17th May 2022 > > The Terra fiasco once again.

tl;dr

The Terra fiasco impacts the whole Cosmos network, whilst another algorithmic stablecoin also loses its peg.

Market Snap (at time of writing)

Market Wrap

Stocks appear to have consolidated quite nicely now after all that recent volatility. An extended period of stock market calm would be mightily useful for crypto prices.

Occasional Series – Central Banks (CBs)

Now we know for sure that government controlled CBs lead to rampant inflation and that “independent” CBs lead to rampant inflation, can we finally just get rid of?

It would save an awful lot of money that we could put back into tax cuts/NHS/more bureaucracy.

Your choice.

Occasional Series – Lockdown

“Children became less physically active after lockdowns and exercise levels failed to rebound to pre-Covid levels even after schools reopened.”

The Times, 16th May 2022.

“Toddlers’ speech and motor skills have dropped sharply in the wake of the pandemic, official figures show”.

The Daily Telegraph, 17th May 2022

Curious Cryptos’ Commentary – Another quirk of the Terra fiasco

For some reason I hadn’t clocked that LUNA was built on the Cosmos network.

(Disclosure – I own ATOM, SCRT, and OSMO – all coins on the Cosmos network).

Cosmos is a proof-of-stake network (POS) meaning that coin holders can stake their coins to a node validator in return for receiving passive income, which can then itself be staked, potentially unlocking the wonders of compound interest.

But there is a quirk to the Cosmos network – the unstaking process takes 21 days.

What this means in practice is that if you unstake today, you can only move the coins in 3 weeks’ time. This is a feature of the Cosmos network which always made me feel uncomfortable, hence limiting how much of my investment capital I was prepared to commit to any coin on the Cosmos network.

Now that uncomfortable feeling has been justified.

It is only in the last week that the price of LUNA started to crash. Any owners of LUNA who had staked their holdings (almost certainly the majority) are still unable to access those coins even if they unstaked a week or more before the fiasco began.

In effect, their ability to get out in a timely fashion if they wished to do so has been suppressed.

…

Holders could only sit and watch in impotence as the carnage unfolded.

That is a clear disincentive to be involved with the Cosmos network going forward.

Curious Cryptos’ Commentary – And here we go again

Deus Finance has some similarities to the Terra ecosystem, with a hybrid algorithmic stablecoin known as DEI and a governance token called DEUS.

There has been a restructuring of this protocol recently I believe, and though I was considering getting involved at one stage, I was never quite convinced.

Which is fortunate really, because it will come as no surprise to anyone that DEI has also lost its peg.

The sell-off started Sunday night, with DEI now trading around 60c not the $1 it is supposed to be.

As a result, DEUS - like all cryptos of late, to be fair - has taken a tumble.

…

The mechanism to maintain the peg was a variant of that used for UST with some actual collateral in place, which is an improvement. Unfortunately, that collateral is all in cryptos, making the stablecoin DEI only stable when the crypto market is stable, or going up.

As DEI sold off, those of an intrepid nature could buy DEI on an exchange at less than $1 and redeem it for $1 of collateral, draining the collateral fund and further weakening DEI, making the arbitrage ever more attractive.

Once again, a spiral of doom and death.

The DEUS team have now halted the redemption process (abandoning all pretence of being a decentralised protocol by doing so) and are now investigating means of making DEI fully collateralised. Presumably with non-correlated TradFi instruments.

In any normal world, that should be the end of any further forays into algorithmic stablecoins.