1st June 2022 > > Terra yet again.

tl;dr

LUNA update and the Mirror Protocol suffers a price-feed error.

Market Snap (at time of writing)

Market Wrap

No test of the 3-handle for 48 hours now. Any predictions for the next time we see BTC back in the 20s? At the back there, what did you say? Ah never again you think. I am with you all the way sir.

Curious Cryptos’ Commentary – LUNA airdrop

For those that bought original LUNA - now known as LUNC - post-attack on Binance you now have 30% of your total new LUNA in your Binance wallet, adding about a third to the value of your combined LUNA/LUNC holding, at time of writing, with the remaining 70% to accrue over the next two years.

I assume all other central exchanges have followed suit, whilst on-chain airdrops should have shown up in your wallet a couple of days ago, though I read that not everyone is getting their full on-chain allocation.

Let us hope that this is the last comment that needs to be made about the Terra fiasco.

Curious Cryptos’ Commentary – No it isn’t

Mirror Protocol is a decentralised finance (DeFi) app on Terra.

DeFi apps use what are known as oracles to source information. A popular and well-known example is Chainlink powered by the LINK coin, of which I am a proud and long-term holder.

Using Mirror Protocol investors can mint and sell synthetic assets of shares like Facebook known as mFB, or even synthetic cryptos such as mBTC. Note that the trading of synthetic assets is not the same as trading real assets, particularly in the case of shares. Synthetic shares do not give ownership rights of real shares, and do not pay dividends.

Trading of synthetic shares however does have one major advantage – markets are open 24/7 every day of the year, yet another example of how the legacy financial system is being usurped by the crypto revolution.

As the Mirror Protocol is DeFi there is no effective regulation around its activities and no route for compensation for investors. Some people may applaud that, some people may be dismayed. I merely state it as a fact, with no personal axe to grind.

…

The process of minting synthetic assets requires the minter to provide funds in exchange for the synthetic asset which can then be deposited into a liquidity pool in exchange for UST and USDC.

Some of the validators had failed to update their price feeds following the launch of (new) LUNA.

With the price of LUNC at $0.0001134 and LUNA at $7.65. mistaking one for the other is the equivalent of a fat-finger error in the legacy electronic trading world.

One eagle-eyed individual took advantage of this vulnerability by selling LUNC into the protocol at the price of LUNA, minting synthetic assets at a fraction of their real value, and making off with the collateral equivalent of the real value. With LUNA trading at around 70,000 times the price of LUNC this netted $2mm in short order.

Note that this was not a scam or a fraud – it was a perfectly legitimate exploitation of a coding error.

Nice work if you can get it.