Luna Splats into the Windshield
F in the chat.
It would be remiss to not make the biggest news in crypto so far this year the thrust of today’s note.
This week wasn’t exactly a black swan event. If you were paying attention, a lot of really smart people have been smashing the warning bell about Luna for a while. Investors could have and definitely should have been more careful (see: Warren Buffett’s #1 Rule of Investing).
That said, the timeline today has been pretty bleak. Lots of people have gotten rekt. It’s hard not to have empathy for the retail investors that were affected. (Maybe not so much empathy for the VCs.)
It’ll take a while for all of this to play out. After the 2009 financial crisis, it took several months for the historians and sociologists and all the other -ologists and experts to form a cohesive narrative to unwind and explain the causal effects of the global economic meltdown in a way that the layperson could understand.
It’ll probably take a few weeks for the effects of this week to flush out in the markets and a few weeks for the experts to post-mortem what ultimately caused the Luna deathspiral. In the end, I’m hopeful the narrative will be digestible and convincing and keep overzealous regulators from taking the napalm approach.
Every Great Story Needs a Villain
Character issues aside, Do is clearly very smart and he was trying to do something crazy. If an undercollateralized algorithmic stablecoin backed by volatile crypto assets paying an absurd loss-leader/marketing stunt yield had actually worked, people might be calling him a genius.
I think the takeaway here is that intelligent and engaged crypto participants need to develop much a much better sniff when it comes to narcissistic grifters. Perhaps the Wild West needs to develop a more formalized rule of law. Centralized rule is obviously anathema to the true believers, but maybe crypto needs a lot more sheriffs with strong moral compasses. Maybe less shitposting and more serious public discourse from the leaders in the space could help. I’m afraid that if this type of thing keeps happening, crypto will inevitably be regulated into something much less interesting and vibrant than what we have today.