1. The mechanism of the UST stablecoin
2. Fake market value
3. How to make money with false market value
4. Fake market value
in Luna 5. Huge cash out of Luna founder Do Kwon
6. 80,000 BTC bought by
Do Kwon 7. Do Kwon Did you save the market with 80,000 BTC?
8. Where did the lost funds go when Luna&UST was reset to zero?
9. How to make money in UST de-anchoring?
In the past two days, there has been a huge amount of wealth transfer in the currency circle in history. Did you make a profit or a loss in this transfer? If you don’t understand math, you will lose money, because this example of Luna zeroing is very extreme, $40 billion is completely zeroed in 2 days.
So far, I haven’t seen any article that talks about the Luna zeroing incident from the perspective of funds changing hands (that is, where did the real money go), so let me talk about it. This will be one of the deepest articles I’ve ever written, so please keep up.
Don’t ask me why I did the article on the 11th, whenever the market sentiment is extreme (panic or frenzy), that is, when you can easily pick up money everywhere, I believe many people, like me, have only slept for a few hours these two days. It is good to be able to squeeze out the time last night and write an article “USDT has no risk of de-anchoring in the near future” to avoid excessive market panic.
1. Mechanism of UST Stablecoin
To explain this Luna zeroing event, we must first talk about the stability mechanism of the UST stablecoin. UST is an algorithmic stablecoin with a goal of pegging to $1. The anchoring mechanism is: dual currency destruction and minting:
① Luna is the project currency of UST, which can rise and fall freely.
② UST anchors 1 USD through “two-way destruction and minting” with Luna:
a. When the UST price is greater than 1 (for example, $1.01), you can get 1 UST by destroying a Luna worth $1, and then sell 1UST to get $1.01, making a profit of $0.01.
b. Conversely, when the UST price is less than 1 (for example, $0.99), you can buy 1UST with $0.99 and destroy 1 UST to get Luna worth $1, and then sell Luna to get $1, making a profit of $0.01 .
The arbitrage mechanism is shown in the figure above. Of course, there are some friction costs (such as system minting fees, transaction fees, etc.), 1.01 is not enough for the arbitrage cost, and it needs to be higher.
Therefore, through the continuous arbitrage of arbitrageurs, as long as the total market value of Luna is normal, UST can be stabilized at $1. The development of the UST ecosystem will feed back profits such as transaction fees and fees to Luna (Luna is essentially the equity of this system), increasing the total market value of Luna.
Then why did Luna return to zero this time? To deeply understand its essence, you must first understand the basic concept of “false market value”. The concept of virtual market value I wrote in my previous article on October 29, 2019 (the price of BTC at that time was $9,204) “How much capital does it take for Bitcoin to rise to $100,000?” ” once, if you haven’t seen it, I will briefly talk about it.
2. False market value
A simple sentence:
“Total market capitalization” is only a statistical value, not real money.
Take the simplest example: Zhang San issued a coin with a circulation of 100 million, and then sold one to Li Si for 10 yuan, then the total market value of this coin is 100 million * 10 yuan = 1 billion yuan, But if Zhang San said at this time that the total market value of my coin is 1 billion yuan, I will give it a discount and sell it to you for 100 million yuan, will you buy it?
You definitely won’t buy it, right? Because the trading volume of this coin is much lower than the total market value, it is worthless at all.
This is the first step, basically no one will be fooled, but if you change the trick a little, many people will fall into the pit. How much capital do I need to get Bitcoin to $100,000? ” gives an example:
A stock fund, the fund has a good history of growth, earning 10% to 30% every year, and the few stocks held by the fund now have a net value of 10 billion. Excuse me, the fund will be sold at a 50% discount and the entire 5 billion (including the stock) will be sold to you. Are you willing to buy it?
Give you 1 minute to think
This pit is the same as the previous question: you have 100 million shares in your hand, and the price per share is 10 yuan. Is that worth 1 billion yuan in real money (red area)?
Of course, it is not worth 1 billion yuan. If you sell the 1 billion market capitalization stocks in the market, the real money (red part) in exchange may be far less than 1 billion yuan.
If you want to sell 100 million shares, you may only be willing to buy 3 million shares for 10 yuan, and 5 million shares for 9 yuan. The lower the price, the more orders you buy. You may have to sell for 2 yuan before you can sell out these 100 million shares. After all of them are sold together, you will only get 300 million real money in total.
