What I’ve learnt from the collapse of Terra

What I’ve learnt from the collapse of Terra

May 21, 2022 by
Lessons from a painful time, the key takeaways from this episode Ok, I’m gonna do things a bit differently for this post for this time.Its just going to be a quick piece on my thoughts and opinions on what has happened recently. As most of you should have heard by now, Terra collapsed. It went into
What I’ve learnt from the collapse of Terra

Lessons from a painful time, the key takeaways from this episode

Ok, I’m gonna do things a bit differently for this post for this time.
Its just going to be a quick piece on my thoughts and opinions on what has happened recently.

As most of you should have heard by now, Terra collapsed. It went into a death spiral after UST started to depeg. Although they tried to use their reserves to defend the peg, it did not work in the end. The selling pressure was just too much.

There are already a lot of good articles and tweets out there which explains when the whole event took place and how did it happened, so I will not be going through that too.

As usual, enjoy this picture of 2 pandas just chilling around!

Photo by Pascal Müller on Unsplash

Ok, lets begin. I’m considered to be pretty lucky. Although I do hold LUNA, it was an extremely small position since most of it was in UST instead. It made up of about 30+% of my crypto portfolio. If this thing didn’t take place recently, I would have kept putting more $ into it, gradually.

I’ve heard and read many stories online where people have taken up loans, sold off their house or car just to raise funds to invest into Anchor protocol to take advantage of the attractive 19+% APY to get a decent chunk of passive income and that is really unfortunate.
With the crash of LUNA and the market being extremely bearish, this is really some potent mix.

But so, we all know the market has its ups and down. As long we don’t give up, we will still be able to make it in the end. That is provided we learn from our experiences or lessons.

So conspiracy theories aside, what could I have done better when “researching” or looking into projects like this?

1 A project may seem like it has much potential but I should spend more time to properly understand what are the weakness of it and not just know the benefits of it.

Its easy to get blindsided when we are in a bull market. Everything seems to be making $ easily. Everyone seems to be making $ too. Suddenly everyone seems to know what they are saying or doing. I should be looking and thinking more about,

Are there any Critical issues that will cause it to fail?
Are there any counter measures being developed or already in place?
Is it possible for someone to exploit this weakness with ease?

2 Just because a project has been doing well for the past months, year/s. It doesn’t mean that this trajectory will continue

Photo by Guillermo Ferla on Unsplash

Just like in the grand scale of things, the birth of a project till now is just a small blimp on the timeline, achievement yes, but nonetheless meaningless.
In the crypto world, there are constantly a lot of things happening. New NFTs being minted, new projects going live, protocol being exploited or getting congested.

Things change and at times, happens pretty quickly. The edge (doing well) it had might have been eroded away already. Keep track of the frequent updates on the project and think about whether that is in the best interest of the project.

3 Social presence of the developers
Face of the project

This can be view as one of the many marketing strategies to use. Staying connected with the community, having a presence there really helps with the project. But what happens when the face of the project is being arrogant online, dissing people left and right when the others may or may not be raising legit questions? Maybe it’s time to relook into things again. Are those questions really highlighting a flaw or are they just trying to spread FUD?

How does the face of the other devs handle questions when tough questions are being thrown to them?
Is it a well crafted answer to those questions or are they just brushed away with insults or misdirection which leaves you feeling more confused?

Another thing, it’s generally not a good idea to taunt others on the Internet. I personally feel it’s just too much heat, risk and too much at stake. Just like its not possible for a project to be 100% perfect or foolproof right from the start. There will sure be hiccups and issues along the way. With so much $ or TVL being involved now, its pretty reckless to just say what you want without thinking it through.

Or was that a marketing strategy as well? A strategy to douse the FUD flames and inspire fresh confidence into the project? Maybe I’m still living in the 1940s while other people are already living in 4040s.

4 Never take the word of others for it. If I still don’t understand or see how that is an actual solution, I should dig deeper or as hard as my shovel can bring me, at least for now.

My mistake was that I foolishly believed that there was an actual plan when the first depegging (went back to 0.93 and never again) happened.

There were plans to help UST to repeg (proposal 1164 — increase the minting capacity from 293M to 1200M ) but it was nothing new and also needed some time before it could be implemented. ( “Yay”, for decentralization!) So it wouldn’t have helped much for the situation. In the end, I think it only contributed more to the selling pressure as it just didn’t garner much confidence.

This is a tweet

“The only path forward will be to absorb the stablecoin supply that wants to exit before UST can start to repeg. There is no way around it.

This is just truly sad.

When I saw this tweet, I knew there was no more hope. If there was a way to categorize weak hands, paper hands, normal hands, bronze hands all the way up to diamond hands, this would effectively change a lot of hands to “selling hands”. I’m not saying I have a perfect solution to it but by doing so, wouldn’t it make more people lose their confidence in it and trigger all the different category of hands to start wanting to sell UST off too? Thus making it even harder to repeg and to the point of no return.

*What if there was a way to prevent the price of LUNA from dropping? Even with the massive minting pressure on LUNA, the $ of LUNA just hovered sideways and we see UST climbing back to its peg. Would that have given investors across the confidence they need to stop selling or not think about selling?
But easier said than done, how to even absorb so much sell pressure for a coin?

From experiences, we all know that using punishment as a form of deterrence doesn’t really work well. (FEI V1)
What if the only way was to prevent it from reaching its tipping point, which is why all the confident act before it happened?

Out of the 14,000,605 possibilities, absorbing the exits is the only way?

Just a few more questions / thoughts before I go…

They have released a new recovery plan which is to fork the chain.
The native coin for the old chain will be called LUNA CLASSIC (LUNC) and the new chain will be called LUNA.
#LUNA is more than UST

But is it though?

I thought stable currencies was the main selling point of the Terra blockchain? Or it got changed along the way?
I wont deny there is still value in the ecosystem, the existing devs, protocols already built.

Chicken is now extinct. Luna Foundation Chicken (LFC) will now be selling mutton as their main instead. Is it still LFC or should it be LFM instead? Of course I understand it possible for certain businesses to steer away from their core in order to survive. For this case it might be easier to convince VC or investors to still invest in the new LUNA compared to creating a totally new chain and then get people to invest in it.

What makes Terra stand out from the other chains? Like Solana? Fantom? Avalanche?

Photo by Timur M on Unsplash

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