There was no Terra/LUNA conspiracy ‘attack’, famous analyst claims. Conspiracy theories won’t save you from financial reality.
May 2022 will be remembered forever in the crypto industry.
The epic crash of the Terra’s stablecoin UST and its sister token LUNA serves as a reminder of how unforgiving the world of crypto can be.
The dominating conspiracy theory claims that Terra and LUNA were attacked.
But there is an alternative explanation you should really be familiar with.
No conspiracy theories required to explain Terra and LUNA crash
According to CoinDesk columnist, there was no Terra attack.
Terra creator Do Kwon may want to label the disaster a mere speed-bump on the way to success. But a spate of civil and criminal proceedings suggest that many suspect it constituted fraud.
But there is another side of the story.
The idea that UST lost its peg because of an “attack,” a “coordinated attack”, is gaining popularity.
This framing often comes from those trying to defend UST’s fundamental soundness, despite many years’ worth of warnings that algorithmic stablecoins are doomed to fail.
It is likely true that the depegging of UST was at least partly the result of an “attack,” in the sense that capital was deployed strategically and in large amounts to bring down the Terra peg.
The subtext of these defensive tics is something like this: “The collapse of UST wasn’t a real failure because the big banks and Wall Street hate crypto and they sabotaged us because they hate us.”
But that is not the way to go with conspiracy theories explaining Terra and LUNA crash. This line of thinking is so foreign that it’s not easy to pinpoint all the ways in which it’s wrong.
CoinDesk points to a single tweet from an obscure, anonymous account that nailed the logical flaws better than anybody could.
“There was no attack,” user wrote in part. “If the design is flawed it deserves to collapse the sooner the better. What you call an attack was [a] stress test. And Terra failed it.”
Could it be just business?
The thing about markets is they don’t have any morality. The person trading against you doesn’t care who you are, just what your position is.
To draw the most obvious parallel to the Terra collapse, billionaire investor George Soros didn’t attack the English pound in 1992 because he hated the United Kingdom.
Because it still wouldn’t have had anything to do with his assessment of the financial condition of the pound, the profit potential of shorting it and his likelihood of victory.
In the case of Terra, the profit potential was huge. The definitive numbers are still emerging, but one detailed analysis estimated $800 million in profit from the UST attack.
You don’t have to hate crypto, Terra, or Do Kwon personally to pursue that kind of money.
So crypto meets reality. And reality wins.
All that happened to Terra and LUNA requires no conspiracy theories.
You just have to acknowledge it could mark the end of what will in retrospect seem like a decade of innocence in crypto.
Mainstream finance has been happy to collect trading fees on crypto and invest in startups. But when serious traders backed by big piles of money start looking for ways to profit by eating crypto’s weak and frail, they may find a target-rich environment.