I never heard CZ saying plain and clear that the way the entire LUNA situation was stupid and that the communication with the community is broken.
The most point is CZ does not mention any attack because there was none. They are using this false narrative to manipulate the distribution in their favour.
Maybe I got paranoid dabbling in crypto, but I agree with MagicalTux’s take. Some of the hardcore advocates have pushed the idea that it was a well-organized massive attack, but despite such incredible losses no one seems to be digging deeper into this information.
Nevertheless, whether they like it or not, I think this information will be revealed as investigation into DK and TFL advance in some countries and Binance cooperates with law enforcement.
Hopefully, Terra has learnt its lessons. It’s painful. But sometimes, life can be this harsh. I personally has no idea how to recover my loss. I just have to summon the courage to move on hoping for the best.
He still been leaving out that Binance Labs Funds is part of LFG, or at least they were a few months ago when LFG was founded. Still, I been liking CZ’s public stance and community outreach
Problem with this is he thinks that if the proposal passes, then its the community voice, which it most certainly isn’t. DoK even has a validator on twitter saying that they were pressured to change their vote, but now it’s been amended while a LIVE VOTING proposal - it’s clear that there is only one type of governance, and that is ‘What Do Wants He Does’
So CZ is right - we are lead by stupid people here, technically, morally, and without any governance. Which Korea is he from again?
Binance is a custodian Wallet … You not in total control of your assets … Put your Assets on code wallets
I read the Binance Blog article, and while I tracked with most of what he said, I found the following statements a little troubling:
- The Terra team was slow in using their reserves to restore the peg. The entire incident may have
been avoided if they had used their reserves when the de-peg was at 5%.
- The most stupid design flaw is thinking that minting more of an asset will increase its total value
(market cap). Printing money does not create value; it just dilutes existing holders. Exponentially
minting LUNA made the problem a lot worse. Whoever designed this should have their head checked.
- The other fundamental flaw was the over-aggressive incentives. Specifically, Anchor’s 20% fixed
APY to push for (in-organic) growth. Let’s strip away all the fluffy stuff and look at fundamentals.
You can use incentives to attract users to your ecosystem. But eventually, you need to generate
“income” to sustain it, i.e., more revenue than the expenses. Otherwise, you will run out of
money and crash.
For the first two point, at least for the mint/burn portion of LUNA and UST, this is just using LUNA as a type of reserve system. In order for it to work well (as in catastrophic pressure), LUNA must always be at or greater in value than UST in regards to market cap. I agree that additional reserves should be there, but you should always make sure that the stable coin has at least 110% value backing it (not just for those on the market, but for all coins that have ever been minted, including those that have been burned for wrapped assets)(or you should have insurance that is not using your product). Lets be honest, even banks don’t meet this level (that is why you can have a bank run in the first place - although they are backed by insurance, something that was missing in this picture). Minting extends a pool of value in exchange for Burning another pool of value. In this case minting was using LUNA to buy UST and burn (which has the side effect of lessening the individual buying power of the individual LUNA, but keeping the market cap the same for LUNA, then using the new minted coins to buy UST, which burns UST then extracting UST from that pool, which makes UST more scares and therefore each UST gains in buying power)(works in the opposite when it needs to go the opposite direction). This is the same monetary policy that every Fiat currency uses. I am not saying it is the best policy, or that it is not crazy, but it is one that soft currency systems use (in my estimation, many soft currency systems are crazy because they uses market manipulation, and in many systems they do not back it with appropriate assets - for instance you should not back a currency with more of the same currency). The issue with this system was that it had an assumption built in to the code that limited how fast it could burn in the exchange, rather than burn at a rate set by volume pressure (this created the run, and it was a run that had fast and deep effects). So at least for this particular mint/burn issue, it is economically sound (or at least as sound as soft currency economics get)(even if it was implemented poorly, and even if there may be more preferable ways of doing it). Basically the mint/burn balancing is really just moving value from one pool (LUNA) to another pool (UST) or vice versa depending on the need of UST (if it is above peg or below peg). The balancing act can be pretty precarious if one of your trusted systems in the code or validation or the network that connects them fails to work as expected. I do agree though that shifting the market cap positively requires revenue into the reserve system in terms of outside positive assets.
- This article has a nice graphic titled “Arbitrage behavior around UST” of the flow of when mint/burn happens to help peg.
