Hacker News Re-Imagined

UST Stablecoin Loses Dollar Peg

  • 655 points
  • 16 days ago

  • @prostoalex
  • Created a post

UST Stablecoin Loses Dollar Peg


@syspec 16 days

Replying to @prostoalex 🎙

This is when you wish the crypto market closed at the end of the day until the morning.

Say what you will, but a cooling off period during a period panic does seem to help the market after bad Friday's or bad earnings at the end of the day.

Reply


@ewired 16 days

Replying to @prostoalex 🎙

My favorite thing about this is how the founder was so confident the algorithmic (sketchy) UST would completely disrupt the overcollateralized (fully backed) DAI: https://twitter.com/stablekwon/status/1506494471873081352

Do Kwon was putting a lot of weight behind a stablecoin liquidity pool designed to cut out DAI, crv-4pool. Those who invested in the crv-4pool are left with lots and lots of UST and very little of the other FRAX, USDT or USDC.

https://curve.fi/4pool (Ethereum RPC wallet required to see stats) USDC: 300,086.92 (4.73%) USDT: 302,375.01 (4.76%) UST: 5,443,729.24 (85.77%) FRAX: 300,405.16 (4.73%)

Reply


@gruez 16 days

Replying to @prostoalex 🎙

Note this is UST (TerraUSD), not USDT (Tether) the stablecoin controlled by Bitfinex.

Reply


@rhinoceraptor 16 days

Replying to @prostoalex 🎙

How does loaning bitcoin to market makers defend the peg, other than just by wash trading?

Reply


@ogogmad 15 days

Replying to @prostoalex 🎙

I've asked people questions about stablecoins before on other fora, and I get the impression that even if they maintain their peg, they wouldn't be useful to mere mortals as opposed to big crypto exchanges. Just so that others and myself can be absolutely clear, what are USD-pegged stablecoins for? No snarky answers, please.

I ask this because:

- you can't actually shop in your supermarket using stablecoins

- there is more risk to them than holding USD

- there is no increase in privacy because blockchains are public ledgers

- it's not bankless because the stablecoin issuer is effectively a (poor) bank

- it doesn't bypass KYC or AML because a regulator can decide that stablecoins are effectively currency. Also, Bitfinex requires their KYC forms to be filled out before you can withdraw stablecoins, making them no better than fiat, at least within the context of that exchange. If other crypto exchanges are like this, then you are better off converting to fiat every single time.

From discussions with people, this appears to be a weird dance that means regulators can't regulate, for some reason.

Reply


@Barrera 16 days

Replying to @prostoalex 🎙

The video interview at the bottom of the article discusses the source of capital for this enterprise to "keep" the peg. The interviewee claims that the source of the capital was basically a crowdfund. The team issued a lot of the tokens, kept a lot of it (about 1/2), and sold the rest. Perpetual motion is possible in finance, but you need fancy licenses and government appointments to do it. These guys are going to prison.

This thing isn't just one token, but apparently at least three. One of them (Anchor) claims a 20% yield on savings. This alone should be a red flag because that's about 1900 basis points above what you can expect to get from a good savings account or short-term treasury.

I don't have time to dive into the Rube Goldberg machine that this thing appears to be, but when it ends, it will end very badly.

Every Bitcoin era seems to have its Ponzi scheme. In 2017 it was BitConnect. They offered something very similar to what Anchor appears to be offering.

Reply


@ronyfadel 15 days

Replying to @prostoalex 🎙

It’s back to $0.92, incredible arbitrage opportunity right now to make 8% in little time (high risk obvs)

Reply


@sub7 16 days

Replying to @prostoalex 🎙

I posted a few months ago that when people realize their stablecoins are not so stable, the game's half up. usdt is also an obvious fraud, as is almost all of crypto right now.

Most people have no understanding of the hidden leverage built up in the system and how a small margin call in a negative sentiment env could easily trigger a 80-90% draw down.

You should have cashed out/been buying high quality real estate for the past 6-8 months but if you haven't been doing that, it's still not too late to get out.

Reply


@stickyricky 16 days

Replying to @prostoalex 🎙

If $1 is equal to 1 UST then why bother holding UST at all? Just hold dollars and convert for on demand usage.

Reply


@vmception 16 days

Replying to @prostoalex 🎙

Permission to fail, granted

Which is what I like most about that ecosystem, just do it, accept the consequences, rapidly iterate to something more resilient

Reply


@jtchang 16 days

Replying to @prostoalex 🎙

Something interesting to note about pegs is that they can be quite exploitable. Some banks/countries have tried to defend their peg but in the end it can ruinous (or wildly profitable) depending on what side you are on.

Some history:

https://historyofyesterday.com/the-day-george-soros-broke-th...

Reply


@0des 16 days

Replying to @prostoalex 🎙

Shouldnt have been climbin on the topsails.

Reply


@andix 15 days

Replying to @prostoalex 🎙

I never understood why i should use stablecoins instead of the regular banking system, which is highly regulated, to secure my money as good as possible. Stablecoins are just the worst of both worlds, aren’t they?

