There are two things that matter:
- The peg.
- The intrinsic value.
Everyone is confounding the two...the peg is fine, and the intrinsic value is in demand shock. ๐งต
1/17
- The peg.
- The intrinsic value.
Everyone is confounding the two...the peg is fine, and the intrinsic value is in demand shock. ๐งต
1/17
During market collapses, everyone wants stablecoins.
"INTRINSIC VALUE" or the current value of the stablecoins becomes >$1. No "de-peg".
In cases when everyone wants to buy QUICKLY: They market buy with their stables. These stables will have a <$1 intrinsic value. No "de-peg".
"INTRINSIC VALUE" or the current value of the stablecoins becomes >$1. No "de-peg".
In cases when everyone wants to buy QUICKLY: They market buy with their stables. These stables will have a <$1 intrinsic value. No "de-peg".
Why isn't this a de-peg?
Because the CURRENT intrinsic value ONLY measures two things:
- The effectiveness of arbitrageurs aka Market Makers.
- The depth of liquidity with respect to demand shock.
Because the CURRENT intrinsic value ONLY measures two things:
- The effectiveness of arbitrageurs aka Market Makers.
- The depth of liquidity with respect to demand shock.
Currently, A LOT of people want out of UST:
Due to fear, buying the dip, AND protecting loans. This has thinned out order books and DEXs.
You can see for yourself who is withdrawing from Anchor here:
Due to fear, buying the dip, AND protecting loans. This has thinned out order books and DEXs.
You can see for yourself who is withdrawing from Anchor here:
When a stablecoin has a tight intrinsic value of $1 all the time it only informs you about:
1. the quality of the MMs
+
2. the depth of the order book.
Even failed stablecoin Titan could have also had a perfect $1 if it had deep liquidity + MMs too. This leads me to the "peg"
1. the quality of the MMs
+
2. the depth of the order book.
Even failed stablecoin Titan could have also had a perfect $1 if it had deep liquidity + MMs too. This leads me to the "peg"
Titan failed for many reasons from bad design to lack of actual utility as a stablecoin.
However, the technical reason was:
--- It de-pegged once its stability mechanism could no longer return the intrinsic value to $1 ---
However, the technical reason was:
--- It de-pegged once its stability mechanism could no longer return the intrinsic value to $1 ---
In other words, a death spiral is this:
Prolonged <$1 intrinsic value which overwhelms redemption mechanisms, de-peg occurs.
Prolonged <$1 intrinsic value which overwhelms redemption mechanisms, de-peg occurs.
Headlines of UST being at 0.95 only show us:
1. demand to leave UST is > immediate market depth
2. Market Makers are unable to return intrinsic value to 1 at the same rate.
NOT a failed redemption mechanism.
1. demand to leave UST is > immediate market depth
2. Market Makers are unable to return intrinsic value to 1 at the same rate.
NOT a failed redemption mechanism.
How to fix?
More depth, which @LFG_org provided recently by deploying the BTC reserves.
More depth, which @LFG_org provided recently by deploying the BTC reserves.
What if this does not fix it? Well, it is so important it is worth repeating.
--- It de-pegged once its stability mechanism could no longer redeem the intrinsic value to $1 ---
Will Terra's mechanism be able to return the intrinsic value to $1?
--- It de-pegged once its stability mechanism could no longer redeem the intrinsic value to $1 ---
Will Terra's mechanism be able to return the intrinsic value to $1?
Well, decide for yourself.
For every UST that wants out $1 worth of Luna must be sold, sort-of:
@LFG_org has accumulated $3B in BTC as a pressure valve. Instead of UST -> Luna, you can exit via BTC. This will reduce the selling pressure on Luna.
For every UST that wants out $1 worth of Luna must be sold, sort-of:
@LFG_org has accumulated $3B in BTC as a pressure valve. Instead of UST -> Luna, you can exit via BTC. This will reduce the selling pressure on Luna.
If the BTC runs out. What will give Luna value?
1. Terra is a blockchain with 600k transactions per day (Ethereum has 1.2M btc). Fees are paid in either Luna or stablecoins and given to stakers.
This is the same value capture as ALL smart contract cryptos.
1. Terra is a blockchain with 600k transactions per day (Ethereum has 1.2M btc). Fees are paid in either Luna or stablecoins and given to stakers.
This is the same value capture as ALL smart contract cryptos.
Additionally:
2. Whenever Luna is minted or burned a fee is collected to hand out to stakers over time. Currently, 29M Luna and 1.2B UST have been collected and are handed out to stakers over time.
This means as Luna's price drops, staking rewards actually increase:
2. Whenever Luna is minted or burned a fee is collected to hand out to stakers over time. Currently, 29M Luna and 1.2B UST have been collected and are handed out to stakers over time.
This means as Luna's price drops, staking rewards actually increase:
For example,
If 1 Luna staked yields you 0.1 Luna + 10 UST then
Lune at $100 means staking yields you 20% (10% from Luna + 10% from UST).
Luna at $50 means staking yields you 30% (10% from Luna + 20% from UST).
If 1 Luna staked yields you 0.1 Luna + 10 UST then
Lune at $100 means staking yields you 20% (10% from Luna + 10% from UST).
Luna at $50 means staking yields you 30% (10% from Luna + 20% from UST).
Today, as arbs buy cheap UST and mint Luna to sell...
Luna is actually getting more valuable as it is capturing a lot in fees.
Over the last year, fees have averaged $4.5M per day!
Luna is actually getting more valuable as it is capturing a lot in fees.
Over the last year, fees have averaged $4.5M per day!
There are 3 walls giving me confidence that Terra will be able to eventually redeem the intrinsic value to $1. UST will not de-peg:
1. A reserve created just for this.
2. Demand for blockspace (which btw runs 80% full most of the time. 300% today).
3. Uniquely, fees from stables.
1. A reserve created just for this.
2. Demand for blockspace (which btw runs 80% full most of the time. 300% today).
3. Uniquely, fees from stables.
For the sake of intelligent discussions, please share this and make sure we are talking about the same thing. I embrace FUD but only if it is productive and not dishonest.
The peg may very well fail, but all your screenshots are useless.
The peg may very well fail, but all your screenshots are useless.
Further reading about Luna rewards
Death spiral simulation
How amazing gas fee market is on Terra and how it could scale
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