphertrace.com/analysis-of-the-titan-token-collapse...

I think its the time for education.

Where are the news articles about the stablecoins functioning perfectly? There are a quite a few stablecoins functioning perfectly.

You pressed play on your “oh a crypto thing” script about anything crypto related and tradeable. You’re in comfortable and like company, but the issue with it is that it dilutes the conversation way from the one specific organization that launched Terra and Luna. This is the exact forum that should be talking about system designs, instead has all these odd anti-speculation rants. Half of this forum is paid in lottery tickets, its out of character.

This is why crypto needs to collapse sooner rather than later. To minimize the self harm.

Did you mis-paste? I don't know what that east coast west coast tweet have to do with anything? Seems like a non sequiter, unless I'm missing something?

Meanwhile I have a house and was able to lift out of poverty by ignoring people like you and saving in BTC instead of USD for the last decade.

YMMV.

I will gloat and dance on graves of assholes who mocked me “ngmi”. I would be graceful and compassionate to those crypto supporters who did not call others names. At the end of the day, the people you meet on your way up are the same people you meet on your way down. If you were asshole on way up, you made your bed.

Case in point, some old tweets from Luna founder Do Kwon:

https://www.yahoo.com/news/terrausd-founder-kwon-mocked-econ...

> Even if you don't care about crypto, even if you think people who trade in crypto are idiots, please remember there are real humans behind these things.

I don't care. There is nothing, NOTHING you could say to make me care about selfish cryptocurrency assholes.

I'd be interested in some analysis of whether Luna would have been more likely to work without the "Anchor protocol".

It likely would have limped along as a microcap wannabe coin that no one cared enough about to attack.

Software was eating the world. So much that it has started to eat itself. How predictable.

The favourite saying of german milennial teenagers comes to mind again:

Eine Dose Mitleid!

Are there other algorithmic stablecoins? Who is next?

The one I've seen mentioned most often is DAI.

Oof, not the most unbiased press

Encouraging Crypto to fail, and encouraging politicians to ban exchanges, is the quickest way to cut CO2 emissions and reverse chip shortages.

Terra didn't use proof of work.

Proof of doesn't work, amirite?

A lot of crypto are moving to PoS.

The "moving to PoS" line is so worn out and repeated that it should be flagged as a bot post every time. It's like hearing "thank you for holding, please listen closely as our menu options have changed" to those of us waiting on the line for Blockchain to just turn into ashes already.

Yeah any day now I’m sure.

100 tiny coins that nobody seriously trades moving to PoS doesn’t mean anything, ETH has been moving to PoS “real soon now” for literal years. Bitcoin and it’s variants can hardly decide on the max block size, so a fundamental shift like PoS doesn’t seem likely.

Also, PoS doesn’t solve resource shortage pressure - it reduces some power consumption, but it still puts artificial pressure on chips and drives.

The very idea of an algorithmic stablecoin is beyond idiotic. A lot of Crypto Andys are former gold bugs who bemoan th eloss of the gold standard (fun fact: the US dollar was never 100% backed by gold). Collaterized currencies are better but gold bugs still miss the point of what makes the US dollar work.

A currency only persists so long as people believe in it. That's it. As soon as that belief goes, it's all over. Even if it's collaterized that's true.

What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also foreign and domestic policy. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.

So it obviously sucks that people lost sometimes a lot of money on Luna (seriously the subreddit is a dark place now) and I believe at least some of the anecodtes of people losing their houses.. This probably shares a lot of pathology with gambling addiction (fun fact: gambling addiction has the highest rate of suicide of any addiction).

But you also need to recognize that a lot of people who got wiped out by Luna were in it to get rich quick. I mean even the ~20% staking returns on Anchor should be alarming by itself. Who is paying for that 20% return? It's bound to be a Ponzi scheme.

> What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also foreign and domestic policy. It's the ability to project military power anywhere on the planet.

