See the underlying math behind Luna's crash as real money changes hands

The Underlying Math behind the Luna crash, as Real Money Changes Hands

Original author: Andrew Chiang

Original link:weibo

These two days the currency circle took place in the history of wealth transfer, you in this transfer, is to earn or lose?If you don't know math, you're going to suffer"Because Luna's case was so extreme, $40 billion went to zero in just two days.

So far, I haven't seen a single article on Luna zero in terms of money changing hands (i.e., where the real money has gone), so I will. This will be one of the deepest articles I've ever written, so please keep up.

Don't ask me why I missed the 11th article,When market sentiment is extreme (panic or mania), it is easy to find money everywhereLike me, many people have only slept a few hours in the past two days. I was able to squeeze in time last night to write an essayUSDT is not at risk of breaking anchor in the near future"To avoid excessive market panic, is good enough.

I. UST Stablecoin mechanism

To explain this Luna zero event, we must first talk about UST Stablecoin's stability mechanism.UST is a target anchor $1 Stablecoin algorithm. The anchoring mechanism is: dual-coin destruction casting:

1. Luna is the UST project currency, which can fluctuate freely.

2. UST anchors $1 through a "two-way destruction casting" with Luna:

A. When the UST price is greater than 1 (for example, $1.01), you can destroy $1 worth of Luna to get 1UST, and then sell 1UST to get $1.01, making a profit of $0.01.

B. Conversely, when the UST price is less than 1 (for example, $0.99),You can buy 1UST for $0.99, destroy 1UST to get 1 dollar worth of Luna, and sell the Luna for 1 dollar, making a profit of $0.01.

The arbitrage mechanism is shown in the figure above. Of course, there are some friction costs (such as system casting costs, transaction fees, etc.). 1.01 is not enough for arbitrage costs, and a higher amount is enough.

So, by arbitrageurs doing arbitrage,As long as Luna's total market value is normal, UST can stabilize at $1. In addition, the development of UST ecology will feed profits such as transaction fees to Luna (Luna is essentially the equity of this system) and increase the total market value of Luna.

So why did Luna go to zero this time?To understand its essence, we must first understand the basic concept of "virtual market value".The concept of an empty market cap in my previous post on October 29, 2019 (BTC at $9,204)How Much does it Take to Get Bitcoin to $100,000?I talked about it once, and I'll talk about it briefly if you haven't seen it.

Ii. Virtual market value

In a word:

"Total market cap" is just a statistic, not real money.

Take the simplest example: Zhang SAN issues a coin with a circulation of 100 million, and then sells one coin to Li Si for 10 yuan, then the total market value of this coin is 100 million *10 yuan =1 billion yuan, but if Zhang SAN says at this point,The total market value of my coin is 1 billion yuan, and I'll sell it to you for 100 million yuan at a discountWould you buy it?

You wouldn't buy it, would you? becauseThe currency's trading volume is far below its total market value, and it's worthless.

That's the first step. Few people fall for it, but with a little twist, a lot of people fall for it. I am inHow Much does it Take to Get Bitcoin to $100,000?Here's an example:

A stock fund, the history of fund growth is very good, every year to earn 10%~30%, the fund now holds a few stocks, net value of 10 billion. Excuse me.The fund will sell you $5 billion whole (including the stock) at a 50% discountWould you like to buy it?

I'll give you a minute to think

...

...

...

...

...

...

...

...

...

...

...

...

...

...

...

...

...

...

...

...

This pit is the same as the previous question:If you have 100 million shares priced at $10 each, is that worth $1 billion in real money?

Of course it's not worth $1 billion, but if you sell that $1 billion of stock on the market, you're probably going to get a lot less than $1 billion in real money (in red).

You're going to sell 100 million shares, you're only going to buy 3 million shares for $10, you're going to buy 9.5 million shares, and the more the price goes down, the more you pay,I might have to sell it for 2 dollars to get rid of this 100 million shares. All told, you only got $300 million in real money.

What happened to the remaining 700 million yuan of "wealth"? No, no, no, the 700 million yuan was a dummy, never real money.The final transaction price of a share of 10 yuan multiplied by the number of 100 million shares, the total market value of 1 billion yuan, and the real 1 billion real gold and silver, the difference between 1 percent to 100 percent may be.The larger the proportion of 100 million shares in the total equity, the larger the percentage difference, selling 100 million shares of 110 million shares is enough to wipe out more than 90% of the price.

Third, how to make money by using false market value

It's actually quite simple,Just use the statistic of "total market value" in exchange for real money from people with low cognition. For example, in the first example, where did the fund get its 10 billion shares? mayBut the fund only spent 3 billion yuan, buy a few stocks, gradually made.

And just to review this graph, if you drop $1 billion worth of stock, you're only going to sell $300 million in real money, which means if you spend $300 million in real money,In the case of increasingly high degree of control, as long as a small amount of money, can push up a large total market value.

