What we learn from this

Dear Lunatic,
I think it is important to see the situation with a cool head. Accept the fact. Take the pain. Then move on to recovery. I cannot offer way out of this. I can only caution what we might have done wrong, so we don’t stumble the same hole on our way back.

1. We focus on a wrong idea with UST
We as a protocol know UST is pegged with arbitrage. Arbitrage moves supply around. We may focus too hard on UST and forget the fact about USD. How does USD maintain its value? Trust. Trust that it will be a sound money. In this, we were wrong trying to protect UST at the peg by sacrificing LUNA. It would have worked if not for the 2nd issue, but scarcity does not improve trust. Scarcity increase price, and we hope that price increase trust. If I ask you right now if you’d trust UST for the next 5 years, would you trust it? Do you think others who share your pain in this will trust it? Without trust that UST is protected to be USD, UST is no longer a sound money. With trust, even a paper backed by debt that might not be paid can become a sound money. It’s not right. It’s not good. It just work.

Stable coin is stable, protected, and it is sold to a certain kind of people. People who want to invest, but scare of price swing. Guess what happens when stable become unstable for them. Yup, they jump - which you can’t blame them when a promise is broken and they leave the contract. The next time UST can rise, it must buy trust. Literally “buy” as its collateral will be tested again.

2. Arbitrage only work IF

IF exchange allows on/off ramp to take UST back to the protocol
IF the rate of change in LUNA value (calculus, anyone? no?) drop is lower than a certain limit
IF exchange allows UST liquidity to dry up, meaning they might not be able to fill some spot order and might damage their reputation? or maybe they try to protect their own stable coin. I can’t imagine how much reserve Binance have to increase for all the BUSD they have to fill the demand. I don’t know about this as I never run an exchange, but it might be.

From this point, arbitrage has too many failure points to maintain a peg. Price drop of collateral asset, on ramp of the volatile asset, off ramp of the protected asset, margin and leverage of both, all these had made our attempt to repeg UST a failure. It will fail again if we do the same thing twice.

I tried to do arbitrage to dry up UST supply for the past 2 days. It took 2 hours per run. It took 5 hours for the last run. Yes, I did see a positive effect every time I suck UST out of the exchange, but this is when I realize the mistake. People then did not sell for profit. They cut lost from fear. They no longer trust. I bet most of them don’t even arbitrage or they’d have bought all UST they could and dry up the supply pretty quickly. The issue was not scarcity. It was trust.

3. State the obvious - Stable coin is hard to make and maintain
I realize what we have is a collapse of economy dilemma. Economic policy is a triangle of “Monetary Freedom” - “Financial openness” - “Exchange stability”. A stable coin tries to have exchange stability, so it can only choose one of the two. We have tried, and we have failed. Our children may one day beat us and succeed, but we have to pass our lesson to them.

**4. Take a pause. Accept reality. **
In the past 4 days, I’ve had to convinced too many people to keep on living. In this I will not discuss what to do, but tell you what to do. If you need a reality check, read on. If you don’t, this is not for you. If you need it, you’re not in a state of mind to think, so just do it.

Assess your life

If you’ve lost your life saving = Get a job and rebuild
If you’ve also lost your essentials to either leverage or loan = Get help. Seek debt restructuring. You are not alone in this. Negotiate it out. Seek government subsidy if your country has one.
If you feel like hurting yourself, or others, your stress is too high = Seek medical help. This is NOT what you are. This is you under duress. If this is the first time you’ve been like this, do not judge yourself. Seek help. Let your body returns to normal with time.
I can’t advice on family relation, so … Helloworld (as when a programmer who doesn’t know what to say says)

Seek distraction
Stress from this can destroy your sleep and make things worse. Reduce your stress. Exercise. Treat yourself with some good food if you have money. Set day-to-day goal in your life for now. Watch streamers, vtubers, or other media you like. Time will reduce emotional intensity. Distract yourself back to focus.

If you still want to stay in crypto space, if you still remember and yearn for the future that have brought you into crypto in the first place, you may want to spend time looking at crypto-gaming. For now, as far as I know:

Gala Game Town Star is free to play. NFT is a bonus, but you don’t need one to play. It’s quite fun. Perfect for office work. You can use my link to sign up.
Axie Infinity release the new version which has 3 free sample Axies in the game. You may want to try out. It’s a rather serious game with focus on e-sport though, so I don’t really have time to play it that much anymore. Fun fact, they call their players “Lunacian”.
If you really want to play some crypto-game but they need NFT to play, join their respective Discord group and see if there are any scholarship offered. You can play most games without front investment. Most of them will also earn you token. Two birds in one stone.

I’d advice AGAINST buying any NFT in any game given the financial situation we’re in. So I only recommend crypto game that is free, and I only know 2. Please share if you have good ones. We can use more distractions.

Try to help fellow Lunatic to cope, but be vary of scam. I’ve already dealt with one scam claiming to be a Lunatic in dire situation. We feel empathy, but don’t let bad actor take advantage over us.

You can use this occasion to build new friendly relationship with people who have skill and now in need of work. Use this chance to make new friends and colleagues. Seek opportunity to rebuild. It can be on Terra. It can be outside Terra. It can be IRL. This is the time you can say that maybe the profit is the friends you make along the way.

That’s my thought on the current situation. I wish you all well. I’m going back to work now. Don’t give up. In years past, we’d say Luna has fallen on us, and we survived. Let it be remembered that the chain breaks before the users.