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Those Giants Who Have Been Hurt by LUNA
2022-08-03, 10:53
TL;DR
- There is no doubt that the impact of the Three Arrow Capital (3AC) crash is extremely bad;
- Celsius' private key loss event caused certain FUD;
- Do Kwon stressed that he was not a liar, but also a victim;
- LUNA's unlimited additional issuance has destroyed its future;
It seems that the glory, fame and wealth of LUNA are gone overnight.
Whether in traditional financial markets or blockchain finance, "liquidity" is always the core issue.
LUNA, as a volatile asset with insufficient liquidity, can mint the stablecoin UST at the equivalent of 1:1, and obtain the liquidity of fiat currency with the help of Curve and other exchanges.
Since the day LUNA began to design, it has been doomed to "die".
We will take stock of the giants who are currently "buried with LUNA".
Three Arrow Capital (3AC)
The best investment cases of 3AC include Avax, Near, Aave, Derabit, Starkware, Terra LUNA, Axie Infinity, etc. Its assets under management are estimated to be between $10 billion and $18 billion. As a top 5 VC company, they have far-reaching influence and reputation in the industry.
However, as the anti-globalization intensifies, the credit cycle lengthens, the price of cryptocurrency plummets, and the DeFi industry declines, more and more crashes begin to emerge.
At the beginning of 2022, the hottest DeFi protocol was Anchor, which provided a yield of 20%. But to earn its yield, you must hold TerraUSD (UST), which is a token created out of thin air by an arrogant crypto KOL named Do Kwon. UST is associated with another token named LUNA created by him. The whole system depends on LUNA for value.
It is not fast enough for 3AC and a large number of LUNA followers. Kyle Davies once revealed that 3AC was not only making profits through Anchor, but also invested $200 million in LUNA in February this year. At its peak, LUNA and UST had a total market capitalization of $60 billion. But when the price of LUNA plummeted, all this evaporated overnight.
After that, panic spread in the crypto field.
As one of the largest customers of global lending institutions, 3AC has borrowed money from BlockFi, Genesis, Nexo, Celsius and other well-known platforms. There is no doubt that the impact of the 3AC crash is extremely bad.
It transfers financial risks to its lenders, who will bear the difference between the amount they owe and the cleared collateral, which makes every lender bear a huge impact.
Celsius
Previously, Celsius was a well-known trending platform in European and American countries, with more than 1.7 million users and more than $30 billion in assets under management. At the end of last year, its financing scale was $750 million, and the valuation reached $3.25 billion, leaving several streets of decentralized lending platforms such as Aave.
However, on June 7, Celsius lost at least 35000 ETHs (single transaction) in the incident of the loss of the private key of Ethereum 2.0 staking solution Stakehound, which caused a certain degree of FUD (fear, uncertainty, doubt) emotions in the crypto space.
Celsius' token CEL also fell sharply after the news was exposed, plummeting 75%, which also led to huge losses for users who used CEL tokens as collateral.
As the saying goes, everybody hits a man who is down. Multiple bad news and negative market emotions have brought a lot of selling pressure. Nowadays, Celsius, which applied for bankruptcy and reorganization, is unable to recover.
BlockFi
But even users didn't expect that BlockFi also lent all the assets of most users to 3AC, and 3AC was insolvent and couldn't repay the loan due to Blockfi.
BlockFi made a wrong bet on GBTC. BlockFi is the largest holder of GBTC at present. However, due to the fact that Bitcoin spot futures supported by Grayscale have not been able to be listed through the SEC review, the market has also seen a negative premium of GBTC.
Currently, GBTC can be purchased at a price of 7.3% discount, but GBTC cannot be redeemed by BTC, which puts BlockFi deep in a liquidity crisis.
In fact, before the crash, BlockFi was also questioned. BlockFi once attracted accusations from the SEC and 32 states for selling cryptocurrency lending products to approximately 600,000 investors without registration. Finally, BlockFi agreed to pay a fine of $100 million to resolve the lawsuit, which was another considerable asset loss.
