The ninth-largest cryptocurrency by market cap, LUNA, has come under fire this weekend as two relatively unknown analysts released an ‘expose’ on the LUNA / UST peg. @DeFi_Made_Here and @JackNiewold created two Twitter threads that managed to get the attention of Do Kwon himself. Unfortunately, the threads appear to have gotten under the skin of the “Master of Stablecoin,” who replied to almost every tweet in the thread and eventually told @JackNiewold, “time to make an alt, you idiot.”
The Luna Expose
So who are these two analysts? @DeFi_Made_Here appears to be an educational Twitter account focusing on “DeFi Strategies, tutorials, and project reviews.” The account is anonymous and has no external links. On April 7th, he made a 26 part tweet with a lead image that suggested the UST stablecoin on Terra is like plugging an extension lead into itself and expecting to get power.
Algorithmic stablecoins: case of $UST
— DeFi Made Here (@DeFi_Made_Here) April 7, 2022
The thread goes on to ask questions as to whether Luna is truly decentralized and if it is too reliant on Anchor Protocol. Explaining how UST is an uncollateralized algorithmic stablecoin, they question whether burning LUNA to ensure the peg is sustainable. They identify that no tangible assets do not back LUNA. The peg is maintained by the minting and burning of LUNA, which may confuse some people as to why UST should hold any value.
It seems to be something that caught the attention of Jack Niewold, an email outreach coordinator from the US who started a DeFi newsletter five months ago called The Crypto Pragmatist. With a more extensive reach than @DeFi_Made_Here, he created his own thread entitled “The LUNA exposé thread.”
The LUNA exposé thread.
— Jack Niewold (@JackNiewold) April 8, 2022
It is this thread that got the attention of Do Kwon, most likely due to his first statement that,
“I’m here to talk about some of the other sketchy shit the team (LFG) has done on their way to becoming the 8th largest crypto. We’ll go from bad to worse,”
He talks about how he believes minting UST causes LUNA that used to be burned to be used to fund LFG’s Bitcoin purchases. He also accuses Do Kwon of receiving all the “burned” LUNA to his own private wallet instead of sending it to a proper burn address. This accusation alone, if true, could be enough to cripple investor integrity in the entire LUNA ecosystem.
The crypto industry is notorious for promoting and expecting trustless architecture. How could we accept a top 10 cryptocurrency holding supposedly burned tokens in the founder’s personal wallet? Niewold accuses Terra of minting $1 billion tokens out of thin air, not being able to refute his arguments, holding more LUNA than is circulating, and lacking integrity.
The Master of Stablecoins, Do Kwon, responds.
The initial technical and esoteric questions from @DeFi_Made_Here, followed by Niewold’s scathing attack on Terraform Labs, resulted in a point for point no holds barred response from Do Kwon. He explained that LUNA is still burned 1:1 when UST is minted, and it can be seen through testing a swap on the Anchor dashboard. He also explained that he “burned the funds,” not that he owned the wallet to which LUNA was burned by linking a tweet from January 16th.
The $1 billion SDT minted “out of thin air,” as Niewold claimed, was done so “in case mint demand was [greater] than the mint cap while [liquidity] was low.” He completed the thread by directly stating that he has “refuted literally every point, but of course, when one pulls things out of their ass, they expect lots of backlash and don’t expect to be responding.”
Do Kwon also called out Niewold as a “made up clickbait” artist looking for attention. Well, mission accomplished, the combined threads have had thousands of retweets and plenty of engagement from all sides of the crypto community. Do Kwon’s response was also supported by Jose Maria Macedo of Delphi Digital, who also refuted each of Niewold’s arguments in detail in this thread, calling it “absolutely terrible.”
Niewold has undoubtedly increased his engagement, as Do Kwon hypothesized, but will it boost his credibility? Many “LUNAtics” have clearly been vocal in their disdain for the attempted expose. For now, it seems that Do Kwon has answered all the criticisms and helped affirm the strength of the Terra. The technology behind Terra’s “programmable money for the internet” has skyrocketed over the past few months, with LUNA up 1500% since July 2021. The algorithmic nature of coins like UST is difficult to understand, but the result is a truly decentralized, stable currency.
However, one point to leave with is that the premium to insure the UST peg is currently around 4.7% on the insurance platform Unslashed compared to just 1.2% for USDT. Uncertainty around Tether’s reserves still lingers, yet crypto-insurance appears to suggest there is a greater risk with UST, given that the premium is almost four times higher than USDT.
There are likely many factors at play in establishing an insurance premium, but risk is undoubtedly one of them. Setting risk for a stablecoin is undoubtedly not simple to do. However, with a market cap of $34 billion, many investors certainly believe it is a risk worth taking.