Some Investors Who Profited Before The Terra Stablecoin Collapsed• May 29, 2022 7:24 pm • Comments
The crash of UST, one of the most popular stable coins in the crypto market, was able to wipe out around $60 billion from the market.
The implosion had many similarities to a bank run as investors rushed to sell their holdings which caused the price of the token to crash to zero.
However, both UST and its sister token LUNA had tremendous bull runs back in 2021 which allowed some investors to profit a tremendous amount right before the crash.
Some examples of investors who were able to do this include firms like Pantera Capital who was able to make a nearly 100x of its original investment.
"Venture capital firm Pantera Capital earned a 100-fold on its $1.7 million investment in luna. Hack VC and Winklevoss-backed CMCC Global didn’t share their exact gains, but told CNBC it closed its position in March, while Hack got out in December."https://t.co/heScas0O72
— Al (@al_shiferaw) May 29, 2022
Venture capital firm Pantera Capital tells CNBC it earned a 100-fold return on its $1.7 million investment in luna. Hack VC and the Winklevoss-backed CMCC Global didn’t share their exact gains, but CMCC told CNBC that it closed its luna position in March, while Hack reportedly got out in December.
The scheme relied largely on faith and the promise of future returns, plus a complex set of code, with very little hard cash to back up the whole arrangement.
Unlike USDC (another popular dollar-pegged stable coin), which has fiat assets in reserve as a way to back their tokens, UST was an algorithmic stable coin created and administered by Singapore-based Terraform Labs.
It depended on computer code to self-stabilize its value by creating and destroying UST and luna in a sort of supply-and-demand seesaw effect.
However, it obviously started to fail as it all started to crash in May 2022.
The failure happened even though the project had around $3 billion in reserves and the spending of all of those reserves to attempt to restore the price still failed.
The total market cap value of both UST and LUNA was estimated to be around $60 billion before the crash and that value has now disappeared.
There was tremendous backlash within the crypto community as many retail investors of the tokens had lost large savings while institutional investors profited largely.
UST / Luna totally collapsed but luckily early investors got out just in time.
“Pantera Capital saw their $1.7M investment turn into $170M” pic.twitter.com/aNaA3qmt4P
— Plan Marcus ⚡️☣️ (@plan_marcus) May 29, 2022
But Krug says the firm’s initial decision to liquidate came down to risk management and rebalancing the fund.
“For the large portion which we sold over 2021 and part of 2022, it was a really simple risk management reason,” said Krug. “It kept becoming a larger and larger part of the fund and so we had to de-risk it since you can’t really run a liquid hedge fund with one position being a super large portion of the fund.”
When Pantera noticed the UST $1 peg breaking in May, it sold again.
CMCC Founder Martin Baumann tells CNBC it divested its stake in March because of concerns resulting from ongoing due diligence.
The decision to sell was partly to do with the tech behind UST, but his chief concern had more to do with regulation.
When CMCC sold, the luna token was trading at about $100. When asked about the profit on that sale, Baumann said the firm does not comment on returns or performance of individual investments.
Terra 2.0 has launched, but those investors to managed to get out before the crash are so still steering clear of the Terra ecosystem.
Where did the other 20% of the investment go? As $UST began to lose its dollar peg, Pantera Capital sold 13% of its remaining investment in $LUNA at an average price of $25.60. The remaining 7% was locked in staking, so they could not be sold.
— Crypto 4 Light (@vladi4light) May 23, 2022
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