Washington — In May, the collapse of the most popular US dollar-denominated Stablecoin project cost investors tens of billions of dollars as it panicked compared to a run on the bank. But before that, Stablecoin and its sister token luna, known as terraUSD (or UST for short), experienced a fairly spectacular rise — and some investors killed before it all collapsed. Did.
Venture capital firm Panthera Capital told CNBC that the $ 1.7 million investment in Luna was 100 times more profitable. Hack the VC Winkle Boss supports CMCC Global did not share accurate interests, but CMCC told CNBC that Hack left the hack in December while closing the Luna position in March.
This scheme relied primarily on a complex set of codes, in addition to faith and promises of future interests, with little cash to back up the entire arrangement.
Unlike USDC (another popular Dolpegg Stablecoin), which has spare flat assets as a way to back up tokens, UST is a stablecoin algorithm created and managed by Singapore-based Terraform Labs. did.this Relied on computer code to self-stabilize its value By creating and destroying UST and Luna with some sort of supply and demand seesaw effect.
For a while it worked.
UST held Dolpegg and Luna Token soared. Luna tokens rose to more than $ 116 in April, rising more than 135% in less than two months. Traders were able to arbitrate the system and profit from the price deviation between the two tokens. But perhaps the biggest incentive for the entire scheme was the accompanying lending platform called Anchor. This promised investors an annual interest rate of 20% on UST holdings — The rate at which many analysts said it was unsustainable.
Widespread support — and Public PSA — Respected financial institutions have given trust in the project, furthering the story that everything is legal.
Most people were happy until everything collapsed in early May.
The project had prepared about $ 3 billion worth of Bitcoin as a backstop for UST, but when Luna’s price became volatile, investors rushed off the cliff from both tokens.Luna Foundation Security Guard Attempt to restore UST $ 1 peg By using almost all of the spare Bitcoin. It didn’t work.
At their height, The total market value of luna and UST was about $ 60 billion..Now they are Essentially worthless..
Throughout the episode, the benefits of experienced large investors over individual investors who gamble with hope were revealed.
One posted on Reddit They said they didn’t think they had enough money to pay for the next semester at school after losing money at Luna and UST. Another investor affected by the crash tweeted She and her husband sold their home and bet it all on Luna, noting that she was still trying to digest whether it was really happening or just a nightmare.
Others are thinking of suicide after losing everything they have.
“I’m lost and trying to commit suicide in a chair,” said one person. Commenter posted on Reddit.. “I lost her life savings in (LUNAUST)’s investment because I suggested to my girlfriend three weeks ago. She lost $ 62,000 because she didn’t know anything. I’m here. What should I do? “
Among the winners of the UST Flash Crash is Pantera Capital, a hedge fund that has made 100 times more profit on its investment.
Joey Krug, Co-Chief Investment Officer of the fund, told CNBC that it had sold about 87% of its positions from January 2021 to April 2022, the primary fund that owned and traded Luna. After it was revealed that the UST peg was broken. Finally, Krug says Pantera is “stuck” in about 5% of their positions.
Assuming the remaining Luna they own remain worthless, all of their liquidations were converted into a profit of $ 171 million with an initial investment of $ 1.7 million.
Danmore Head, CEO of Panthera Capital, even if the fund is sold Joined CNBC in December 2021 and talked about his top altcoin picksIncludes the Terra blockchain luna token. At that time, Luna had risen by more than 15,800% in 2021.
“I think this is one of the most promising coins for next year,” Morehead said of Luna. “A lot of people have just discovered it and started trading.”
However, Krug said the company’s first decision to liquidate resulted in risk management and fund rebalancing.
“For most of the 2021 sales and some of the 2022, that was a really simple risk management reason,” Krug said. “As it continued to become an increasingly large part of the fund, it was not possible to actually manage a liquid hedge fund in one position, which is a very large part of the fund, so we needed to mitigate the risk. . “
Pantera sold again in May when it noticed that the UST $ 1 peg was broken.
“In fact, I saw the pegs broke a few cents and pattern-matched them with past currency pegs,” Krug continued. The company owned a lot of Luna as opposed to UST, but when UST traded under its pegs, the dynamics of more Luna being minted and reducing the value of each coin overall. I have.
“Basically, we want to sell it so that it doesn’t dilute,” Krug explains.
Hong Kong-based venture company CMCC Global was one of Terraform’s first seed investors in early 2018.
Martin Baumann, founder of CMCC, told CNBC that he sold his stake in March due to concerns due to continued due diligence. The sale decision was partly related to the technology behind UST, but his main concern was related to regulation.
“In contrast to asset-backed stablecoin, which is a derivative of the existing US dollar in circulation, UST has effectively increased the existing US dollar money supply,” Baumann points out in the Federal Reserve. Reserved for the system.
“It’s an interesting concept, but I thought regulators wouldn’t tolerate tampering with the US dollar money supply,” Baumann continued.
The rapid growth of UST has accelerated CMCC concerns.
When the CMCC was sold, Luna Token was trading for about $ 100. When asked about the profits of the sale, Baumann said the company would not comment on the return or performance of individual investments.
Cryptographic Venture Fund Hack VC Luna’s shares were reportedly withdrawn in December.
CNBC contacted HackVC’s partner Rodney Yesep, who did not respond to our request for comment on the profitability of its sale.Yes said In a recent interview In the DeFi Decoded Podcast, they say they’ve been Terra’s seed investors since “then” when they were “like another entity.”
“It’s terrible to see a lot of people affected by this kind of thing,” Yesep said in a podcast. “When the recession happened, we were no longer in position, but many were in position and many were significantly affected.”
Next is Galaxy Digital, a crypto-merchant bank founded by billionaire investor Mike Novogratz.
In an open letter Novogratz addressed to “shareholders, friends, partners, and the crypto community” — A person with a Luna tattoo on his arm To commemorate his position as an official “Lunatic” — he commented on where the project failed, but also said that the Galaxy benefited along the way.
among them First quarter financial reportGalaxy said Luna’s sales are the largest contributor to the net realized profit of $ 355 million in digital assets.
Other key backers at Terraform Labs included major venture capital firms such as Lightspeed Venture Partners and Coinbase Ventures. ThreeArrows Capital and Jump Crypto have purchased Luna Tokens. CNBC didn’t know how these companies went.
Terra supporters voted to revive a failed venture. The Proposed reconstruction Includes removing the new Terra blockchain and the problematic stablecoins that helped trigger the meltdown of the original project. It can also mean redemption for institutional and private investors that have been wiped out.
For those who have suffered significant losses, resumption can potentially lead to an opportunity to recoup the initial investment loss.
For example, Delphi Digital has it “Currently facing a large unrealized loss” After miscalculating the risk of a death spiral event bearing fruit Coin desk reports Seoul-based Hashed Ventures has lost more than $ 3.5 billion.
Terra 2.0 Proposal Includes plans to distribute tokens to old Luna (soon renamed “Luna Classic”) and UST token owners. If a rebranded coin takes off, it could be a form of redemption for the investor who suffered the loss.
But for those who went out for UST before things went south, they were clearly steering.
“In the new chain, a significant portion of the airdropped tokens appear to be vested over the years,” Krug of Panthera Capital told CNBC. “Our portfolio has projects that are integrated with Terra. We hope that something community-driven will succeed here, but we’re a fairly chain-agnostic fund.”
CMCC Global’s Baumann said the fund has decided not to make new investments in the currently revived Terra ecosystem.