Reply


@jmyeet 16 days

Replying to @prostoalex 🎙

So we've been in one of the longest bull markets in modern history. I have been amazed at the wilful ignorance of Crypto Andys when it comes to why financial markets, the financial system, central banking, debt and debt markets are the way they are.

There's a certain delight [1] in watching increased market volatility exposing how understanding merkle trees and consensus protocols doesn't make you an expert on what the financial system is, how it works and why it is the way it is.

So lots of countries have tried pegging their currencies to other currencies, most commonly the US dollar. Your ability to do so is limited by how much money you are prepared to throw at it to counterbalance market forces. I mean this is one reason why we moved from Bretton-Woods to floating exchange rates.

Central banks have far more ability to defend a peg. Still a pet can be attacked (eg [2]) if the peg is sufficiently out of line with the market.

It's going to be funny to watch these crypto trainwrecks learn these lessons (again) the hard way.

[1]: https://www.youtube.com/watch?v=nCQGQ5qBQTA

[2]: https://www.investopedia.com/ask/answers/08/george-soros-ban...

Reply


@jwass 16 days

Replying to @prostoalex 🎙

Is USDC safe?

Reply


@frgtpsswrdlame 16 days

Replying to @prostoalex 🎙

You know we had 2008 and we learned that in high finance there were these complex derivatives that a lot of people understood in a loose sense, but rarely in a detailed sense. And that they were basing those complex instruments on credit ratings that were essentially fraudulent. And that structure of a fraudulent base and mounds of complexity on top can surf for a really long time before blowing up catastrophically.

How is this not just the exact same formula? "Oh you see it's stable because there's this exchange mechanism and it's attached to this floating currency, blah blah blah." It all sounds very complex but then it breaks and you look underneath and it seems like anyone who understood what the mechanics actually were would've always been a little sketched out by it. Is this whole ecosystem not just small-time hobbyists and programmers trying to create this exact dangerous dynamic over and over?

Reply


@gigatexal 16 days

Replying to @prostoalex 🎙

Is the house of cards finally falling?

Reply


@floatinglotus 15 days

Replying to @prostoalex 🎙

It’s an algorithmic margin call!

Reply


@not2b 16 days

Replying to @prostoalex 🎙

It's difficult to maintain a peg when it starts to become unsustainable and the big players start to bet against you. Reminds me of when Soros took on the Bank of England and won: they were trying to peg the value of the pound using the European Exchange Rate Mechanism (the precursor to the Euro). These guys can use up all their capital easily.

Reply


@nailer 15 days

Replying to @prostoalex 🎙

'Stablecoin' was always a marketing term and people outside the company should never have adopted it ('so-called-Stablecoin' would have been fine). Someone at a company doesn't decide that UST is worth 1 USD if they don't have the USD to back it up. The market does.

Reply


@mouzogu 15 days

Replying to @prostoalex 🎙

This entire market is a joke. Give it 1-2 months and LUNA will be at all time highs.

I remember when the Axie Ronin network was hacked for $600 million ETH. That same day Axie pumped 20%+.

There is no logic here. BTC goes up, most alts go up too.

Reply


@TedShiller 16 days

Replying to @prostoalex 🎙

That means it’s not really stable right? Should be renamed to Unstablecoin

Reply


@zby 15 days

Replying to @prostoalex 🎙

OK - so who is shorting LUNA now?

The yields look pale in comparison with the drops now - so I guess the only buyers of LUNA are shorters taking profits.

Reply


@lgats 16 days

Replying to @prostoalex 🎙



@lgats 16 days

Replying to @prostoalex 🎙



@zydex 16 days

Replying to @prostoalex 🎙

It deserves to fail. Another crypto ecosystem bootstrapped off itself.

Reply


@Al-Khwarizmi 15 days

Replying to @prostoalex 🎙

As someone who understands the basics of crypto, and markets in general, but doesn't have the time to go read the fine detail, I have always wondered what I was missing to understand how stablecoins not backed by their reference currency could possibly work, i.e., guarantee that they are always at parity with their reference currency.

This seems explanatory... apparently, what I was missing is that they just don't.

Reply


@jwmoz 15 days

Replying to @prostoalex 🎙

Free arb if the big boys bail it out. Which I'm betting on.

Reply


@dragontamer 16 days

Replying to @prostoalex 🎙

UST seems to be an "algorithmic stablecoin" that is supported by the Luna cryptocoin?

It seems like you cannot trade Luna directly on coinbase. But there's a "WLUNA" (wrapped luna) that alleges to trade like Luna over the Ethereium blockchain. https://pro.coinbase.com/trade/WLUNA-USD

I'm not sure how any of this works. I recognize that the "algorithmic stablecoin" basically sells LUNA to prop up UST (and vice versa, when UST goes over $1, then UST is sold to prop up LUNA). But I thought that the whole TITAN / IRON thing from a few months ago proved that this structure was vulnerable?

Did UST / LUNA just end up making the same mistakes as TITAN / IRON? Why is this article discussing "BTC reserves" ?? Why would they be selling BTC to prop up UST? What mechanism exists there?

All of these cryptocoins have their own rules, and those rules will determine the failure case. I know how much I don't know. But at the end of the day, a $0.90 "stablecoin" is not a good look.

