With the rise of crypto, companies have realized that they need to release their cross-platform games. This is causing major problems for game developers due to hardware limitations and lagging online play. How can gamers save Terra?
Luna Terra is an open-source cryptocurrency that claims to be the “next generation of digital currency.” If you want to save your terra, you need to do some research and find a wallet.
They’ll have to blow up the Moon to rescue the Earth.
TerraUSD, the stablecoin that sprang out of nowhere and attracted over $18 billion in investment, has lately lost its peg to the dollar and has come plummeting down to Earth. This graph contains everything:
Investors hurried to cash out their TerraUSD (also known as UST) and companion token LUNA in a drama that rocked the crypto community. In the newfangled world of cryptocurrencies, it’s a classic bank run.
I’ll explain what has to be done to save TerraUSD today. It won’t be simple, but it can be done, and it will benefit the whole crypto economy.
This was a crypto version of a standard “bank run.”
The Issues That Led to This Disaster
First, a short summary of how we got here and some key takeaways.
1) TerraUSD was an algorithmic stablecoin with no physical backing. Investors would never trust a code-backed stablecoin as much as they will trust a stablecoin like Tether or USDC, which are backed by real money, as I pointed out a few weeks ago.
To keep the price of a dollar consistent, algorithmic stablecoins depend on investors on both sides. They envision an ideal world where everyone acts rationally, as Ryan Clements pointed out in his excellent study Built to Fail: The Inherent Fragility of Algorithmic Stablecoins. Humans are notoriously illogical.
Lessons learnt include:
- Crypto initiatives must consider the whole human person. Without taking into account the whole range of human behavior, from euphoric excitement to illogical dread, we can’t “trust the numbers.”
- The “confidence in the code” supported algorithmic stablecoins are inferior to ones backed by “money in the bank.”
- Because blockchain technology can’t manage the volume of transactions that occur during a panic (such as a bank’s inability to repay money quickly enough), theoretical models should account for network congestion and exorbitant gas prices.
2) TerraUSD offered 20% returns if it was held in the Anchor Protocol crypto “bank.” A little investigation revealed that these amazing profits were being paid out by a fund that would ultimately run out of money, implying that the interest rate could not be sustained.
The fact that Anchor Protocol finally owned nearly 75% of all TerraUSD was another red flag: if that “central bank” collapsed, the whole system was doomed. But it also demonstrated that there wasn’t much to TerraUSD other than lock it up for the interest.
Lessons learnt include:
- If a cryptocurrency interest rate seems to be too good to be true, it almost always is.
- Look for crypto ecosystems with a diverse set of use cases and a robust app ecosystem. Stay away if you observe a single app controlling 75% of the market.
The total amount of money taken from the Anchor “bank” (courtesy DeFi Llama). Let’s name this “Total Value Unlocked,” or “TVU.”
3) Crypto media bragged about Terra’s meteoric rise. I signed up for every email, and for a few weeks, that was all anybody could speak about. Terra was expanding at such a rapid rate that the news became a self-fulfilling prophesy.
The investment publications then started publishing step-by-step instructions on how to invest in Anchor Protocol and earn 20% interest, adding fuel to the flames.
Lessons learnt include:
- Crypto media outlets must exercise critical thinking and temper their greed. It’s not always a positive thing when something grows fast. (Consider cancer.)
- Crypto investment newsletters have an obligation to their subscribers, even if they’re chasing clicks. When the structure collapses, everyone is wounded since it’s all made of “money Legos,” as they like to say.
- Admit when you’re mistaken. We can only create confidence in our sector if we are completely honest about our own mistakes.
4) TerraUSD’s founders then began purchasing bitcoin as security. Why didn’t they purchase genuine dollars? Probably because the crypto devout saw purchasing bitcoin as a bold gesture, and crypto newsletters pumped it up even more.
Lessons learnt include:
- Make it actual money, not another cryptocurrency, if you’re going to support a stablecoin with money. When Terra’s stock fell, so did the price of bitcoin, and their rescue money became more worthless.
- Don’t attempt to appease the crypto crowd; instead, do what’s best for them in the long run.
5) The governing community was thrown into disarray as a “decentralized” stablecoin. In the crypto world, the idea is to “decentralize” projects so that the SEC can’t hold anybody responsible. This says “the project is governed by the community,” which sounds nice in principle but is disastrous in practice.