Where did the remaining 700 million “wealth” go? No, no, this 700 million yuan is just an imaginary value, and it has never been real money. Multiply the last transaction price of one share by 10 yuan by the number of 100 million shares, and the total market value obtained is 1 billion yuan, and the difference between the real 1 billion real money and the real money is from 1% to 100%. The larger the ratio of 100 million shares to the total share capital, the greater the gap percentage. If there are 110 million shares in total, selling 100 million shares is enough to smash more than 90% of the price.
3. How to make money using false market value
In fact, it is very simple. Just use the statistical value of “total market value” to exchange the real money of people with low awareness. For example, in the example given at the beginning, how did the fund’s 10 billion shares come from? It may be that the fund only spent 3 billion yuan to buy and control a few stocks, and gradually made it.
Review this picture again. Since the stock with a market value of 1 billion has been smashed, it can only sell 300 million real money in the end, which means that if you spend 300 million real money to gradually accumulate, the control will be getting higher and higher. A small amount of money can drive up a large total market capitalization.
But in the end, the market value of 1 billion was made, but it was only false. If you sell it again, you can only sell 300 million real money and silver, and you are busy. What should you do?
It’s simple, this stock is gradually bought with a fund, and the fund is sold to retail investors with low awareness: Look, my fund (altcoin) is very high-quality, and it makes a profit of 20% every year. Now the fund holds the market value 10 billion yuan of stocks, sell you 10 billion real money, you will not lose money. Did you see it? If you don’t study hard and improve your cognitive ability, this is the consequence. You don’t know how to sell it if you are sold.
4. The virtual market value in Luna
Luna had a total market value of up to $40 billion before de-anchoring
But according to the virtual market value, assuming that someone uses an infinite amount of Luna to sell, the dollar that can be sold is far less than 40 billion US dollars. How much can be sold? This time, an extremely rare social experiment happened. give data.
In the process of Luna’s ecological development, UST was gradually generated through Luna destruction. Before the de-anchoring on May 9, the total market value of UST was 18.7 billion US dollars. At this time, the total market value of Luna was 20.4 billion US dollars.
Some people say at this time that the total market value of Luna is almost smaller than that of UST, and UST is almost unable to anchor. Is this statement correct?
Give you 1 minute to think about whether you really understand the concept of “inflated market capitalization” (as opposed to just “knowing”).
This statement is of course wrong, because Luna could not anchor UST before 1:1, and the real money that Luna can sell is far less than the total market value. From the results of this social experiment, the total market value of Luna must be at least 10-20 times that of UST before it can be anchored.
For the Luna protocol to run for a long time, it is necessary to set a hard cap (preferably 5%) where the total market value of UST is less than 10% of the total market value of Luna, and when the total market value of Luna falls, the UST will be destroyed accordingly. When the market cap fell, a death spiral occurred and eventually zeroed, but at least not as tragically, with nearly $40 billion in market cap zeroing in 2 days ($20.4 billion for Luna and $18.6 billion for UST).
5. Huge cash out of Luna founder Do Kwon
So, there is a very interesting question, when did Luna cross the gate of “the total market value of UST is too large”?
In the picture below, the circulation of UST has skyrocketed, that is, Do Kwon destroyed a large amount of Luna and minted it into UST.
Before the additional issuance on November 9, 2021, the total market value of Luna was US$20.1 billion, and the total market value of UST was US$2.88 billion, accounting for 14%.
After the completion of the UST additional issuance on November 20, the total market value of Luna was 18 billion US dollars, and the UST issuance volume was 7.17 billion US dollars (an additional 4.29 billion US dollars), accounting for 40%, and Luna entered the countdown to zero.
These Luna are nominally community pools, but are actually controlled by Do Kwon himself, essentially Do Kwon’s own.
This is a very clever cash-out behavior. If Do Kwon sells 88.67 million Luna (accounting for 22% of the total) when the total market value of Luna is 20.1 billion US dollars (total 400 million coins), it can only sell at most 2 billion US dollars . Because according to the actual results on May 11, 81.2 million Luna coins can bring the total market value of Luna from $19.6 billion to $2.5 billion (87% of the total), and only 1.94 billion UST will be destroyed at the same time.
And Do Kwon obtained 4 billion UST by casting Luna’s virtual market value into UST without any fluctuations in the market. At this time, one of the most confusing tricks comes:
UST is part of Luna’s virtual market cap with a big discount,
UST is not real money.
