The Collapse Of The TerraUSD StableCoin – A Magnitude 10 Quake In Crypto Land.
The first time I came across the blockchain project Terra was in mid-2020 when a long-only crypto fund I am invested in since 2018 published a detailed technical report. The fund, with hundreds of millions of USD of assets under management, does very detailed due diligence, met with the team around Do Kwon multiple times, and made a multi-million dollar bet. After looking into it myself, I liked what I saw. I liked it a lot. So I also started building a position myself in $Luna, Terra’s native token.
On the day of the de-pegging, May 9th, I had 2,000 Luna staked with my 10x favorite validators. I bought those Luna for a total of 75,000 USD (=37,50 USD/Luna). I also put 40,000 USD in mid-2021 on the Anchor Earn protocol, growing to roughly 50,000 USD today, all in form of TerraUSD, or $UST, yielding Anchor’s ‘famous’ 19% p.a.
I also locked up 10,000 UST on Mars Protocol, and further, and put 1,000 USD in the White Whale Protocol lock-drop to help “protect the peg 💪” – almost ironic. Just shortly before UST started to de-peg, I felt great and was determined to hold Luna for years and years to come. So in summary, I had 126,000 USD invested in the Terra ecosystem. Check out my entire Digital Asset Portfolio (before the TerraUSD collapse).
So, in summary, my investment in on the Terra blockchain look(ed) like this:
invested in $LUNA 75,000 USD
on Anchor protocol 40,000 USD
on Mars protocol 10,000 USD
on White Whale 1,000 USD
Total invested –> 136,000 USD
At $Luna’s height (approx. 109 USD/Luna), my 136,000 USD were worth to 310,000 USD.
Now, let’s come to the events that unfolded this week. Although nothing is confirmed at this stage, on May 9th, a series of events happened that are very technical in nature, and require an advanced degree in finance and a very solid understanding of the market structure and dynamics to fully understand.
Among others, I believe @PedroExplore1 does a great job summarizing the events.
In a nutshell, here’s my own interpretation of what I believe happened:
1/ A short-seller borrows 100,000 BTC, and time dumping those perfectly
2/ The short-seller sells a massive amount of TerraUSD on Curve, draining all liquidity
3/ Users can’t withdraw any more TerraUSD, rumors start spreading on Twitter
4/ People start to withdraw TerraUSD on Anchor en masse
5/ Price of $LUNA starts falling from 60 USD, down to 40 USD, down to 30 USD
6/ TerraUSD de-pegs to 0.987
7/ Luna sells all their 42,530 BTC, further expediting the decrease in BTC price
8/ A cascade is set in motion, the falling BTC prices force Luna to sell more BTC, ..
9/ TerraUSD de-pegs to 0.60, and $Luna collapses 99,4% in value within two days
10/ Major Ouch
Actions I Took Right After The TerraUSD De-Peg Happened
First, I instantly un-staked all my Luna, knowing all too well that it would take me 21 days to fully un-stake. I’ll have to wait till May 28
Secondly, I withdrew all my 50,000 $UST from Anchor, and made two equal-sized transfers to Binance and Kucoin, sensing that ‘stop limit’ and ‘sell limit orders’ would become important to have access to. Unfortunately, until I had the $UST on both exchanges, the peg already widened to 0,75 to the dollar, and I put SL orders at 0,72 and sell orders at 0,80. Both orders went through at 0,80 USD, meaning I had to take another 20% haircut on my TerraUSD stablecoin.
At this stage, I am writing off my entire 2,000 LUNA position. More than 40 bio LUNA were “created” in the past two days (!!), making any substantial recovery in its price basically impossible. As my Luna tokens are essentially in the un-staking process till May 28th, I can not sell them anyways, even if I’d want to, hence I have no other choice here.
Top 5 Lessons Learned From The TerraUSD Stablecoin Collapse?
1/ Be A Good Looser.
