Crises provide an excellent opportunity to learn from our mistakes.
It teaches us about the dangers associated with investing.
Here are 9 lessons to learn from the $UST crisis:
It teaches us about the dangers associated with investing.
Here are 9 lessons to learn from the $UST crisis:
Disclaimer:
The attached tweets are not used to express hate and negativity
My intention is not to make fun of people who got hurt or the $LUNA community
I merely want to use this crisis as an opportunity to learn from the mistakes that have been made
The attached tweets are not used to express hate and negativity
My intention is not to make fun of people who got hurt or the $LUNA community
I merely want to use this crisis as an opportunity to learn from the mistakes that have been made
1. DELUSIONAL OPTIMISM:
It is the inability to look at the reality of the situation b/c the vision of what you want is much better. i.e; 20% APY
It is clear that:
To burn $UST you mint more $LUNA to avoid the death spiral, given that the $BTC pool was not ready
It is the inability to look at the reality of the situation b/c the vision of what you want is much better. i.e; 20% APY
It is clear that:
To burn $UST you mint more $LUNA to avoid the death spiral, given that the $BTC pool was not ready
Let's contemplate the worst-case scenario:
$UST withdrawal: $8B (From may 9th-10th)
LFG reserves: $3.5B worth of $BTC
Selling pressure($8B) - Absorbing capacity($3.5B) = $4.5B of $UST
i.e; $4.5B of $UST must be absorbed or else $UST will depeg
$UST withdrawal: $8B (From may 9th-10th)
LFG reserves: $3.5B worth of $BTC
Selling pressure($8B) - Absorbing capacity($3.5B) = $4.5B of $UST
i.e; $4.5B of $UST must be absorbed or else $UST will depeg
$4.5B worth of $UST is absorbed by selling $LUNA to the market
But there is a daily $LUNA minting cap
So you can't absorb all of $UST in one day
$UST is depegged until $LUNA minting matches the $UST selling
But there is a daily $LUNA minting cap
So you can't absorb all of $UST in one day
$UST is depegged until $LUNA minting matches the $UST selling
Of course, this was way easy to do in hindsight
But this is what you get paid for, you are supposed to be paranoid about your investment at all times,
But the 20% APY deluded us to be optimistic & assume that there were no risks involved in the protocol
But this is what you get paid for, you are supposed to be paranoid about your investment at all times,
But the 20% APY deluded us to be optimistic & assume that there were no risks involved in the protocol
REMEDY:
Being optimistic about a protocol is fine, but suppressing any probable risk is just delusional
Only be optimistic when it has logic & reasoning
Don't be optimistic b/c:
it's too big to fail
it pays you high APY
the market cap is huge
Being optimistic about a protocol is fine, but suppressing any probable risk is just delusional
Only be optimistic when it has logic & reasoning
Don't be optimistic b/c:
it's too big to fail
it pays you high APY
the market cap is huge
Follow accounts that post CREDIBLE opposing bearish views
It makes you aware of the unknown risks involved
@DeFi_Made_Here foresaw this event perfectly:
It makes you aware of the unknown risks involved
@DeFi_Made_Here foresaw this event perfectly:
@DeFi_Made_Here 2. I DIDN'T THINK THIS WOULD HAPPEN:
Alternative path bias: Alternative paths are all the outcomes that could have happened, but did not
Every successful outcome that $LUNA had in the past, had an equally detrimental outcome that you couldn't see
You finally saw one
Alternative path bias: Alternative paths are all the outcomes that could have happened, but did not
Every successful outcome that $LUNA had in the past, had an equally detrimental outcome that you couldn't see
You finally saw one
@DeFi_Made_Here Alternative paths are invisible, so you contemplate them rarely
Everybody is bearish now, so the alternative path is Do coming up with a plan to rebuild $UST from scratch
Contemplating the alternative path when everybody is focused on one scenario is an edge over others
Everybody is bearish now, so the alternative path is Do coming up with a plan to rebuild $UST from scratch
Contemplating the alternative path when everybody is focused on one scenario is an edge over others
@DeFi_Made_Here REMEDY:
Looking at an alternative path for every outcome is difficult
But you can contemplate the ones which will HURT the protocol & judge whether the protocol can at least survive it