But UST looks a lot like a dollar,
It can also be exchanged to US dollars at a 1:1 rate when exchanging a small amount.
At this time, it depends on which people who are not good at mathematics are willing to accept “fake money” UST.
6. 80,000 BTC bought by Do Kwon
So where did Do Kwon spend the 4 billion UST “counterfeit money” generated by the destruction of Luna?
With counterfeit money in hand, of course, he had to buy hard currency to preserve value, so Do Kwon went to buy BTC.
View bc1q9d4ywgfnd8h43da5tpcxcn6ajv590cg6d3tg6axemvljvt2k76zs50tv4q from a deposit address published by the Luna Foundation (LFG)
The average buying price of 42,530 BTC is $42,152 (assuming that the transfer time is equal to the buying time), multiplied by 80,400 BTC is $3.389 billion, which is close to the minted UST amount, and the remaining USDT is estimated to be reserved by Do Kwon (Do Kwon also traded UST for $1.2 billion in USDT).
Ironically, Do Kwon also sold $1 billion of Luna to agencies.
Institutions such as Jump Crypto, Three Arrows Capital, Republic Capital, and GSR will be nailed to the pillar of shame forever. It is such a simple mathematical trick, and no one will find out the problem in the internal process. Why can’t these institutions understand such a simple math trick? Don’t be superstitious about institutions. The most powerful institutions outside the circle are big leeks in the currency circle. The analysis and management personnel in these institutions are just ordinary people, and many of them are idiots who don’t understand mathematics.
So, the next big question is:
7. Did Do Kwon save the market with 80,000 BTC?
If the traditional capital market is a black box that no one knows about, it is a pity that Do Kwon manipulates all transparent blockchains, then it is clear at a glance.
Do Kwon moved from 2 to 4:00 on May 10 (UTC+8 Beijing time, the same below)
bc1q9d4ywgfnd8h43da5tpcxcn6ajv590cg6d3tg6axemvljvt2k76zs50tv4q 里的42530 BTC
和bc1qkhl4pt957urd8sleys3p00ua2h23nl3hghhtkyaatgzapj9kflhqar0jdv 里的12581 BTC
These coins were deposited into major exchanges. For example, according to the mark of bitinfocharts.com, 30,000 BTC of them finally entered the OKEX address 1NYAd6fA2dc5xowuweFUSDRqRTEzDwk28
However, the price of BTC after 2:00 on the 10th did not fall significantly, and it has been trading sideways, which is not the performance of 80,000 BTC. It was not until 8:30 pm on the 11th (the United States announced the April CPI inflation data) that the BTC price fluctuated violently.
Another stronger mathematical proof is: Assuming that Do Kwon really used the 2-3 billion US dollars to save the market within 2-4 hours after breaking the anchor point (0:00 on May 10), it will be in various data. There will be obvious traces on the statistical curve, especially in the data segment at the beginning of the de-anchoring. After all, UST has escaped (destroyed) a total of 7.4 billion US dollars so far, and the rescue funds of 2 billion to 3 billion US dollars are enough. Causes significant curve deformation.
However, the following statistical curves from the anchor point (0:00 on May 10) are very smooth, which is in line with the performance of free fall.
For example, “the cumulative amount of UST coins destroyed” is slow at the beginning (because the market has not panicked), fast in the middle, and slow at the end (because Luna has been replaced), basically symmetrical.
What’s this? This is a standard Peel curve.
Explain the Peel curve:
When the development and changes of economic variables show a slow growth rate in the initial stage, then the growth rate gradually accelerates, and then gradually slows down after reaching a certain level, and finally reaches a trend of saturation, that is, the chain ratio of the first-order difference of the reciprocal of the original time series is a constant, It can be described by the Peel curve.
The destruction of the UST after this de-anchoring perfectly fits this mathematical model and draws a standard Peel curve. Where is the trace of $2 billion to $3 billion of human intervention in the rescue market? I guess Do Kwon symbolically saved the market with his little finger and put all 80,000 BTC into his pocket.
The indicator “The cumulative amount of UST destroyed as a percentage of Luna’s total market value reduction” is also basically smooth, indicating that the destroyed UST is evenly absorbed by the decrease in Luna’s total market value.
