Odd Lots This Is How the Terra Stablecoin Actually Imploded
12 snips
May 15, 2022 Kevin Zhou, founder of Galois Capital, is known for his keen insights into crypto markets. He dives into the dramatic collapse of the Terra ecosystem, detailing how over $60 billion vanished and exposing the risks of algorithmic stablecoins. Zhou recounts his early warnings and strategic shorting of Luna. The discussion covers the chaos of UST's de-pegging, the emotional turmoil for investors, and broader implications for the crypto landscape. His reflections highlight the challenges of maintaining stability amid volatile and misleading yield promises.
AI Snips
Chapters
Transcript
Episode notes
Algorithmic Stablecoins Explained
- Algorithmic stablecoins, unlike centralized ones like Tether or USDC, rely on arbitrage mechanisms and not collateral.
- These mechanisms involve expanding or contracting the stablecoin supply to maintain its peg, resembling a "perpetual motion machine."
Unsustainable Yields
- The yields offered on UST deposits, like the 19.5% offered by Anchor protocol, are often unsustainable in the long run.
- If the source of the yield isn't clear, it likely comes from future investors, creating a risky system.
Bitcoin Reserve for UST
- The Luna Foundation Guard (LFG) purchased Bitcoin as a reserve to support UST's peg, similar to traditional finance.
- However, this contradicted the narrative of a fully algorithmic stablecoin, raising doubts among investors.