Looking at an alternative path for every outcome is difficult
But you can contemplate the ones which will HURT the protocol & judge whether the protocol can at least survive it
@DeFi_Made_Here No matter how good the protocol is, always focus on the downside & see whether YOU will get hurt if that happens
If yes, adjust your position & diversify your holdings so that you are not vulnerable to a black swan event
If yes, adjust your position & diversify your holdings so that you are not vulnerable to a black swan event
@DeFi_Made_Here But not everybody fell for it:
@0xHamz did the math in Jan 2022
He saw the death spiral scenario happening if there were heavy withdrawals of $UST from the system which exactly happened-
@0xHamz did the math in Jan 2022
He saw the death spiral scenario happening if there were heavy withdrawals of $UST from the system which exactly happened-
@DeFi_Made_Here @0xHamz 3. THE HARM THAT A CULT CAN DO:
A cult following refers to a group of people who are highly passionate about the protocol
If you are a CULT follower, you now know the harm that it can do to you
A cult following refers to a group of people who are highly passionate about the protocol
If you are a CULT follower, you now know the harm that it can do to you
@DeFi_Made_Here @0xHamz This closely relates to the SOCIAL PROOF effect
You feel you are behaving correctly when you act the same as other people
The more people who follow a certain idea, the better you deem the idea to be
This crisis proves the fact that learning to THINK FOR YOURSELF is a must
You feel you are behaving correctly when you act the same as other people
The more people who follow a certain idea, the better you deem the idea to be
This crisis proves the fact that learning to THINK FOR YOURSELF is a must
@DeFi_Made_Here @0xHamz REMEDY:
Even if you are a cult follower you must always be open-minded to arguments
You can seek arguments against the protocol while being bullish on it long term
Even if you are a cult follower you must always be open-minded to arguments
You can seek arguments against the protocol while being bullish on it long term
@DeFi_Made_Here @0xHamz Don't get fooled by the narratives that go around Twitter
Remember that the smart ones are working in the background, trying to think outside the box
You either need to become one or find someone who is a great thinker
Be like the former, not the latter:
@TaschaLabs
Remember that the smart ones are working in the background, trying to think outside the box
You either need to become one or find someone who is a great thinker
Be like the former, not the latter:
@TaschaLabs
@DeFi_Made_Here @0xHamz @TaschaLabs 4. NOT TAKING RESPONSIBILITY FOR THE LOSS:
There are a lot of people out there who hate Do for making them lose their money
Their anger towards Do signifies that they are somehow not responsible for their losses
Remember this is a PvP game
Only the best players win
There are a lot of people out there who hate Do for making them lose their money
Their anger towards Do signifies that they are somehow not responsible for their losses
Remember this is a PvP game
Only the best players win
@DeFi_Made_Here @0xHamz @TaschaLabs Most people's thought processes should be like this:
Alright this is my money, I have done my research & I am going to allocate 'x' amount of capital to this protocol
If it fails I am the one responsible for it b/c, I am responsible for my family, not the founder
Alright this is my money, I have done my research & I am going to allocate 'x' amount of capital to this protocol
If it fails I am the one responsible for it b/c, I am responsible for my family, not the founder
@DeFi_Made_Here @0xHamz @TaschaLabs Instead i,t is like this:
Ahh many people say $LUNA is going to 100$ & and a lot of people seem to like the project
I am going to go all-in on $LUNA b/c I like the founder, he seems to be a nice guy
Ahh many people say $LUNA is going to 100$ & and a lot of people seem to like the project
I am going to go all-in on $LUNA b/c I like the founder, he seems to be a nice guy
@DeFi_Made_Here @0xHamz @TaschaLabs REMEDY:
The founder being a nice guy & your belief in him isn't gonna save the project from its flaws
The objective approach is to read the whitepaper, analyze the fundamentals, look for flaws & adjust the risk accordingly
Trust saves no one, only intellectual thinking does.
