May 16th 2022 - Luna Is a Harsh Mistress

A week has passed since the collapse of LUNA and UST began, but right now it seems obvious that we have witnessed arguably the worst catastrophe in the history of cryptocurrencies, an event that dwarves Bitconnect and Mt. Gox collapse. Unimaginable sums of dollars were wiped out, millions of people lost their livelihood, but, most importantly plenty of illusions were shattered and trust in people and institutions related to crypto was lost, perhaps permanently.

At this point, there are various speculations that LUNA or something related to it might be rescued and some sort of compensation might come to those who lost money investing in it. But right now, those speculations are less important than the broader aftermath of this fiasco. LUNA created something resembling black hole that threatens everything crypto enthusiasts were building, at least in last couple of years.

Unlike previous Black Swan events wrecking crypto, this one occurred in the terrible macroeconomic conditions – rampant inflation, recessions, supply shocks, wars and all the things that make broad masses impoverished and less likely to stake their livelihood on something like “Internet magic money”. Some sort of euphoric bull run that would restore trust or at least brighten the general sentiment seems unlikely. Nocoiners, all those who called Bitcoin and crypto “scam and Ponzi scheme” are now having a field day, and the only segment of cryptosphere that is happy can be found in the most toxic among the Bitcoin maximalists.

Cryptosphere is going to be further burdened with finger pointing and blame game. The person most responsible and most likely to be seen as the main villain in this sad story is Do Kwon, founder of the doomed project. Yet, focusing on him as the ultimate culprit is an easy way to absolve from responsibility much larger set of people and institutions.

Do Kwon could have never created such spectacularly unsustainable bubble without aid of people many in cryptosphere had considered respectable. That included crypto influencers like Mike Novogratz and, of course, crypto media. Basic Cash, Do Kwon’s first failed experiment with stablecoins, was known, but nobody in media actually bothered to write about that story until the catastrophe made it relevant.

Ultimately, the major responsibility lies among those who invested in LUNA, either putting too much trust in influencers, media, and the whole concept of algorithmic stablecoins. They could have learned something from bear market and altcoin apocalypse few years ago, but they chose not. Some painful lessons would have to be learned again and again.

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