"But they, our ancestors, became arrogant and stiff-necked, and they did not obey your commands. They refused to listen and failed to remember the miracles you performed among them. They became stiff-necked and in their rebellion appointed a leader in order to return to their slavery.” (Nehemiah 9:16-21)
Bitcoin’s genesis block is historic, not just because it contained the first 50 bitcoins, but because it had a message coded in the hash code: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."
This reference to the 2008 financial crisis from Bitcoin’s creator, the pseudonymous Satoshi Nakamoto, is often read as an indirect mission statement: The financial system could be redesigned, money could obey immutable laws written into code, and finance could flow unimpeded. Bitcoin would be decentralized, beyond reproach and beyond manipulation.
However, it seems that the crypto industry, rather than recreate a trustless and egalitarian digital economy, has been dogged by in-fighting. We have recreated a techno version of the Old System, where greed for yield led people into convoluted and dangerous profit-maximizing strategies.
That is, without the benefits of power.
The meltdown of TerraUSD (UST) – which was once the third-largest stablecoin by market capitalization, which was once famous for offering a 20% annual percentage yield on deposits in the Anchor protocol and which was once going to make a lot of people very rich – appears to be total. This time there are no taxpayer bailouts.
Terra’s collapse, coupled with a consumer price index of 8.3%, has led to selling across the crypto markets. Bitcoin buckled and is now below $30,000, with alternative coins faring no better as investors either sold into BTC or exited into cash.
Due to its algorithmic design, UST has a price that moves in sync with the price of Terra’s native cryptocurrency LUNA. The bank run that disentangled UST’s peg to the U.S. dollar also collapsed LUNA’s price, which crashed over 99% in two days to less than a cent. Earlier this year, UST and LUNA had a combined market cap of $60 billion, and now it’s under $7 billion.
The fallout has just started. There are yield aggregators that use UST as collateral and God knows what other complex financial strategies built on top of UST that are now at risk. People have lost their life savings; there are tears and depression.
Do Kwon, the braggadocious CEO of Terraform Labs, last year made CoinDesk’s Top 10 Most Influential list. Like other brilliant tech entrepreneurs, he had the status of a cult hero – people thought UST was one of the most brilliantly designed financial products, because it was successful.
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