The founder being a nice guy & your belief in him isn't gonna save the project from its flaws
The objective approach is to read the whitepaper, analyze the fundamentals, look for flaws & adjust the risk accordingly
Trust saves no one, only intellectual thinking does.
@DeFi_Made_Here @0xHamz @TaschaLabs 5. IRRATIONAL HOPE:
If the reason for your investment is b/c you 'HOPE' that the project is somehow good, you are probably the last man standing
There was an enormous amount of 'hope' out there despite the massive depeg & sell-off
If the reason for your investment is b/c you 'HOPE' that the project is somehow good, you are probably the last man standing
There was an enormous amount of 'hope' out there despite the massive depeg & sell-off
@DeFi_Made_Here @0xHamz @TaschaLabs The loss aversion fallacy causes people to hold on to their crypto despite seeing the fundamentals being deteriorated
Selling their crypto at a loss seems more detrimental than seeing their crypto going to zero
There is also a huge fallacy in diamond hands
Selling their crypto at a loss seems more detrimental than seeing their crypto going to zero
There is also a huge fallacy in diamond hands
@DeFi_Made_Here @0xHamz @TaschaLabs REMEDY:
Diamond hands only work if the stated reasons are valid & applicable in the real world
HOPE, TRUST, BELIEF, and FEELINGS are all simple ways to make you hold your crypto while the whales dump on you
Smart people are working on when & how to cut their losses
Diamond hands only work if the stated reasons are valid & applicable in the real world
HOPE, TRUST, BELIEF, and FEELINGS are all simple ways to make you hold your crypto while the whales dump on you
Smart people are working on when & how to cut their losses
@DeFi_Made_Here @0xHamz @TaschaLabs Knowing when to cut your losses before you invest is a big lifesaver for many people
Learning how to survive in the long run is a superpower
Learning how to survive in the long run is a superpower
@DeFi_Made_Here @0xHamz @TaschaLabs 6. INDUCTIVE THINKING FROM THE MAY 2021 SCENARIO:
Inductive thinking is the inclination to draw universal certainties from individual outcomes
You expect what was happening till yesterday which was valid, MUST happen today
Inductive thinking is the inclination to draw universal certainties from individual outcomes
You expect what was happening till yesterday which was valid, MUST happen today
@DeFi_Made_Here @0xHamz @TaschaLabs Almost everybody was convinced that $UST will come back to peg, b/c it already survived a depeg event last year
What most people didn't realize is this:
What most people didn't realize is this:
@DeFi_Made_Here @0xHamz @TaschaLabs REMEDY:
Remember that what has happened before doesn't have to happen again
Inductive thinking shows that you are lazy to do the on-board research of how the protocol is doing NOW, instead you rely on past performances
Remember that what has happened before doesn't have to happen again
Inductive thinking shows that you are lazy to do the on-board research of how the protocol is doing NOW, instead you rely on past performances
@DeFi_Made_Here @0xHamz @TaschaLabs Always keep in mind that the market surprises you with THIS TIME IT'S DIFFERENT
There are no certainties in the markets, you should only think in probabilities
The probability of $UST failing was much higher when the deposits were at $14B than $260M
So?
At least scale out!
There are no certainties in the markets, you should only think in probabilities
The probability of $UST failing was much higher when the deposits were at $14B than $260M
So?
At least scale out!