What actually maintains the value of the US dollar is that it's actually used to exchange goods and services. If you have $100, you have a reasonable idea of what it can get you: 20 Big Macs, 2 pairs of jeans, or 1 hour of work from a Bay Area SWE. The value of the dollar isn't just backed by the government. It's backed by everyone who offers goods or services with exchange for a predetermined quantity of dollars. This gives actual currencies momentum that cryptocurrencies simply don't have.

> What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also the US government itself. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.

I started reading yesterday on DAI, an algorithmic stablecoin running since 2017. The thing is: a sizeable percentage of DAI is made of... USDC (a non algorithmic stablecoin created by Coinbase/Circle/Centre). They overcollateralize it and so far so good (since five years). They're even saying they're so overcollateralized they should widthstand USDC going to zero (or their USDC wallet being frozen by Coinbase, as Coinbase can do if asked to by the US authorities).

> The very idea of an algorithmic stablecoin is beyond idiotic.

This is key. It's either idiotic or malicious. The general structure of the relationship between Luna and USDT should be identified as a species of scam and criminalized going forward.

Even if it's collaterized that's true.

Even for overcollateralized ones like Dai? There's an arbitrage mechanism that forces the overall backing to be greater than 150%. Now it may perhaps be somehow conceivable that the value of the backing drops by more than a third within a single block, but that still makes it an order of magnitude more stable than banks, which usually operate with ~5% equity (and that's post 2008 regulations, and based on rather optimistic book values; the market capitalisation is often significantly less).

Another fun fact: Bitcoin is fiat. You can't redeem it for anything.

It seems fashionable among libertarians to attribute the US dollar’s value to the US military, but that is at best a tangential reason, not the root reason.

The root reason for the US dollar’s value is that the robust and innovative US economy ensures enough consistent productivity, wealth creation, and economic growth for the tax base to service the interest on US Treasuries, which back the USD since Nixon took it off the gold standard in the 70s.

That’s it - the world trusts that it can hold US Treasuries, benefit from the interest they pay, and that US won’t default on them - the risk-free rate of return, almost as risk-free as gold but with a more consistent and predictable return (as long as the USD doesn’t undergo hyperinflation).

A strong military is a side effect of a strong economy, not a cause of it. China is probably the best recent demonstration of that.

You may argue the US economy depends on foreign oil and hence a military capable of guaranteeing that supply, but that’s not entirely true either. In recent years the US vacilates between net importer and exporter of oil [1], and could be a solid net importer with enough political will and impetus.

[1]:https://ycharts.com/indicators/us_oil_net_imports

The idea of an algorithmic stablecoin is genius, time will tell if it works. But overall Luna’s crash isn’t too damning of the idea, because the root cause was a Ponzi scheme. (Which was identified and advertised as dangerous within the crypto community.)

> (fun fact: the US dollar was never 100% backed by gold)

Go on please.

this is entertaining

Of all of the wildly implausible ideas to come out of the crypto area, algorithmic stable coins are the least plausible.

Yet, somehow, DAI (an algorithmic stable coin running on top of Ethereum as I understand it) has apparently managed to keep its peg since 2017. I read on it yesterday and I'm very intrigued. It's a gigantic target for dark hats and yet so far nobody found a way to attack it.

And it's not small: $6bn of DAI worth 1 USD each circulating.

The idiots who yelled "have fun staying poor!" are now yelling "we're people too please have empathy!"

Can't make this shit up

Please don't post in the flamewar style, or whatever this is, to HN. We want curious conversation here.

https://news.ycombinator.com/newsguidelines.html

This article seems to assume it matters. It does not.

Ok, we've taken the part where it matters out of the title above. That's a headline cliché anyway.

Why doesn't it matter..?

I have one message for crypto-addicts - get an 'effing life instead of wasting it trying to get something for nothing. In other news the war in Ukraine rages on, millions of Ukrainians have lost everything and thousands of innocent lives are being lost. Some perspective please.

there are so many crypto projects on hold because their ukranian devs are getting shelled, really stopped me from buying the dip on some the last few days since nobody can answer "wen roadmap"

Reply on news.ycombinator.com