[zucker42]

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

[cmckn]

> 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?

[initplus]

In this case the Oracle is a consensus protocol where community nodes report the LUNA/UST rate.

But of course to make running such a node easy for users Terraform Labs distributes node software that reports a value chosen by Terraform. So in spite of the distributed consensus design the Oracle is just Terraform.

[lamontcg]

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

[vba616]

Everybody makes mistakes. Everybody has to learn everything for the first time.

I would suggest the fundamental problem is that nobody considered looking for counterexamples to assumptions in "legacy" financial markets.

Like, how could people who are excited about reinventing finance not be interested in the odd corners of existing markets, like penny stocks and whether/how they go to zero? Or financial crises and panics.

Sure, most people in the world couldn't care less, but by definition, if you are making cryptocurrencies, obscure aspects of finance are your idea of a good time!

[55555]

Because the end users aren’t actually that interested in finance. They just want to get rich quickly without effort.

[netheril96]

One doesn’t need to look at traditional finance. A similar algorithmic “stable coin” Iron/Titan collapsed a year ago. The problem is with people not understanding anything before jumping in.

On the other hand, jumping in without understanding is why a small fraction of people got ridiculously rich from SHIB.

[smrtinsert]

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

[px43]

A simulation? This flaw should be obvious to anyone who took 10 minutes to read how the system works.

Synthetics backed by a 1:1 mint/burn are always going to crash and burn the same way. It's happened before, and it will probably happen again. High profile people have been shouting from the rooftops about this exact issue since launch.

I have some friends who lost everything in this, and it sucks. I did my best to explain this exact scenario to people who would listen, and ended up getting some pretty high praise this week from people I saved, but you can't save everyone.

We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do. The metaphorical sea levels on global finance are rising rapidly. Learning to swim now isn't just a recreational activity, it's a survival skill.

[zucker42]

> We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do.

Are the people who "read the instructions" really the ones who benefited here? The main winners here, as far as I can tell, are the employees and creators of Terraform Labs—who benefited from people investing in a project that was doomed to fail—and the people who got in early and out early—who are probably more lucky than smart.

[px43]

It's still unclear who initiated the original attack which set this whole thing off, but whoever did that likely took home billions exactly because they understood how this system works.

From the looks of it, there were at least two distinct events around 9am Pacific on Tuesday, and again on Wednesday, where someone very intentionally made massive moves to trigger cascading liquidations. The rest of the damage was caused by a significant loss of faith in the system, followed by a mad dash to the exits.

The people running Terraform were doing a lot better before shit hit the fan. Maybe Do Kwon was looking for an exit or something, but I doubt it was an inside job. Maybe I'm wrong about that. I basically started ignoring Terra/UST the moment I realized how they were trying to back their stable coin. There are enough good projects in the space, wasting energy ruminating about obviously dumb concepts is a liability.

[rocqua]

I can't understand how an attacker could benefit from this without having short-sold Luna or Terra. I figured that would be hard to do. Am I wrong?

[can16358p]

Their incentive might not be directly profiting.

They might have wanted Luna ecosystem to collapse, for whatever reason. (Possibly a state actor or a competing entity)

[binkHN]

> Synthetics backed by a 1:1 mint/burn are always going to crash and burn the same way.

What are the top few similar synthetics out there right now if you don't mind me asking?

[wtracy]

There's one cutely named Synthetix. If you look into the rabbit hole of "algorithmic stable coins", many of them use the same mechanism.

What made Terra interesting to me is that Luna is usable for paying gas costs. All equivalent systems that I've seen have a backing currency that has no uses other than minting synthetic assets or pure speculating.

[braingenious]

> We are now in a world where wealth is being rapidly redistributed from people who don't read the instructions, to those of us who do.

Can you link me to these instructions?

[krapp]

The complete instructions for all cryptocurrencies are as follows:

1) "Caveat Emptor"

[derivagral]

I have no stake in crypto besides a bit of eth. 2 coinbase examples. First: your deposits are covered only if they're denominated in USD. Second example was the fine print on Coinbase's crypto-loan thing where they said they're giving custody to a 3rd party and giving you all the risk. Good luck on that APY!

A free third example is all of these "APY" and yield-farming things in defi (usually) project figures based on a couple of early whales moving into a shitcoin, getting random people into it, then swapping liquidity to the next one. The initial move isn't exactly a lie, but assuming the next 6-18 months will sustain the advertised number is (imo) quite deceitful. Now you get to "stake" and lock yourself in for months! Yikes. That's on top of liquidity vanishing in a crisis.

tl;dr the nuance on this stuff is detailed, and the details are important in times of crisis

[el-salvador]

> I have some friends who lost everything in this, and it sucks. I did my best to explain this exact scenario to people who would listen, and ended up getting some pretty high praise this week from people I saved, but you can't save everyone.

Same here.

I was asked about crypto many times since it became legal tender in my country.

The country definitely went through an 'investment' craze for some months. Maybe in a similar way to what Robin Hood / GME was in the US in late 2020/early 2021.

For some people the damage was limited to the $30 they received from the government in their wallets, as a consequence of buying high and selling low.

For others who went all in and bought crypto with credit cards, is a different story.

Like for many people here the best investment they can make is paying up their up to 49.99% APR credit cards, but that doesn't seem exciting enough for many.

I remember having conversations with friends and acquaintances about investment options. Researching which bank offered the highest APR for term deposits, (they can sometimes be up to 5.5% for USD time deposits here), which investment options were available, or how usually investing in yourself (education) or paying debts is a much better investment.

At least one of them decided to go full on crypto "deposits" with higher APR, I haven't asked if they are underwater after the recent news.

Another thing that surprised me is that the ones that spent the most weren't IT people. Since originally here, Bitcoin was mostly an IT niche topic. A few lucky people that mined when it was possible to do it with GPUs or bought when it was bought about a $100.

With all this, most of my friends in IT were like "oh, I've known about this for a long time, I wish I had bought them years ago" but didn't take major actions. On my case I remember the first Slashdot post about Bitcoin and even downloading one of the early Bitcoin Windows wallet but I never mined.

Others were mostly bit annoyed for having to work after hours to update their companies' payment systems to handle crypto in a short notice.

But non-IT people where like very excited about it. It was surprisingly popular with 60+ and older acquaintances. I'm sure it was heavily promoted on local TV and probably by social media posts targeting their demographics.

I've met some 75+ retirees that even wanted to buy ant miners and others that bought crypto with their pensions. Like their first online purchase with card was for buying coins really. And I'm talking about the demographics that actually goes every month to the bank to update their bank booklet after their pension is deposited.

Very weird days.

[josephg]

I've ridden a few boom and bust cycles in crypto at this point.

One pattern I've noticed is that when you start hearing regular people on the street talking about buying crypto currency, its time to sell.

[kristjansson]

Shoeshine boys giving out stocks tips are the ruin of all great bull runs.

[JumpCrisscross]

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

The system has two stable equilibria, one and zero. If we assume zero is virtually permanent, the system always ends there. But it's highly sensitive to a volatility assumption. Ex ante there is no way to precisely estimate that.

[Tao332]

I get the feeling even that wouldn't have made much difference

https://twitter.com/stablekwon/status/1464897977793728514?re...

[TechBro8615]

That’s what this is. Nobody knows how, or if, any of this works. If people are putting money into it they can’t afford to lose, that’s their problem.