Voyager Digital
After the collapse of 3AC, Voyager began to apply for bankruptcy protection about a week after the default of the $670 million loan provided to Voyager. One who was in the same dilemma is the cryptocurrency exchange Blockchain.com, with a loan of $270 million from 3AC.
Stephen Ehrlich, CEO of Voyager, attributed the company's financial difficulties to "the long-term volatility and spread of the cryptocurrency market and the failure of 3AC to repay its debts."
What Is Do Kwon Doing
As for the collapse of UST, Do Kwon stated that he was also a victim and had losses. In his opinion, the "self-confidence statement" he has issued is all because he is very confident in UST, but it is interpreted as "arrogant" by the outside world, and Do Kwon is very helpless about it.
He also refuted the fraud allegations he had suffered, and strongly emphasized that he was not a liar. In fact, he was also a victim: I made a confident bet on behalf of UST and made a confident statement, because I believe in its flexibility and value proposition. I have lost these bets, but my actions are 100% in line with what I said. There is a difference between failure and fraud.
In the past, Do Kwon was famous for his outspoken personality. He repeatedly launched a scolding battle with UST critics on Twitter, ridiculed those critics as idiots, and joked that "I don't bet with the poor", "are you still so poor?". He also frankly said that 95% of cryptocurrency companies will close down, "but it's fun to see these companies go bankrupt", which can be described as "outspoken".
Up to now, when asked about these tweets, Do Kwon said that he regretted his inappropriate remarks in the past.
With the gradual fermentation of this major incident, Do Kwon may encounter more and more thorny problems.
On June 22, Anonymous, a world-famous hacker organization, vowed to "ensure" that Do Kwon, the co-founder of Terra, would be "brought to justice as soon as possible".
On July 20, South Korean prosecutors raided the operating offices of 15 trading platforms and organizations associated with Terraform Labs to investigate the Terra crash and related fraud cases.
On July 26, Terra researcher FatMan cooperated with Scott+Scott, an American law firm, to file a class action lawsuit for the victims of the collapse of UST. The lawsuit listed Terraform Labs and Do Kwon as defendants, trying to recover the UST investment after the collapse of Terra ecosystem.
On July 27, the South Korean joint investigation team on financial and securities crimes issued a "Notification On Entry" to Do Kwon, the founder who is currently allegedly staying in Singapore. Once he enters the territory of South Korea, he needs to immediately notify the investigators; Meanwhile, the prosecution also issued a "No Exit" notice to senior executives such as Shin Hyun-seong, co-founder of Terraform Labs, and Kim Mo, former vice president.
Can LUNA Get Better?
The reason why LUNA plummeted this time was due to unlimited additional issuance. Before the collapse, LUNA had only 350 million tokens, but there are already more than 6.5 trillion LUNAs in the market at present. That is to say, even if no one sells and no one suffers heavy losses, the price has been diluted by nearly 20000 times. If it wants to rise to $1, the market value shall reach $6.5 trillion.
Presently, the market value of Saudi Arabian Oil Company, which ranks first in the world, is only $2.4 trillion, but it is the market value of dollars-and-cents oil. However, what "dollars-and-cents" value can LUNA now exchange for its former market value?
Conclusion
Nowadays, the crypto field is undergoing an unprecedented reshuffle.
As the saying goes, a whale falls, all thrive. In fact, the bankruptcy of the giant is the result of his own misfortune. Among these fallen giants, there are some who use multiple levers and black box fraud to grab huge profits. In the shadow of these giants fall, perhaps it is only the first domino introduced by LUNA.
The far-reaching impact of this domino effect has been incalculable. In the long bearish market circumstance, those participants who had deteriorated their assets and insufficient liquidity were once again hit hard.
However, the fall of these whales may also tell us to HODL! Don't FOMO, DYOR.
Author: Gate.io Observer: Byron B. Translator: Joy Z.
Disclaimer:
* This article represents only the views of the observers and does not constitute any investment suggestions.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.
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