Terra Lessons: Bear Markets are for Building

It’s easy to be cynical. Now more than ever no one would blame you for bailing on the crypto idea, the crypto dream. In this post, I am going to riff – straight from my phone as I travel around. These are among my first thoughts on Terra and the aftermath.?

First, I am not a tourist in our space. I had a lot of money in $LUNA, and in USD my $LUNA is staked. I’m still licking my wounds and only just beginning to realize the magnitude of the financial implications. I sort of laughed my way through the first three days trying to figure out what to do.

That written, I really bought into the Terra ecosystem. It was a thriving community, and people were building on the Terra chain. There was a lot of innovation happening and a pool of developers that were really building interesting NFT, metaverse, and other very interesting projects.

At the same time, they had $UST, an algorithmic stablecoin which, combined with its DeFi Anchor protocol, was super attractive. All Terra projects had really good user interfaces and experiences compared to other projects and chains (most forgo UX altogether).?

Anchor protocol offered 19% yield, a very attractive savings rate which allows you to actually earn while being a saver. That seemed to favor wagies: they could earn money for saving instead of losing money with the kind of inflation we have now. (Remember too, traditional savings is a lending mechanism we are paid in exchange for giving our money to banks.) Anchor on the surface appeared to have a lot going for it.

As you’re probably more than aware, ultimately the collateral structure which allowed for extremely efficient capital deployment crumbled and crashed. I do lean toward the view it was a malicious attack very targeted to break the Terra system, but more analysts are beginning to question some of the Terra foundational concepts themselves as hopelessly flawed.?

Time will tell.

Our Bad

Maybe we were too greedy. Maybe we were too credulous. Maybe all that mainstream attention from the likes of Pantera, Delphi, and Novogratz’s fanboy tattoo had some influence. And as a result maybe it serves us right for not doing enough proper research, for not being prudent enough, believing only “number go up.”?

As an aside, and something I never really see/hear when it comes to the Terra LUNA UST arrangement, is how central banking is operating similarly but on a much grander, systemic scale. They’re monopolies, of course, and able to control and print and mint as much money as they want without real accountability.?

Terra LUNA UST won market share by the crypto community adopting it, flawed though it might have been. The very notion of Terra’s idea to have a pegged stablecoin allowing us escape from traditional central banking is maybe what sunk it.?

The Terra project was working, and working too well. It was a real threat. I am not exactly sure what I am saying here, and I don’t want to give-in to conspiracies, but I would not be surprised to learn later how state actors had a hand in bringing Terra down. No proof as of yet, of course, but I cannot shake that feeling.?

In any event, it’s super sad to see the experiment fail so miserably.?

However, we invited Wall Street and the financial industry to join in our crypto world (remember, it’s permissionless), and I guess this is what we need to be ready for as a community. This means the well-funded universe of TradFi for years can still slam the minuscule size of the whole crypto market at will. That’s not going away any time soon.

The reason it will be attacked is that crypto is not just another asset class. It is a utility, a functionality that allows us to represent our participation and skin in the game. It is a means for us to create a new system to bring more governance into a transparent on-chain environment. I believe it will allow society to live and operate without having stacks upon stacks upon stacks of incumbent-favoring regulations, policies, and processes that inherently are extremely difficult to change.

Back to Building

Perhaps it’s not popular to write, but Terra showed us a way this can be done. We now need to take those lessons and iterate further. There’s so much potential here, I believe. We’re going to have to see how Terra ends up, and give enough time for emotions to settle and proper analysis to happen, in order to build on its ashes.?

I am not throwing-in the towel. I am not giving up. Crypto really is reinventing money, and so of course in the process we are going to experience losses and failures. Terra isn’t the first and it won’t be the last.?

The great thing about crypto is everything is open source. Communication is transparent, by comparison, and this helps us learn and involve a hell of a lot faster than traditional finance.?

Here, there is no bail out. No project is too big to fail. No tax dollars to rush-in and save the day. In the immediate, that’s difficult for those who lost significant sums. I understand. But longer term, it means projects that should die, end, and that projects practicing prudence are rewarded.?

As of my writing, Dear Reader, it appears Terra will spark something of a bear market, taking with it a lot of hope and credulity. This is a test. Can the cryptoverse withstand giant failures, recover, and find a way out. I say yes, yes we will. It will not be easy. It will involve pain. But in the end, as you’re going to learn, bear markets are for building.?

I am going back to the construction site. Got my toolbelt on. I am excited to see what comes next.?