But at the end of the day, this $1 billion of market value is made up, but it's not real,If we sell it again, we'll only be able to sell $300 million in real moneySo what to do?

Simple, this stock is gradually bought with the fund, sell the fund to low cognition of retail investors: look, I this fund (copycat currency) is very high quality, profit 20% every year oh,Now the fund owns $10 billion worth of stock and sells you $10 billion in real moneyYou won't lose.

See? Don't study hard, improve cognitive ability, is this consequence, was sold do not know how to sell.

4. Virtual market value in Luna

Luna peaked at a total market cap of $40 billion before dropping anchor

But based on the false market value,If someone were to smash a disk with an infinite amount of Luna, it would sell far less than $40 billion in dollars, how much can be sold? This time, an extremely rare social experiment took place. The data will be given later.

In the process of Luna's ecological development, UST was gradually generated by Luna's destruction. Before dropping anchor on May 9,Total market cap is $18.7 billion, while Luna's total market cap is $20.4 billion.

And somebody said,Luna's total market value is almost less than UST, UST is about to lose its anchor, is that right?

Give you a minute to think about whether you really understand the concept of "false market value" (as opposed to just "knowing").

...

...

...

...

...

...

...

...

...

...

... (OcD doesn't need to be counted; there are 20 ellipses)

...

...

...

...

...

...

...

...

...

This is certainly not true, as Luna was no longer able to anchor UST long before 1:1,Luna has sold far less real money than total market value.Judging by the results of this social experiment,Luna's total market value must be at least 10-20 times that of UST before it can be anchored.

The Luna protocol has to run for a long timeSet a hard top where the total market value of UST is 10% less than the total market value of Luna (preferably 5%) and destroy UST when the total market value of Luna dropsThat won't prevent Luna from going into a death spiral and eventually going to zero when its total market value drops, but at least it won't be as brutal,Nearly $40 billion in market cap was wiped out in 2 days ($20.4 billion Luna and $18.6 billion UST).

5. Luna founder Do Kwon's huge cash out

So, there is a very interesting question, when Luna passed the "UST market capitalization is too large" threshold?

Do Kwon destroyed a large number of Luna and cast it into UST.

On November 9, 2021, the total market value of Luna was $20.1 billion, and that of UST was $2.88 billion.Accounted for 14%.

After the completion of UST issuance on November 20, Luna's total market value is $18 billion. UST issuance is $7.17 billion ($4.29 billion of additional issuance), accounting for 40% of the total market value. Luna enters the countdown of "crash and fall" to zero.

These Luna are nominally community pools, but are actually controlled by Do Kwon herself,It's essentially Do Kwon's own.

This is a very clever way to cash outIf Do Kwon sold 88.67 million Luna (22% of the total) at a time when Luna's market capitalization is $20.1 billion (400 million coins), it would only be able to sell for $2 billion at most.As of May 11, 81.2 million Luna coins would have knocked the total market value of Luna from $19.6 billion to $2.5 billion (87%), while only 1.94 billion UST was destroyed.

By casting Luna's virtual market value into UST, Do KwonWith no market fluctuation, we obtained 4 billion UST. And here comes the most baffling of all conceits:

UST is part of Luna's virtual market value, which is heavily discounted, and UST is not real money. But UST looks a lot like us dollars and can be exchanged 1:1 for us dollars in small amounts.

At this time, it depends on which people who are not good at math are willing to accept "fake money" UST.

Vi. 80,000 BTC bought by Do Kwon

So & have spentWhere did Do Kwon spend the 4 billion UST "fake money" generated by Luna's destruction?

So Do Kwon bought BTC.

From Luna foundation (LFG) released a currency address check bc1q9d4ywgfnd8h43da5tpcxcn6ajv590cg6d3tg6axemvljvt2k76zs50tv4q

The average purchase price of 42,530 BTCS is $42,152 (assuming the roll-in time equals the purchase time),Multiplied by 80,400 BTC, it is $3.389 billion, close to the casting UST amount. The remaining USDT is estimated to be kept by Do Kwon in reserve (Do Kwon also exchanged UST for USDT of $1.2 billion).

And even more ironically,Do Kwon also sold $1 billion of Luna to institutions.

Jump Crypto, Three Arrows Capital, Republic Capital, GSR and other institutions will be forever nailed on the shaming column, such a simple mathematical smoke show, no one in the internal process to check the problem. Why can't these institutions see such a simple mathematical smokescreen? Don't be superstitious about institutions. Outside the circle, the institutions are big leeks in the coin circle.The analytical managers in these organizations are just ordinary people.

So, the next question that everyone is asking is:

7. Did Do Kwon save the market with 80,000 BTC?

In traditional capital markets, this is a black box that nobody knows about,Unfortunately, Do Kwon operates all transparent blockchains, so that's clear.