It is said that someone in South Korea is now blocking Do Kwon’s body. Do Kwon has already asked the police for help. I can only say that this is the right way. Do Kwon must still have a lot of BTC in his hands, and he didn’t even use any BTC to save the market. He did not know the result of his own game? All major exchanges are obliged to investigate Do Kwon’s trading behavior after charging BTC.
If Do Kwon wants to prove his innocence, it is very simple. He publishes the UST purchase record jointly certified by the exchange, and withdraws at least 4 billion to 5 billion UST bought in the rescue to the address on the chain, and proves it to the whole network.
8. Where did the lost funds go when Luna&UST was reset to zero?
Half of the losses are those who hold Luna, but these people are originally Luna investors, and the profit and loss are the same.
The worst is for those who caught the death spiral during Luna’s fall. They thought that a project like Luna, with a market value of tens of billions of dollars, would stop falling after falling 90%, 99%, 99.9%.
There are also full warehouses to go in and gamble.
But after the above analysis, you should know that before all the UST of 18.7 billion US dollars escapes, Luna will have unlimited additional selling pressure. All those who take Luna in the middle, they buy Luna’s real money, in fact, are In the rescue of those who hold UST, unless the funds received are greater than 18.7 billion US dollars, Luna has only one ending to zero.
And Luna with a market value of 20.4 billion US dollars, is it possible to have 18.7 billion US dollars of real money to receive funds? Of course not, Luna only escaped UST of $2.38 billion after falling from $57 to $4.1 and the total market value shrunk by 90%.
UST, who escaped from 2.38 billion to 7.4 billion, should thank all the people who see Luna cheap and don’t understand mathematics.
Buying funds between $57 and $4.1 rescued $2.38 billion in UST.
Dips between $4.12 and $1 rescued $2.92 billion in UST.
Bottom-hunting funds between $1 and $0.1 rescued $1.68 billion in UST.
The bottom-hunting funds below $0.1 saved $420 million in UST.
The above charitable funds rescued a total of 7.4 billion US dollars of UST, and finally left 11.3 billion US dollars of UST to zero.
Therefore, the second question of my homework on May 11 is:
Do you understand that the bottom-hunting funds are essentially to rescue UST, and the lower the currency price, the more bottom-hunting funds can be attracted.
The bottom-hunting funds of the Luna currency price of 0~1 US dollars (corresponding to a market value change of 1.13 billion US dollars) rescued 2.1 billion US dollars of UST.
This is almost as much as the $2.38 billion saved by the Luna price of $57~4.1 (corresponding to a change in market value of $17.67 billion).
So the answer is less than.
9. How to make money in UST de-anchoring?
This is the first question of my homework on May 11th. The methods of making money can be roughly divided into four layers: Taoist techniques.
① Conservation of energy.
② The increase of entropy is irreversible, and the decrease of entropy (order) cannot be created out of thin air.
All systems go into chaos unless there is an injection of external energy. For example, your room will always get messier unless you spend energy cleaning it. Here I want to stress again, the gap between knowing certain rules (such as energy conservation) and understanding them is greater than 108,000 miles.
Why do science students earn more than liberal arts students and dominate society more? Although both science and liberal arts students know about the conservation of energy, science students practice through tens of thousands of questions, and deeply write the basic laws of the world’s operation, such as “energy conservation”, into their instincts.
When facing the same pit, it is easier for science students to see that there is no conservation here.
① Because the increase in entropy is irreversible, the “algorithmic stablecoin” is regarded as an independent system. Unless there is a steady stream of external energy injection (such as the growth of external continuous input, funds to save the market, etc.), the algorithmic stablecoin will be classified as chaos (de-anchoring). ).
② When the death spiral occurs due to the false market value, 10 times the market value of Luna can’t support 1 times the market value of UST, not to mention that the market value of UST is even close to the market value of Luna.
① Profitable method: In the homework, many people said that they should short Luna. Is this answer correct?
Give you 1 minute to think.
Wrong, because at any point in time, the rise and fall of Luna cannot be predicted. Except when the anchor is just off, the probability of Luna falling is relatively high. At other time points, the winning side of short Luna is not stable. Take a short Luna and it will be liquidated. example:
Luna rebounded 11 times in the dead cat rebound before this zero, and exploded countless air forces.
In this great rebound,
The first brother who made A8 thanks to the light, escaped an A7,
And the second brother who shorted A8 and earned back an A7 by arbitrage.
Different choices, same fate, life is really dramatic.
