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An $18 billion Ponzi scheme is crashing right now. Terra USD was an algorithmic stablecoin backed by Luna cryptocurrency. It was used in Anchor protocol, which was giving guaranteed 20% APY. Theoretically it would be funder by earnings from borrowers, but it practice it was paid from money of investors, making it a classical Ponzi. It was hyped as very safe investment. A lot of people lost their entire life savings on it.
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It’s a bit like committing ransomware against yourself, except you-the-hostage-taker threw away the decryption key.
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I guess her kids can at least be grateful that she left them out of it? Not the kind of family picture I’d want widely shared.
(Not that it’s anything to be ashamed of. Most of us have been there.)
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Not the kind of “pegged” that they thought.
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On one hand, I kinda want to feel sorry for these people. On the other hand, I think they’ve demonstrated they would have been taken in by any number of other scams and schemes, and eventually lost their savings to those.
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If you can get someone’s attention by promising a “guaranteed” 20% APY return… you’ve just found yourself a mark.
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Nice explainer:
Matt Levine
Terra Flops
Also creditor fights and Musk Twitter
By
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May 11, 2022, 1:44 PM EDT
Oops
An “algorithmic stablecoin” sounds complicated, and there are a lot of people with incentives to pretend that it is complicated, but it is not. Here is how an algorithmic stablecoin works 1 :
https://www.bloomberg.com/opinion/articles/2022-05-11/terra-flops
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Matt Levine’s been great on this stuff
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[…]
The culprit for the crypto bloodbath was a chain reaction that started over the weekend when Terra’s stablecoin, TerraUSD, which is theoretically supposed to stay at $1, became “depegged” and started trading below a dollar. That sent shockwaves through the crypto community, since stablecoins are supposedly backed by real assets and aren’t just Monopoly money. At least that was the promise, despite investigative reporters finding it’s all a game of smoke and mirrors.
Tether, the most popular stablecoin in the world, also depegged for the first time early Thursday, dipping to $0.95 on major exchanges before recovering slightly to $0.98 as of this writing. But even at $0.98, the utility of a stablecoin is completely obliterated because it’s not worth precisely $1, causing speculators to rush in and try to make money by buying Tethers at a cheaper price on the assumption they can be sold for $1 later. And that’s exactly the kind of volatility that you already have with cryptocurrencies and doesn’t help people looking for a safe haven asset that can more easily be used to convert to fiat.
[…]
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Is this like when in 2008 (?) money market accounts became illiquid?
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