On the third point, I am not a fan of debt and loans at all, nor would I encourage them, but the idea behind the Anchor mechanism was that people deposited; the deposits were loaned; and the interest, the collateral used for staking, and the block rewards made up the incentive to loan back to the depositor. I agree that you should not be promising any amount of interest rates, but it appears that they figured out a system that financially could be feasible. There are a lot of formulas in how it figures out each of these (they are in the white paper), and I have not looked at them extensively, but in general the idea would work (and again is fairly similar to what banks do when they loan money). But, again, unlike a bank that has insurance, you would have to have enough so that if everyone pulls out of their accounts at the same moment, the system does not fail (since there is no insurance, and since if they do, it could crash the whole system).
- This article has a nice graphic titled “Wen Anchor?”
For Terra, the reserve was not high enough (both reserve meaning the market cap of LUNA + outside reserves of the TFG), they did not respond quick enough, and even if they had, given the sheer depth of money dropped on the market, the faulty mint/burn mechanism was too slow in burning.
- To complement the linked articles graphic depictions, here is the white paper describing the system
It was a fascinating article (particularly for a central exchange that has its own stable coin).
Hey mate, I would still like to assert what I said earlier. The market cap of $LUNA was a false representation of reserves because TFL did not own all the $LUNA in circulation but were sold at the hands of public…
Example: Let’s say that I HODL 100 $LUNA, the market cap of $LUNA will show my 100 Lunas as reserve for backing UST… but now let’s say I sell my 100 Lunas and cashout… that money is gone and did not contribute to back UST in any way…
You cannot call an asset as reserve when you are selling that asset to public…
Well you can only sell if someone buys. Think it as in a company with equity and debt. In stressed times, a company can issue new shares to pay debt.
If you sale you make loss in crypto
Hi @MagicalTux ,
Think of it this way: Lets say you had a jar with jellybeans in it, and I took some jellybeans away, how many jars would you have after I took the jellybeans away? Would it more more or less than the number of jars that you started out with? In the same way, the Jar = LUNA and the Jellybeans = Buying Power (actual value). You still retained your jar, but the buying power (or underlying value) was the part that was being used as the reserve. If UST was pegged too low, and it needed to buy UST to create less supply, it would take buying power out of your LUNA (you still held on to your LUNA, but the individual worth of it was now diluted since more LUNA were printed [the mechanism the Terra ecosystem uses]). That buying power, in the form of newly minted LUNA, was then used to purchase UST. The opposite happened when UST was pegged too high, it needed to add more UST, so it exchanged it for LUNA, making the supply of LUNA less, and so the LUNA ended up with more buying power.
In the example above circulation is how many jars (LUNA), whereas market cap value would be the total number of jellybeans (buying power / value) times by the total number of jars (LUNA).
In your example, as you know, when you sold your 100 LUNA your LUNA actually stayed on the market, but the difference in price when you acquired vs. the difference in sale would be the actual indicator of whether that LUNA increased in value (got more jellybeans in the jar) or decreased in value (removed jellybeans from the jar) (or it stayed the same). But, lets say you dug a hole in the backyard and buried your cryptowallet in the ground and did not touch it for years - then after a point, the market would no longer feel the buying or selling power of your LUNA, and so the market would operate as if it did not exist at all (it would see it as the supply went down, which will react in demand going up, and therefore value going up). The opposite would happen if you all the sudden unearthed your cryptowallet and dumped your LUNA onto the market.
For the Terra ecosystem, they specifically have a buy/sale functionality between LUNA and UST that enables it to shift supply from one side to the other in an attempt to keep UST pegged (which is the mint/burn mechanism).
On the the reserve that uses working capital - a bank account may be a good example, it adds to your total value even though you spend money out of it, and receive money into it on a daily basis.
With that though, I am not saying it is the best monetary policy, but just describing how a reserve monetary policy works for soft currency (as it was explained to me, and took a little bit to get my mind around it in all honesty).
I hope you have a great day (I really appreciate your thoughtful comments)
If my LUNA coins are stored on the Binance exchange, will they get into the Terra snapshot on 27.05.22 so that I can get new LUNA?
There should an attacker to have an attack. This seems more a flaw in the design
Ofcourse there was a clear flaw and whoever tried to point out the flaws were dismissed, insulted by Do Kwon himself. Best case scenario is they are a bunch of fools and worst case is crooks… either way it’s not looking good.