Being wrong hurts. And I was wrong. I believed in Do Kwon, and Terra, all the guys at Delphi, and believe they all had the best of intentions. However, even if an evil short-seller might have triggered it, the Terra ecosystem could not withstand such an attack.
It was not ready, the project failed on a technical level. When George Soros took down the British Pound in the 80s, and basically an entire economy with it, he also did not go to jail, because he acted within the realms of normal market activity. It feels like Thor knocked me off my majestic golden horse with his f*ing Mjölnir. But I am still alive, am already up, changed my direction, and move on!
2/ Keep Following A Strict Diversification Strategy.
The crypto market is still very young, and extremely volatile. Therefore, the strategy I follow (described here) is important to follow and suggests never putting all eggs in one basket. Have at least 3, better 4 or 5, different ‘asset buckets‘. Even at the height, Luna represented approx. only 10% of my Digital Asset Portfolio, and less than 5% of my total net worth. And that’s considering priced-at-market, not priced-at-cost. I invested 75,000 USD in the Luna token, representing less than 3% of my digital assets. Hence relatively prudent. I will keep doing this in the future, and frequently re-balance my portfolio if one asset starts to represent too much.
3/ Only Stake A Maximum Of 30%.
I thought I was doing a respectable and noble thing to stake all my $Luna and earn 18-20% on Anchor with my TerraUSD stablecoin. This is great if everything works, but the in avg. 6-7% yield you get paid by the validators does not justify the risk of not being able to act quickly in terms of emergencies. In the future, I will only stake a max. of 30% of any given coin, in particular, if there is a cool-down period (Luna has (had) 21 days, Solana has roughly 4 days – even 4 days would not have saved you).
4/ Keep Tokens On Exchange & Use Stop Loss Orders.
I know people will be saying ‘not your keys, not your crypto, but if it’s just one lesson I learned from this TerraUSD stablecoin fiasco, it is that I want to be able to secure my gains with proper stop-loss orders and that I will plan my trades and then trade my plans accordingly. Luna collapsed from 60 USD to 0,005 USD within two days. 40 Bio USD market cap – poof! In two days! This is an Enron-like collapse. Until you move your precious coins from your called wallet to an exchange, you missed 2-3 innings of the downturn already. From now on, I will look after my interest first, and help the network by staking my tiny bag later.
5/ Take Profits When Things ‘Just Feel Great’.
I remember looking at my dashboard on Apeboard.finance, showing all of my positions on the Terra network, saying to myself this is too cool to be true. My 75,000 USD has grown to 210,000 USD, my Anchor earnings grew to 50,000 USD, and I earned about 600 USD per month in steady staking rewards and airdrops.
It’s that very moment, my fellow stackers, when the party is at its best, that your spidey senses should go off and you simply leave, meaning you cash out enough that you feel that you secured enough profit to feel great with whatever happens next (usually within the 30-50% range). You already won, and as the old adage goes ‘no one ever got poor by cashing in’! I did so with my $HBAR (bought at 0,03 USD and sold 20% at 0,52 USD) and $ETH (bought at 198 USD and sold at 4,200 USD), but not with Terra. I will for sure do so in the future!
invested in $LUNA 75,000 USD –> worth zero
on Anchor protocol 40,000 USD –> grew to 50k, sold for 40k, break even
on Mars protocol 10,000 USD –> lock-dropped, can not touch, currently worth 1,500 USD
on White Whale 1,000 USD –> lock-droped, can not touch, currently worth 150 USD
–> Total invested: 136,000 USD
–> Current value: 41,000 USD
–> Total loss: 95,000 USD 🤢🤮
Losing 95k makes me not so wise after all, it seems. But to my defense, the loss of 95k represents less than 5% of my digital asset portfolio and about 1.5% of my total portfolio, so ultimately, I managed the risk quite well I think.
I don’t know about you, but swimming in the crypto pool I believe requires a set of strict rules and specific trading plans – otherwise, you will just be lost, kicked in the face, and eaten alive. Markets have the tendency to humble the best of us, and it’s up to us to learn from our mistakes!