Who got rich before the collapse of Terra Stablecoin?

WASHINGTON – In May, the collapse of one of the most popular stablecoin projects pegged to the US dollar cost investors tens of billions of dollars as they pulled out in a panic that some compared to a banking run. But before that, the stablecoin terraUSD (or UST, for short) and its sister token, Luna, had seen a pretty dizzying rally — and some investors killed it before it all collapsed.

Venture capital firm Pantera Capital told CNBC that it generated a 100-fold return on its $1.7 million investment in Luna. Hack VC and Winklevoss-backed CMCC Global haven’t exactly shared their winnings, but CMCC told CNBC that it closed its Luna center in March, while Hack reportedly exited in December.

The scheme relied largely on faith and the promise of future returns, as well as a complex set of code, with very little hard cash to support the entire arrangement.

Unlike USDC (another popular stablecoin pegged to the dollar), which has fiat assets in reserve as a way to back up tokens, UST was an algorithmic stablecoin created and managed by Terraform Labs in Singapore. He relied on computer code to self-stabilize his value by creating and destroying Earth’s vaults and Luna in a kind of swinging supply and demand effect.

For a while, it worked.

UST maintained its peg to the dollar and the luna symbol rose. The Luna token soared to over $116 in April, up more than 135% in less than two months. Traders were able to balance the system and take advantage of the deviations in the token’s price. But perhaps the biggest catalyst for the entire scheme was an accompanying lending platform, called Anchor, which promised investors a 20% annual return on their underground holdings — a rate many analysts said was unsustainable.

Extensive buying – and general public service announcements – from respected financial institutions lend credibility to the project, fueling the narrative that the whole thing was legitimate.

Everyone was happy until everything collapsed in early May.

Although the project had amassed nearly $3 billion in bitcoin in its reserves as a backing for UST, when the price of Luna became unstable, investors rushed out of both coins, sending prices skyrocketing. The Luna Foundation Guard attempted to restore the treasury’s $1 peg by spending nearly all of the bitcoin in its reserves. did not work.

At its height, the combined market capitalization of Luna and UST was approximately $60 billion. Now, they are basically worthless.

The whole episode revealed the advantages of experienced investors on a large scale over retail investors who gamble with hope.

One person posted on Reddit that he doesn’t think he’ll have enough money to pay the next semester at school after losing money at Luna and UST. Another investor hit by the crash tweeted She and her husband sold their house and bet everything on Luna, stating that she was still trying to comprehend whether this was really happening or just a nightmare.

Others contemplate suicide after losing everything they have.

One Reddit commenter wrote: “I got lost on the verge of committing suicide in a chair.” “I lost my life savings in investments (LUNA UST), and the worst thing is that I made an offer to my girlfriend 3 weeks ago. She doesn’t know anything, I lost $62,000. Here I don’t know what to do.”

Among the winners of the fixed-earth reservoir collapse is Pantera Capital, a hedge fund that has generated a 100-fold return on its investment.

Joey Krogh, the fund’s chief investment officer, told CNBC that they sold about 87% of their position from January 2021 through April 2022 in the underlying fund where they held and traded it. Once it turned out that the fastening of the floor cabinets was broken. At the end of all this, Krug says Pantera “hung” about 5% of its position.

All of that liquidation translated into a return of $171 million on an initial investment of $1.7 million, assuming the remaining amount they own still amounts to nothing.

Even when the fund was selling, Dan Morehead CEO of Pantera Capital Join CNBC in December 2021 to talk about his top altcoin picks, which included the Terra blockchain luna coin. At that time, Luna’s price increased by more than 15,800% in 2021.

In a public letter addressed to “contributors, friends, partners, and the crypto community,” Novogratz – Who got a Luna tattoo on his arm To commemorate his official status as “crazy” – where the project went wrong was commented on, but also noted that Galaxy made profits along the way.

In reporting its first-quarter earnings, Galaxy indicated that the largest contributor to its $355 million net realized gain on digital assets was sales of Luna.

Other major backers of Terraform Labs include some of the biggest names in venture capital, including Lightspeed Venture Partners and Coinbase Ventures. Three Arrows Capital and Jump Crypto buy Luna coin. CNBC has not learned how these companies have performed.

Terra supporters voted to revive the failed project. The The proposed rebuild includes a new Terra blockchain and getting rid of the embattled stablecoin that helped spark the collapse of the original project. It may also mean the recovery of the institutions and individual investors that have been wiped out.

Days before the floor tanks collapsed, Terraform Labs founder Do Kwon – who boasted about it He does not “argue the poor” – He said in an interview That 95% of coins “will die” but there is “the entertainment of watching companies die too”.