@DeFi_Made_Here @0xHamz @TaschaLabs 7. ABSORBING THE WRONG INFORMATION:
What you feed your FEED will affect your mental feed
You are just bombarded with confirmation bias who simply put out words that has no intrinsic value
Imagine you were exposed to both of this information which came into your feed,
What you feed your FEED will affect your mental feed
You are just bombarded with confirmation bias who simply put out words that has no intrinsic value
Imagine you were exposed to both of this information which came into your feed,
@DeFi_Made_Here @0xHamz @TaschaLabs REMEDY:
The former gives no valuable information for your investment decision, it rather only deludes you with more confirmation bias
The latter gives you valuable information about the imbalance in the curve pool & possibly why ( @0xHamz killed it again)
The former gives no valuable information for your investment decision, it rather only deludes you with more confirmation bias
The latter gives you valuable information about the imbalance in the curve pool & possibly why ( @0xHamz killed it again)
@DeFi_Made_Here @0xHamz @TaschaLabs Both change the way you think about your investment decision
One simply gives you HOPE to hold on
The other gives you solid information for you to assess the risk & adjust accordingly
Another exam: Stop listening to the noise & start doing the math (@Route2FI)
One simply gives you HOPE to hold on
The other gives you solid information for you to assess the risk & adjust accordingly
Another exam: Stop listening to the noise & start doing the math (@Route2FI)
@DeFi_Made_Here @0xHamz @TaschaLabs @Route2FI 8. DIVERSIFICATION OF STABLECOINS:
Diversification of risky assets is for stock markets
Diversification of stablecoins is for crypto markets
This crisis has undoubtedly thought us that simply holding fiat in the form of crypto 'coins' is itself risky
Diversification of risky assets is for stock markets
Diversification of stablecoins is for crypto markets
This crisis has undoubtedly thought us that simply holding fiat in the form of crypto 'coins' is itself risky
@DeFi_Made_Here @0xHamz @TaschaLabs @Route2FI REMEDY:
We never know who's next,
What assets is Tether holding on to?
Is it liquid enough to sell immediately to absorb selling pressure?
Can ALL of $USDC's assets be frozen?
Is partial algo, partially collateralized stablecoin the new meta?
We never know who's next,
What assets is Tether holding on to?
Is it liquid enough to sell immediately to absorb selling pressure?
Can ALL of $USDC's assets be frozen?
Is partial algo, partially collateralized stablecoin the new meta?
@DeFi_Made_Here @0xHamz @TaschaLabs @Route2FI Nobody knows the perfect answer for all of this b/c new rules are being implemented every day
So, it's better to diversify your family savings on multiple stablecoins, so that if one goes zero you don't go to zero
So, it's better to diversify your family savings on multiple stablecoins, so that if one goes zero you don't go to zero
@DeFi_Made_Here @0xHamz @TaschaLabs @Route2FI 9. BETTING YOUR FAMILY SAVINGS
This event has shown the importance of RISK MANAGEMENT
It showed us the extreme that it can go, so we better be prepared for it the next time
If you had bet your family savings, please use this as an opportunity to learn about risk management
This event has shown the importance of RISK MANAGEMENT
It showed us the extreme that it can go, so we better be prepared for it the next time
If you had bet your family savings, please use this as an opportunity to learn about risk management
@DeFi_Made_Here @0xHamz @TaschaLabs @Route2FI There is a very high probability that you will REVENGE TRADE to make back the losses
You will increase the leverage, even more, to make all of it back
The reality is you will lose it all one more time
You will increase the leverage, even more, to make all of it back
The reality is you will lose it all one more time
@DeFi_Made_Here @0xHamz @TaschaLabs @Route2FI REMEDY:
Stop betting your house money to make more money
Only bet the money, that even if you lose it you are safe
Always have an emergency fund at all times
Remember this is not a get-rich-quick scheme
What you want is compounding gains, not leveraged gains
Stop betting your house money to make more money
Only bet the money, that even if you lose it you are safe
Always have an emergency fund at all times
Remember this is not a get-rich-quick scheme
What you want is compounding gains, not leveraged gains
@DeFi_Made_Here @0xHamz @TaschaLabs @Route2FI At the end of the day, all of us want to make money in this space
However, while this incident has harmed many of us, we must not allow it to limit our ability to progress
Let's use this as an opportunity to learn & get back stronger
Take care humansβ€οΈ
However, while this incident has harmed many of us, we must not allow it to limit our ability to progress
Let's use this as an opportunity to learn & get back stronger
Take care humansβ€οΈ
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