Was the recent crypto crash of TerraUSD and LUNA another repeat of the 2008 Lehman Brothers collapse or a Ponzi scheme similar to Bernie Madoff's?
As more investors were lured to Anchor, the amount available in the Anchor Protocol Reserve to pay out those yields started to rapidly run down which became noticeable in mid-March this year.
Crypto royalty like billionaire hedge fund manager Mike Novogratz revealed a LUNA tattoo to his millions of Twitter followers in January this year and some of crypto’s biggest players including Defiance, Jump Crypto and Three Arrows led the purchase of US$1 billion worth of Bitcoin earlier this year to act as a backstop for UST, the Anchor Protocol and LUNA.
An investigation by the SEC’s inspector general would later reveal that over the years, the SEC had received sufficiently “detailed and substantive complaints” to at least “warrant a thorough and comprehensive examination and/or investigation.” Terraform Labs and Do Kwon, for the Mirror Protocol launched in 2020, where users could create and trade digital assets that “mirror” the price of U.S. securities warnings about TerraUSD, Anchor Protocol or Luna went uninvestigated.
Madoff’s Ponzi scheme unravelled because the 2008 Financial Crisis prompted withdrawals of some US$7 billion from clients of his various funds, and as little new money was flowing in by November 2008, he couldn’t cover the volume of redemptions. In other words, TerraUSD’s failure has yet to become systemic and hasn’t affected the financial markets, a failure of Tether’s USDT on the other hand might, but that’s another story.
Every US recession over the past five decades has been preceded by a positive real Fed funds rate — where interest rates are high enough to slow nominal growth.
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