Decentralized communities are indecisive and hesitant to respond; concentrated teams may move quickly. We learnt this lesson in the United States almost a century ago, when we established the Federal Reserve System, which is balanced by a decentralized central bank.
When Terra required immediate action, two things occurred.
For a solution, everyone went to TerraUSD creator (and pitchman) Do Kwon. This demonstrated that neither TerraUSD nor bitcoin in general is really decentralized: people turn to a leader in times of distress.
At the same time, the governance forum (where community initiatives are presented, voted on, and approved) became chaotic. Visit the forum to observe how decentralized leadership works in a crisis: it’s insane.
Lessons learnt include:
- Crypto investors would do well to study the Federal Reserve’s history, which demonstrates how our present system was designed to strike a balance between centralization and decentralization.
- The crypto community has to get over its obsession with decentralization. Decentralization cannot occur rapidly enough during times of crisis, which is why we have a Central Bank. A balance is required.
As crypto investors and creators, these are some of the lessons we may take away from the TerraUSD fiasco.
But let us not critique the bad without offering a better alternative. Here’s how you can save TerraUSD.
I’m going to steal… THE MOON! (Click to see)
Blow Up the Moon to Save the Earth
The TL;DR form of my idea is below.
- Convert the remaining $1 billion or more in TerraUSD to US dollars.
- TerraUSD will be relaunched as a fully-backed stablecoin.
- LUNA must be destroyed (blow up the moon).
- Remove the present management (clean house).
- Terra must be rebuilt into something useful.
Remember how TerraUSD works: LUNA counterbalances the stablecoin. Terra’s double liability has become this two-sided asset, as they aim to please two groups: those who invested in the stablecoin and those who invested in LUNA.
LUNA: From $116 to pennies on the dollar.
In the meanwhile, LUNA is virtually free. I propose completely shutting down LUNA and destroying the whole LUNA supply. This isn’t going to be popular, but neither is what’s going on right now.
Simultaneously, I recommend paying out the $1 billion or more in TerraUSD stablecoins that are still in the bank and converting them to real money deposited in a real bank.
To put it another way, convert any remaining TerraUSD into US dollars before relaunching Terra as a more modest, but fully-collateralized stablecoin.
Then, in proportion to the amount they owned, disperse the new stablecoin to previous TerraUSD holders. This is equivalent to a bank in trouble giving out 25 cents on the dollar. Everyone will receive a haircut, but they will only get back what they put in proportionately.
To be true, there are several intricacies to iron out with this strategy. That’s most likely the work of the Luna Foundation Guard, a group of six men who got everyone into this problem in the first place.
I know these six men have been working constantly on this issue, but now is their chance to correct it. Create a stablecoin that is backed by money for free.
Members of the Luna Foundation Guard should give up any personal LUNA and TerraUSD assets and agree to labor for $1 per hour. This would also be a fantastic “good faith” step in the face of impending litigation.
Alternatively, any member of the Luna Foundation Guard — or maybe all six — might be voted out by the Terra decentralized community. They may reorganize, hire new management, and start again.
These are all painful choices, but they are necessary to rescue Terra (though, unfortunately, not LUNA).
Of course, finding useful applications for Terra will be a lengthy process. They’ll need to entice developers to create fantastic Terra-based goods, as well as brilliant programs that provide real-world value. However, this is true of every blockchain initiative.
She’s paying attention.
Governments are paying attention.
There’s one more incentive to clarify TerraUSD: politicians are keenly following this situation. Investors in the United States who were burnt by Terra will protest to Congress, which will finally get off their backsides and act on crypto.
Janetsander Yellenton, the Treasury Secretary, is already on the lookout. (And there are a million things she hasn’t accomplished…) Just hold your breath!)
We can assist form excellent regulation if we can govern ourselves and endeavor to improve things where we’ve all gone wrong.
However, if we attempt some new wacky strategy to inflate the price of LUNA, as those offered on the governance forum, we’re all doomed.
This is not a TerraUSD failure. The whole cryptocurrency sector has failed.
We put ourselves into this situation, and we need to learn from it collectively. We must correct the situation. We need to improve.
Let’s work together to improve things.
Terra is a cryptocurrency that has been trending in the recent past. Terra Labs have created an app to help users save terra. The “terraform labs terra ust” is available for free on both iOS and Android.
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