🧘‍♂️ALERT: The Truth About Bitcoin

Market Meditations | May 11, 2022

Dear Meditators

Well, that escalated quickly.

It was only three days ago that LUNA dropped 20% in 24 hours and a single player dumped nearly $300 million worth of UST.

While it only briefly de-pegged UST at the time, it had people questioning: was this a coordinated attack, and crucially, was it a sign of further trouble ahead?

In this feature, we will provide a complete overview of the events regarding the Terra ecosystem.

Since the depegging of UST, the yield farming sector has been in a state of shock. With the value of assets in the largest farming opportunity in DeFi currently down by over 50%.

That’s why we are also going to demonstrate how to identify safe haven assets during times of volatility and where you can find yields on those assets.

The main takeaway is that we’ll be here providing analysis and insights for every market condition: bull, bear, crab, dolphin, cyborg, you name it.

Today’s Meditations: 

  • Terra Bull or Terrible? Look No Further For A Full Overview of Latest Events
  • Yield Insights Using Nansen
  • Challenges for TRON to Overcome

⏰ Top Headlines


? Terra Bull or Terrible?

Follow The Crowd

There have been plenty of opponents to the LUNA/UST algorithmic stablecoin.

Prominent crypto trader Algod publicly called out Terra’s ecosystem as a ponzi back in February, making an analogy with the $TITAN/IRON project and outlining what he thought would happen in a black swan event or situation where supply massively outweighed demand:

  • The smart contract allows 1 UST to be swapped for $1 worth of LUNA at any time, and vice versa. This encourages people to buy UST when it de-pegs and burn it to generate a profit in LUNA value.
  • Demand for UST has been big because Terra’s Anchor protocol has been offering up to 20% returns to depositors (lenders).
  • However, if supply suddenly exceeds demand people may panic and start to mass redeem UST for LUNA, flooding the market and driving down LUNA’s price.

Treading Water

When the trigger event occurred a few days ago, the fear was enough to generate a mass sell-off of LUNA, which has now dropped >95% from its April ATH of ~$120 to <$5.

This downward spiral in price as newly-minted tokens hit the market led to UST becoming untethered and set adrift:

  • Liquidations: one of the problems of a plummeting LUNA price is that it causes LTV ratios in Anchor to approach the liquidation point, when LUNA is used as collateral. As UST is burned to generate LUNA, the price continues downwards, exacerbating the situation further. On top of this some users reported network congestion was preventing access to manage their loans.
  • De-Peg: a SwissBorg report highlighted the correlation of the LUNA market cap dropping below that of UST and a de-peg event. When it happened the Luna Foundation Guard agreed to deploy ~$1.5 billion of assets to try and re-peg it. Unfortunately, though, the market re-adjusted and users have noticed severely underbalanced pools and huge sell walls. This prevented a full recovery and led to further drops today.

Mountain To Climb

Terra’s founder Do Kwon announced a recovery plan today, which essentially said they will need to absorb the UST fire sale before being able to re-peg.

He quoted Pedro Ojeda, who has a thread explaining the tokenomics and how it could actually benefit Luna stakers in the long run. As LUNA price drops the staking returns increase, an attractive feature to long-term hodlers.

However, with UST crashing further overnight to $0.3 before recovering slightly to just under $0.5, the blockchain has lost billions in value in a few days and morale is low.

While it may still be possible to re-peg UST, it will take a huge amount of capital and trust is damaged.

Two people who aren’t suffering at the moment though are Algod and GiganticRebirth, who famously took Do Kwon on in a bet on Luna’s 12 month price action.

What can we learn from all of this? For projects you like, it always pays to give due respect to critics, who may not be blinded by some of the biases we have.


? Have’n Safe Assets

We can use Nansen to assess Smart Money token holdings, helping us understand what the top performing crypto wallets are currently buying. The below graph shows which tokens have been accumulated by Smart Money over the past 7 days:

Nansen: 11/05/2022 – Smart Money Token Holdings

  • The second largest increase is USDC – perhaps an indicator that smart money views USDC as the least risky stablecoin.
  • 3 of the 5 top assets represent different forms of yield earning ETH. This serves as a strong indicator that smart money is returning to safe yields found on more traditional assets. It also points to exactly where this safe yield is being found (stETH is Lido, aWETH_v2 is AAVE and cETH is Compound).

Finding The Top Opportunities

Now that we have identified an asset that may be viewed as a safe haven (USDC), we are able to dig deeper into its flows to see exactly where we can find the best opportunities. The below demonstrates which smart contracts have received the most USDC since 10/05/2022:

Nansen: 11/05/2022 – USDC Balance Changes from 10/05/2022 – 11/05/2022

  • The biggest recipient of USDC is Compound – one of the original DeFi platforms. Whilst its yield offering is currently very low (0.6%) the $132m increase shows that the market is moving towards less risky opportunities.
  • There have also been large increases in USDC to Uniswap liquidity pools – again one of the most established protocols.
  • The last big recipient for farming has been Stargate. Whilst they are certainly much newer than Uniswap / Compound, their higher yield offering has attracted over $20m since 10/05/2022.

Volatility has been a theme of the crypto markets since inception. Whilst this can be to the upside, as the events of the last few days have demonstrated, equal volatility can occur to the downside. Using Nansen we are able to find out how the top performing crypto wallets are navigating the market and where to find yields in times of uncertainty.


⏱️ Time for a New Algo Stable or Time for Stable Regs?

Before this weekend’s bank run that saw UST lose its peg, Justin Sun, creator of the TRON network, announced his own algorithmic stablecoin USDD.

  • USDD will have an elastic relationship with TRX just as UST has with LUNA. TRON DAO’s rollout of USDD saw it launch on at least 7 dexes on May 5th but was quickly overshadowed by the tumultuous weekend the TERRA blockchain had.
  • According to the Block, the initial circulating supply was $127 million on TRON$18 million on Ethereum, and $20 million on BNB through the cross-chain protocol BitTorrent Chain (BTTC).
  • Alameda Research was the first member & whitelisted institution of the TRON DAO. As an approved collaborator to the reserve, they will have access to mint or burn USDD as well as attend meetings, support the community and raise awareness of USDD.

Can algorithmic stablecoins survive in the market after the recent bank run on UST?

Among other things, the TRON DAO Reserve has a mission to prevent panic trading caused by extreme market volatility, which would have been useful during this volatile weekend but what will TRON do differently than TERRA and will it be effective? Time will tell but there is a theory floating around that this weekend was a coordinated attack to bring about regulation in the stablecoin space.


With Nansens On-Chain data, you get an edge over everyone else by tracking the behaviour and on-chain activity of prominent wallet addresses.

  • Exciting New Opportunities. Follow Smart Money, identify new projects, and trace transactions down to the most granular level.
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  • Track The Biggest NFT Traders. See what the most profitable NFT wallets are investing in.

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Twitter 

  • Inflation just came in at 8.3%. Wild – Pomp
  • Do not make the mistake of assuming an #ALT down -80% is necessarily “cheap”. Bear markets redefine what “cheap” actually means. – Benjamin Cowen
  • 1/ Dear Terra Community [TLDR thread] – Do Kown

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??‍♂️✍️ Stories in this newsletter were written by D. BeverlyIsambard FA, Nick T., Max P., Kimia K., Ellen B. and Koroush AK. Graphics were produced by Ellen B.


Not financial or tax advice. The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision. See our important security disclaimers here.

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