The UST de-pegging incident and the subsequent LUNA crash caused significant damage, both financially and emotionally. This article highlights some key lessons learned from this event
UST De-Pegs, LUNA Crashes & 5 Life Lessons
Many were likely affected by the recent UST de-pegging and LUNA crash. Money has been lost, but the market remains and moves forward. So, what can we learn from this event? Here are 5 lessons I’ve learned.
You can watch a more detailed and visual video presentation about the lessons from the LUNA and UST collapse here:
Funds Aren’t as “Divine” as We Think
A common strategy in crypto, or any field for that matter, is to follow those we believe are skilled. And in this case, that’s venture capital funds.
Typically, users invest in projects that have received funding from large funds. As with Terra, these included Coinbase, Hashed, Delphi Digital, Binance Labs, etc. These are considered top-tier funds in the crypto industry
As of early 2021, LUNA had grown significantly from its previous low. However, funds were still actively investing when Terra raised capital. Even at $50/LUNA, Terra still easily raised capital in early 2022. This shows that they are very confident that LUNA will still grow a lot in the future.
Among them, Hashed and Delphi Digital are two funds that spend heavily not only on Terra, but also on projects in this ecosystem. Moreover, Delphi Digital also accepts to use UST to pay for its Premium account.
The total amount of money Terra raised in 2021 is about 175 million USD. And now, that number has officially returned to “dust.”
The damage is not simply in investment money. Hashed and Jump Crypto both participated in becoming Terra’s Validator, meaning they had to lock up a large amount of LUNA. Ironically, this locked LUNA needs 21 days of Unstake to be withdrawn and sold on the market. This mechanism was originally used to encourage users to stay with Terra, limiting LUNA withdrawals. Therefore, this amount of LUNA is now considered a complete loss.
We, including myself, often “deify” funds, considering them as a guarantee for the project. But in the case of Terra, or Sushi before that, should VCs be “revalued” in the current time? If not, is it because we are too “blindly” giving decision-making power to the fund without preventing failure?
Making money in crypto is not easy
What is the saying that we often advise “F0” friends? Perhaps it is a warning that making money in crypto is not as easy as what is shown online. But after the Terra case, I think making a profit in this market is 10 times more difficult than imaginable.
Terra used to be in the top 10 projects with the largest capitalization in crypto. Even, at one point this coin almost reached the top 5. Besides, UST was also in the top 3 of stablecoins with the largest capitalization at that time.
In history, no project in that segment has had its price drop by almost 100% in just 4-5 days
In crypto, another popular investment method is to only buy and hold top coins (high capitalization assets). The reason for this is that top coins often don’t lose much value when BTC corrects, or at least don’t get scammed like low-capitalization projects. In return, the profit received is not high.
But Terra has proven that, despite its sky-high capitalization, the project is still at risk of being attacked to the point of being almost unsalvageable. Or even, there are rumors that Do Kwon, Founder of Terra, also asked the police for protection (details here).
Next, Anchor Protocol was known as a favorite investment destination because it offered an interest rate of 20%/year and paid in UST. This is evidenced by the more than 14 billion UST deposited into Anchor before the Terra incident.
Just deposit stablecoins, and receive a 20% profit, also in stablecoins. It sounds easy, but now, UST has depreciated severely. Many people earned 20% a year, but lost 50% in a day because of the UST price drop.
Therefore, there is no safe way to make money in crypto. If someone tells you about an investment channel that guarantees profit and is absolutely safe, it is definitely a scam, or has bad intentions.
No matter how good the risk-to-reward ratio is, don’t be overconfident
In this section, I want to talk about two things: Do Kwon’s bet and investing in UST & LUNA when the price drops.
1.Looking at Do Kwon’s bet
Although the bet took place when the LUNA price was 88 USD (whether the LUNA price in 2023 at the corresponding time is greater or less than 88 USD), it is much higher if calculated from the price of the Seed, Private, or even the 2021 funding round. But I thought Do Kwon had a very high chance of winning.
Because both were betting on Do Kwon’s own ecosystem. At that time, although Terra was a potential ecosystem, there were indeed some problems with the use of UST.
Users like me could even see this, so couldn’t Do Kwon and the team see it? Therefore, just by fixing the problem, it seemed almost certain that LUNA would continue to grow.
But this didn’t take into account that someone would attack 3pool when Terra moved liquidity to UST’s 4pool. And although it is still a long time before the deadline, perhaps we already know who won.
2.”Catching the bottom” of UST and LUNA at this time
Not only me, but many people took the opportunity of the sharp drop in LUNA price to buy and wait for the problem to be solved, after which they hoped the price would recover. In addition, I thought that buying UST still had a greater chance of winning, because UST is a stablecoin, and is also the core of Terra’s construction philosophy. So LUNA could lose value, but they would try their best to save UST.
Also, I thought that the funds would help Terra in this incident. But no, when Do Kwon called for capital, the funds refused, leading them to have to “self-motivate” by adjusting Terra’s parameters to reduce the selling pressure of UST.
That much effort was not enough for both LUNA and UST to recover. As a result, those who participated in “catching the bottom” of UST and LUNA mostly lost money.
Underestimating others and the ending
I once wrote in the article about UST losing its peg about Do Kwon being arrogant about his “pet” and “drowning” anyone who criticizes Terra. And there is a possibility that this is the reason for the parties to join forces to attack Terra.
Although not the main reason, this also affected the process of seeking support. When Terra was in trouble, a series of names that Do Kwon used to look down on, or tease all tweeted mocking Terra. A typical example is the Founder of Cardano as follows:
Another case is in an interview, when asked about Do Kwon’s prediction of the number of projects in this market that will fail, Do Kwon replied that it was 95%. What is noteworthy is that afterwards, Do Kwon said that watching these companies “die” is quite entertaining.
Of course, the presence or absence of these tweets does not increase Terra’s ability to raise capital. But when faced with this historic event, I think the negativity made it more difficult for Do Kwon and the team to manage their emotions when finding solutions.
Controlling psychology when investing
This incident deserves to be included in history because of the level of devastation it caused. Not only financially, but even mentally for investors.
On Reddit’s Terraluna section, they had to pin a post about emergency phone numbers when no one was listening to anyone’s confiding or wanted to receive advice. In addition, some people even engaged in negative actions after losing money. In an article about this on Yahoo.com, they had to attach a phone number if readers needed health support.
It is not clear whether the above cases are real or fake, but based on the severity of the past time, it would not be surprising if these things actually happened.
Personally, I am fortunate to know how to allocate my investment portfolio. Despite the loss of some assets and psychological damage, in general, the next day I felt much better. Therefore, to survive in the market, in addition to the knowledge of “finding deals”, we need to have a clear understanding of how to allocate capital reasonably.
Summary
Even if there is luck to overcome the consequences, this Terra incident deserves to become an example of investment. Through this case, what did you guys get, you can comment below for everyone to discuss