Of course, there’s nothing new under the sun, as I wrote in 2016’s Throwing Cold Water on Zcash – With Deep Black, Does the Market Really Need Pure Black? ”, wrote a personal experience: When Zcash first started mining, when it rose from a few tenths of BTC to 3200BTC, a small position was first exploded, and then relying on the 10BTC price limit of Bitmex futures, I earned 100BTC back.
Although the position that was exploded at the beginning was very small, this was the most outrageous mistake I made. According to a rational prediction of Zcash, referring to the two existing anonymous coins of Monero and Dash, the reasonable valuation should be 0.01~0.03 between BTC. When I shorted at 1.7 BTC, it was already a bubble that was 100 times more than the reasonable price, but I never imagined that the market would still rise 2,000 times above the 100 times bubble.
Although I made it in the end, it was made by the Bitmex futures price limit rule, and I have never shorted any cryptocurrencies since then. So it is recommended that you:
Do not short any cryptocurrency,
If you are long, it will fall by up to 100%, and if you are short, it may rise by 100,000 times.
Do you think it will fall back?
market irrational time,
There will always be more time than you can survive without going bankrupt.
Therefore, the correct way to profit is: short UST with leverage. UST is anchored at 1 USD, and it is almost impossible to be significantly higher than 1 USD for a long time, so the higher the leverage, the better, which can be as high as 10~20 times.
② Prediction of UST detachment time:
“Stablecoin interest rates are as high as 20% for a long time, is Anchor also a Ponzi? ” This article puts forward a point of view that UST provides a financial management agreement Anchor with an annual interest of 20%, while Anchor’s own operating income does not reach 20%, and it will lose $4.18 million per day. The loss will consume the subsidy provided by the Luna Foundation. Now there are 360 million US dollars left. According to the current burning speed, it can only support for another 3 months.
Therefore this article argues that:
According to the current consumption rate of Anchor reserves, we will most likely wait for the breaking point of this financial game this year.
Is this view correct? Give you 1 minute to think…
Although the result is correct, the logic is wrong. Anchor’s high-interest deposits of up to 20% did indeed accelerate the death of UST, but the logical transmission of death was not insufficient interest. Do Kwon can easily withdraw 4 billion US dollars from the system, buy 80,000 BTC, and when the scale of the system continues to expand, he can withdraw hundreds of millions of US dollars to pay interest without any problem within 3 years.
And there is another point, the interest paid by Anchor is still UST. As long as the credit of UST is not broken, it does not even need to pay interest in real dollars. This is a common sense of central bank arbitrage: the national currency national debt will never default, if not, just print more national currency directly.
So, the key is when will UST’s credit be broken? In other words, when did the market begin to generally doubt the ability of UST to pay?
Although as mentioned above, according to the real smashing data, the time point when it cannot be redeemed is: after Luna, where the total market value of UST exceeds 10%. However, the vast majority of people in the market are not good at mathematics and do not understand the virtual market value. They do not know that on November 20, 2021, Do Kwon will issue an additional 4 billion UST. After the market value of UST reaches 40% of Luna, UST will not be able to redeem.
The wise follow the fool,
A fool’s consensus is also a consensus.
Therefore, the time point of UST’s credit bankruptcy is when the total market value of UST is close to or even exceeds that of Luna.
In the past week or two, I have seen people point out the risk many times: UST’s total market capitalization has approached Luna. No matter how obtuse and stupid people are, they will also realize: So the total market value of Luna seems to be insufficient for UST to pay?
The logical transmission of death is not insufficient interest,
Instead, high interest quickly attracts a large number of USTs,
The proportion of the total market value of UST has been increased,
Until it is high enough to alert most of the fools in the market.
So, really smart people,
Is it someone who knows where the idiot is wrong?
Of course not, really smart people,
I know how stupid a fool is,
And someone who can sync with idiots :)
How to short UST with leverage, such as umbrella funds, lending UST to sell with leverage on the exchange, how to arbitrage by destroying UST in the process of Luna zeroing, etc.
Although I slept for 13 hours last night, it is very late now, and the techniques are all trivial knowledge points, which are boring to write, and many people have said about arbitrage, and this article has already written 8,000 words, plus tens of thousands of words in pictures , the longer the reading experience is, the worse the reading experience will be.
So this article ends here.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/looking-at-the-underlying-mathematical-law-of-lunas-collapse-from-the-changing-hands-of-real-money/
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