EDIT: Wait, its now $0.78 ?? https://pro.coinbase.com/trade/UST-USD

Erm... that's not good.

Reply


@Vladimof 16 days

Replying to @prostoalex 🎙

Good time to buy if you want to make 33% in less then a month, probably...

Reply


@JoeJonathan 16 days

Replying to @prostoalex 🎙

Apologies here, but could someone ELI5: what's the appeal of a stablecoin? If I want to hold something in an asset pegged to the dollar, why not just hold dollars?

Reply


@arcticbull 15 days

Replying to @prostoalex 🎙

Now let's do USDT

Reply


@rvz 16 days

Replying to @prostoalex 🎙

Backed by Bitcoin™ - Somewhat of a so-called 'store of value' which was down 11% and $11B of it was bought at >$40,000 and moved to another wallet.

What could possibly go wrong?

Reply


@epa 15 days

Replying to @prostoalex 🎙

Tether scam can and will go down, when is the billion dollar question.

Reply


@bb88 16 days

Replying to @prostoalex 🎙

From CoinMarketCap

    Top 10 Holders: 56.6%
    Top 20 Holders: 67.05%
    Top 50 Holders: 82.17%
So it looks like a few people can make huge decisions to swing $UST. Then you hope the algorithm either catches up or there's enough greater fools to buy in.

Reply


@mattwilsonn888 15 days

Replying to @prostoalex 🎙

Permissioned chains are not inherently bad, but people must understand the difference between a permissioned chain and an economically open protocol (there's a spectrum). And much of the insidiousness in crypto these last two years is the former posing as the latter.

Reply


@mckirk 16 days

Replying to @prostoalex 🎙

It looks like this (un-)stablecoin has lost its peg two times in the past. The interesting thing is that's it's an algorithmic stable coin: if its price is below a dollar, you can 'burn' one UST to get $1 worth of LUNA (a regular crypto currency without an enforced peg). That has a deflationary effect and is meant to raise UST's price. Conversely, if UST's price is above $1, you can burn LUNA to get back UST, inflating the supply and lowering the price.

It's quite the neat idea really -- but I suppose it hinges on people believing that there is a healthy UST-LUNA ecosystem tomorrow that you can use to withdraw your funds if you want. Burning UST to get LUNA doesn't make sense if LUNA loses enough value by the time you could exchange it for something else, so I assume people rather take the loss on selling UST for less than $1, which would explain what we're seeing: Right now UST is at $0.81 and LUNA is down 47% in the last 24h. We'll see if the system is robust enough to recover from a 'bank run', if you can call it that. It at least isn't the first time the peg has been broken, and so far it's stabilized at $1 again every time.

Reply


@anm89 16 days

Replying to @prostoalex 🎙

Note Tether has not lost it's peg

Reply


@nathias 15 days

Replying to @prostoalex 🎙

I really like what Do Kwon is creating, the whole Terra project is amazing. I hope he doesn't get killed by the US criminal law system.

Reply


@scyclow 16 days

Replying to @prostoalex 🎙

I really don't understand why anyone wants algorithmic stable coins. It really just seems like the worst of both worlds. If you want a crypto asset that correlates with USD, why not buy something like USDC that's actually... you know, backed by USD?

Reply


@bspear 16 days

Replying to @prostoalex 🎙

Sadly all the news around UST and its associated dramas precipitates more people to try to liquidate

Reply


@rufusroflpunch 15 days

Replying to @prostoalex 🎙

The concept of decentralized "stablecoins" is fool's gold. It is not possible because it requires an outside source of truth (price of fiat) to be injected into the system by a trusted third party.

The reason that proof of work is absolutely necessary for both decentralization and scarcity is because the only objective source of truth available from meatspace is raw computation. Nothing else is trustlessly verifiable in cyberspace other than computation.

Reply


@TrapLord_Rhodo 14 days

Replying to @prostoalex 🎙

Eh, it will repeg eventually now that they are making it centralized like Dia and Tether. They can artificially inflate it up some non-zero amount backing the stablecoin and it will go back to 1. Pretty good arb opportunity if you have the stomach.

Do Kwon: "By my hand, Dai will die"

Do Kwon two months later: "i will become Dai"

Reply


@quickthrower2 15 days

Replying to @prostoalex 🎙

Q. Why would people buy something worth a dollar at max and potentially nothing?

A. Day trading speculation; Tax evasion; Money laundering

Reply


@gw67 15 days

Replying to @prostoalex 🎙

Luna token is losing -50%

Reply


@betwixthewires 16 days

Replying to @prostoalex 🎙

I tried to tell some of these kids. I tried. You all of a sudden hear about this cool sounding new thing and you should be suspicious. "Terra", "UST is the third largest stablecoin" and I looked at it and it looked a lot like nubits, a previous failed attempt at a stablecoin, older than ethereum. They won't listen. The thing was a scam, it was plainly obvious.

Reply


@hitovst 15 days

Replying to @prostoalex 🎙

Fraud. Any chance there will be justice? I won't hold my breath.

Reply


About Us

site design / logo © 2022 Box Piper