The Crash of Crypto’s Perpetual WealthMachine


Do Kwon – brain of the Earth and Moon coins.
Photo-Illustration: Intelligent; Photo: Woohae Cho / Bloomberg via Getty Images

About four months ago, billionaire and Wall Street legend Mike Novogratz went to a Brooklyn tattoo parlor just a few blocks from Jim Cramer’s bar, and at the age of 58, he made his devotion to a new speculative cryptocurrency permanent. The result, in his left arm, was a large wolf howling at the moon. “I’m officially a lunatic !!!” the he tweeted to his more than 400,000 followers.

Ink refers to the Moon, half a duo of digital currencies that supposedly acted as a perpetual wealth-creating machine, a way to always make money through the magic of code and financial engineering. At the time, Luna was in a massive race, more than 1,000 percent over the previous six months. Novogratz is known both for his career in the fast-paced world of high finance – he is a former partner of Goldman Sachs and Fortress Investment Group, an investor who has lost two ten-figure fortunes and is in his third – and for being someone else. who bumped into those boundaries. Several years ago, it was among the first types of high-profile Establishment funding to immerse everything in crypto. (The former Princeton wrestler also hired Hilary Duff to play at her birthday party a few years ago.) But even for Novogratz, the tattoo looked a little overblown. When someone tweeted his bewilderment that Novogratz had come this far, Do Kwon, Luna’s creator, intervened: without asking: “Don’t worry, it wasn’t much.”

This week, however, critics who warned that Kwon’s perpetual wealth machine was too good to be true and that Novogratz might even regret that tattoo were soon claimed when Luna and her partner, Terra, dramatically imploded. . Land trade is supposed to be reliable for exactly one US dollar, but fell to 29 cents on Wednesday morning. Luna has dropped 99 percent from its highs last month. More than $ 40 billion in wealth, not a small part of retail investors, disappeared in a matter of hours. The shock of the sudden collapse caused the price of bitcoin to fall to its lowest point since July, exposing how a currency labeled as a Ponzi scheme by its critics had affected the larger digital asset market. Meanwhile, the shares of the main US-based cryptocurrency exchange Coinbase. UU. they’ve been 25 percent, and the $ 1 trillion crypto industry is full of rumors about big funds or companies that may be on the brink of failure.

Many of the same crypto players who are much poorer and more anxious today than a week ago were vocal fans of the Terra-Luna coin duo. Kwon, a 30-year-old Singaporean resident and of course a Stanford dropout, tossed the coins in 2018, but they have really caught fire among crypto speculators only in recent months. The idea is this: The two tokens are supposed to act as a balancing mechanism with each other, whereby one is automatically created or destroyed based on the supply and demand of the other. Although Earth should always be at $ 1, Luna could go up and down with the markets, and the currencies could be freely exchanged with each other for small profits. Kwon wasn’t the first person to come to this deal, but it gave him a spin that made him immensely popular and fast – he gets $ 10 billion, and instead of saving them to save them, like a central bank, he pays people to use him. . the coins. The plan was pure Silicon Valley: to subsidize the masses, and eventually Kwon and his sponsors would redo the digital markets in his image. It grew so fast that last weekend it had $ 18 billion in assets, much of it in bitcoins. The company that oversaw all of this, Terraform Labs, had the support of major investors such as Coinbase Ventures, Pantera Capital and Novogratz’s own Galaxy Digital, according to Bloomberg.

Kwon’s machine was a bright spot in a gloomy year for cryptography. After peaking in late October, markets plummeted in January, and then didn’t really move. NFTs, digital tokens made famous by the Bored Ape Yacht Club, and other digital artwork have come to a standstill. In the early spring, the Federal Reserve began sucking money out of the system, the price of a monthly mortgage payment was a few hundred dollars more, and suddenly the encryption stopped being so hot. Repression in China and a faltering experiment in adopting bitcoins in El Salvador seemed to stop the utopian ambitions of currencies. For a while, it was a great way to make money out of nothing, an excuse to move to Miami and show off your wealth. As 2022 progressed, everything began to look more and more like the domain of the alleged Razzlekhan money laundering.

What made Terra so popular was a loan program called Anchor that gave users between 18 and 20 percent interest a year, bleeding their coffers of millions of dollars a day. Matt Lorion, a TikTok star with the talent to gravitate towards cryptographic scams, claimed to be buying a house through this work. At a time when savings accounts produce about zero percent, the program was so lucrative for users that the vast majority of outstanding Earth coins were blocked to reap this yield (and therefore were not used for trading). ). Kwon even had a plan to defend the Moon and Earth: there was another amount of money, funded by $ 1 billion from big investment firms like Jump Crypto and Three Arrows Capital, that would buy Earth in the event of a bank collapse. (The terms of the agreement have not been announced). If this sounds complicated, it is. That is, in the words of Bloomberg columnist Matt Levine, “insane.” Other critics were less polite, accusing Kwon of doing a live show Ponzi scheme. The goal, said Cory Klippsten, CEO of the Bitcoin Swan Exchange, seems to keep the price as high as possible for as long as possible so that investors can make a profit after a lockout period has ended and then bounce back. “This is purely a Ponzi scheme. There’s no reason for this to exist,” Klippsten said. “It’s a window into the time when you’re out of regulation that you have absolutely no restrictions. You can create a token out of nothing, market it however you want. Inside information, inside information: anything that would be illegal in traditional markets, they can do during all day without repercussions “.

What caused the accident is still being resolved. The defenders called it “attack”, Although it is not clear if this was anything more than a great retreat of money they were unwilling to cover. At one point, while the stablecoin was in free fall, Binance he stopped that of trade. Kwon’s nonprofit organization took $ 1.5 billion, half in bitcoins, and tried to rescue Earth, which on Tuesday recovered up to 90 cents a coin. Kwon he tweeted that he was “deploying more capital,” then there was silence above all else until a Wednesday morning thread took on a more formal tone and ended with the promise that Earth would “return.”

The defeat was so severe that Treasury Secretary Janet Yellen intervened, calling for more federal regulation on stable currencies. On Twitter, where the crypto community lives, the tone was stern, as if the party was over and the government was ready to crack down at any moment.

The repercussions were very real for people who had their savings in these cryptocurrencies. Nearly every 100 largest digital tokens have lost value, and some have lost a third of their market capitalization in the last 24 hours. Tether, another so-called stablecoin that has been the subject of a lawsuit filed by New York Attorney General Letitia James, for misrepresenting its holdings, spent most of Wednesday below the $ 1 price it should be. On the Reddit community dashboard for Luna-Terra headlines, users posted that they were contemplating suicide after losing it all. “debate about the poor“On a whim, I’m not kidding, financial panic – he lost any goodwill he had among his followers.

Novogratz has so far given no indication that it will abandon its investment, but a call from investors on Monday seemed to show some doubt that Luna’s future would be as permanent as the one on her left biceps. “This is a very big test of all that algorithmic stable currency model,” he said. “This is a total Category 5 earthquake worldwide.”





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