Billionaire investor Bill Ackman expressed his views on the collapse of the Terra ecosystem, calling it “the crypto version of a pyramid scheme.”
“Investors were promised 20% returns backed by a token whose value is driven only by demand from new investors in the token,” Ackman tweeted. “There is no fundamental underlying business.”
The 20% returns mentioned refer to the high yield earned on Terra’s highly-popular Anchor Protocol application. Today, those rates have dropped to 18% and are expected to drop again on June 1.
In a series of tweets, the founder and CEO of Pershing Square Capital Management also criticized LUNA for creating artificial demand by limiting the supply through a vesting schedule.
Vesting schedules are a common investment practice in which the investor’s tokens are locked up for a particular period called “lock-up” and distributed evenly afterward. In the case of LUNA, if an investor purchased LUNA in the seed round, the LUNA tokens were locked up for 10 to 18 months. After the lockup period, the tokens were distributed.
When I read about the ‘algorithm’ of @terra_money it sounds just like a crypto version of a pyramid scheme. Investors were promised 20% returns backed by a token whose value is driven only by demand from new investors in the token. There is no fundamental underlying business.
“LUNA appreciated by attracting more followers and by limiting the supply of tokens through a vesting schedule,” the billionaire investor wrote. “It collapsed once the supply of sellers of Luna overwhelmed the buyers.”
Ackman did, however, go on to laud blockchain technology, calling it “brilliant” and that it has “enormous potential.”
But if the industry doesn’t get its act together, he argued, this potential may be missed.
“The crypto industry should self-regulate away other crypto projects with no underlying business models,” Ackman tweeted. “Hyping tokens that are not supported by businesses that create value will destroy the entire crypto industry.”
What was Terra?
Terra is a decentralized algorithmic stablecoin ecosystem launched by Terraform Labs led by Do Kwon in early 2018. The ecosystem comprises two tokens, namely LUNA, the native governance and staking token, and the algorithmic stablecoin UST.
UST is stabilized through a mint-and-burn mechanism involving LUNA. Users can always swap $1 worth of LUNA for UST and vice-versa. The arbitrage between LUNA and UST helps keep UST at its dollar peg.
The industry-wide unrest generated by Terra’s collapse last week continues to reverberate—this time within the company’s own walls.
Terra’s in-house legal team has resigned, a Terraform Labs spokesperson confirmed to Decrypt today.
General counsel Marc Goldich, chief corporate counsel Lawrence Florio, and regulatory counsel Noah Axler all left their positions shortly after Terra’s algorithmic stablecoin UST collapsed last week, bringing Terra’s native token LUNA down with it and wiping out $40 b...
If the price of UST trades above a dollar, investors can mint 1 UST for $1 worth of LUNA and sell the newly minted UST for a small profit. Conversely, if UST trades under a dollar, users can buy the discounted UST, swap it for $1 in LUNA, and then sell that LUNA on the market for a small profit.
Earlier this month, this mechanism soured, with UST losing almost 90% of its dollar peg. Today, it currently trades at $0.0949, according to data from CoinMarketCap.
A crashing UST led to the wide-scale minting of LUNA, driving down demand and diluting the asset’s supply. This resulted in LUNA shedding 100% of its value in a matter of days.
X has unveiled a real-time tool that dissects market-moving news in partnership with Polymarket, a crypto-native prediction markets platform, the companies said Friday in a joint statement.
Launched on Friday, the tool will offer live insights into events that influence markets, combining data from X and predictions from Polymarket. In addition, the product will leverage xAI’s chatbot Grok and relevant X posts to provide real-time explanations of market moves.
Combining those various technolo...
Binance Head of Financial Crime Compliance Tigran Gambaryan is departing the crypto exchange where he spent four years investigating illicit finance and cybercrimes, he said Friday in a Linkedin post, just a few months after escaping a harrowing eight-month-long detention in Nigeria.
In the social media post, Gambaryan, a former IRS agent, shared that he is on the lookout for “new challenges.” He intends to pursue job opportunities in the public sector or at a mission-driven institution in the...
Yet another public company with little-to-no previous involvement in the cryptocurrency industry has signaled it will top up its coffers with Bitcoin.
Health technology firm Know Labs plans to buy 1,000 Bitcoin, worth roughly $105 million as of writing time, a company representative said Friday in a statement also announcing that prominent fintech investor Greg Kidd would be acquiring a controlling interest in the firm.
“I’m thrilled to deploy a Bitcoin treasury strategy with the support of a...
