Terra’s top investors comment on the collapse of the algorithmic stablecoin

Several prominent Terra (LUNA) investors commented on the dramatic events of the past week on Wednesday, after remaining silent since the collapse of UST about 10 days ago. The same day, Make Kwon had submitted a proposal to revive the blockchain for a community vote.

Source: Adobe / Pav-Pro Photography

One of the investors who spoke is Mike NovogratzCEO of Galaxy Digital who apparently got a LUNA tattoo on his left shoulder.

In an open letter to “shareholders, friends, partners and the crypto community” on Wednesday, Mike Novogratz said he had spent the past week reflecting on his company’s role and where it fits into markets and the world economy in general.

“There is no bright spot in what has happened in the markets or in the Terra ecosystem,” he wrote at the beginning of his letter, adding that the collapse has “damaged confidence in crypto and DeFi.” Terra’s algorithmic stablecoin was “a great idea that failed,” he said.

“Our team invested in Luna in the fourth quarter of 2020 using balance sheet capital,” Novogratz wrote, adding that their goal was “the expansion of blockchain-native payment systems.”

“At that time, we understood that the application Chaiwhich was built on Terra, had over 1.8 million users and had significant growth potential, being in the top 5 financial apps in South Korea, ”he added.

Later in the letter, Novogratz blames some of the collapse on the macroeconomic background, which he says has been “brutal to all risk assets” this year. The investor said that this macroeconomic background added heavy pressure on Luna and the reserves held to support UST, including Bitcoin (BTC), which in turn “triggered a stress-like scenario” bankruptcy. “

“In hindsight, things always look clearer. My tattoo will be a constant reminder that venture investment requires humility,” he wrote.

According to Novogratz, the LUNA and UST flash crashes also reinforce a few fundamental factors when investing:

  1. have a diversified portfolio,
  2. take profits along the way,
  3. have a risk management framework,
  4. understand that all investments take place within a macroeconomic framework.

“Galaxy has done all of this in terms of our investment in LUNA,” he added.

In the meantime Joey Krughead of Crypto Hedge Fund Investments Pantera capitalhave declared on Twitter the same day that his company never invested in LUNA.

“[…] we bought it when LUNA was available on the public markets in July 2020 through our liquid commercial vehicles, not through venture capital style investments, “Krug said, adding that the company sold LUNA tokens as the investment became” more and more profitable. “

“We initially invested in LUNA because of the advances we’ve seen in developer adoption, payment usage and the broader ecosystem being built on Terra,” said Pantera’s co-CIO.

Krug’s comments came in reply to an article by The Block that Pantera paid out 80% of its investment in Terra before the collapse. The company also admitted that part of its holdings in LUNA were placed in the placement protocol LunaXand that it could not be sold.

Delphi Digitala crypto-research and investment firm that invested in LUNA in 2021 said Terra’s fall is “probably the most catastrophic event that has happened to crypto since Mt Gox.”

In an article published on its website, Delphi Digital described to its readers its journey, from the discovery of Terra to the placement of a large sum of money on the asset, which ultimately failed. “Looking ahead, after this setback, we want to make sure we learn the lesson and make the right choice about where to focus our efforts,” the company wrote.

Delphi describes Terra as a strong “fast-growing” community in early 2021.

“[…] we believed in the Terra ecosystem and it did not go as planned, which cost us a lot of money and time, “he said.

The article adds that although Delphi “understood the risks of the algorithmic model”, it still “miscalculated” these risks.

“For the critics of Terra’s algorithmic design, you were right and we were wrong,” the article concludes.

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