Do Kwon moved on May 10 from 2 to 4 o 'clock (UTC+8 Beijing time, same below)

BTC and bc1q9d4ywgfnd8h43da5tpcxcn6ajv590cg6d3tg6axemvljvt2k76zs50tv4q in 42530

BTC bc1qkhl4pt957urd8sleys3p00ua2h23nl3hghhtkyaatgzapj9kflhqar0jdv in 12581

The above 55,000 BTC was typed out from the address of Luna Foundation, and there are another 25,000 BTC that Do Kwon claimed to have, so we can't confirm whether it really exists.

These coins are charged to major trading platforms, such as according to   bitinfocharts.com  Mark, of which 30000 BTC eventually entered the OKEX nyad6fa2dc5xowuwefusdrqrtezdwk28 address 1

But & have spentThe BTC price did not fall after 2 o 'clock on The 10th, but remained sideways, which is not the performance of 80,000 BTC.It was not until 8:30 PM on The 11th (April CPI inflation data released in the US) that BTC prices started to fluctuate wildly.

Here's another, more solid piece of mathematical evidence:If Do Kwon does use the $2 billion to $3 billion to rescue the market within two to four hours of the exit point (0:00 on May 10), it will show up in various statistical curves, especially in the initial data segmentAfter all, UST has escaped (destroyed) a total of 7.4 billion US dollars so far, 2 ~3 billion US dollars of bailout funds, enough to cause significant curve distortion.

However, the following starts from the point of departure (0 o 'clock on May 10)The statistical curves are very smooth, consistent with free fall.

For example, "UST accumulated coin destruction amount"Slow at the beginning (because the market hasn't panicked), fast in the middle, slow at the end (because Luna has been replaced), basic symmetry.

What's this? That's a standard.Peel curve.

To explain the Peel curve:

When the development and change of economic variables is expressed asThe initial growth rate was slow, then the growth rate gradually accelerated, and gradually slowed down after reaching a certain level, and finally reached the trend of saturation, that is, the sequential sequence of the first order difference of the reciprocal of the original time series is a constant, which can be described by Peel curve.

The destruction of UST after anchor release fits the mathematical model perfectly and draws a standard Peel curve.Where is the $2 billion to $3 billion artificial intervention? I guess Do Kwon saved the market symbolically with his little finger, pocketing all 80,000 BTC.

The index of "the percentage of destruction of UST accumulated coins in the decrease of Luna's total market value" is also basically smooth, indicating thatDestroyed UST is evenly absorbed by the decrease in Luna's total market value.

It is said that someone in South Korea is blocking Do Kwon's body. Do Kwon has asked the police for help. I can only say that this is the right way.Do Kwon must have a lot of BTC in his hands. He didn't even use any BTC to save the market. He created his own situation and didn't know the result?Trading platforms are obliged to investigate the trading practices of Do Kwon after it was plugged into BTC.

It would be easy for Do Kwon to prove his innocence,Publish UST purchase records jointly testified by trading platforms, and withdraw at least 4 ~5 billion UST purchases to the chain address, and prove to the whole network.

Eight, Luna& Where did all the money go when UST went to zero?

Half of those losses are Luna holders, but they are Luna investors in the first place.

It's worse for those who caught the death spiral during Luna's fall. They thought Luna, a top-10, multi-billion dollar project, would stop after dropping 90%, 99%, 99.9%.

And all the money in the bank

But as you should know from the above analysis,Until the $18.7 billion UST is out of the way, There will be unlimited selling pressure on Luna, and anyone who buys Luna's cash in the middle of the deal is essentially bailing out the UST holdersLuna will have to go to zero unless it receives more than $18.7 billion.

Could Luna, with a $20.4 billion market cap, have $18.7 billion in real money? Of course not,Luna only escaped a $2.38 billion UST after falling from $57 to $4.10 and losing 90% of its total market value.

UST, which has escaped from 2.38 billion to 7.4 billion, thanks to Luna's cheap, math-ignorant bottom-fetching funds:

Buying between $57 and $4.10 bailed out UST of $2.38 billion.

Bottom-fishing between $4.12 and $1 saved $2.92 billion of UST.

Bottom-fishing between $1 and $0.10 saved $1.68 billion of UST.

Bottom-fishing funds of less than 0.1 USD rescued UST of 420 million USD.

The above charitable funds saved $7.4 billion of UST, leaving $11.3 billion of UST to go to zero.

So, I...Homework on May 11thQuestion 2 examines:

Do you understand,Bottom-fishing funds are essentially to rescue UST, and the lower the currency price, the more bottom-fishing funds can attract.

The $2.1 billion UST was rescued by the bottom-fishing funds of Luna at $0~ $1 (corresponding to a $1.13 billion change in market value).

That's almost as much as the $2.38 billion saved by Luna between $57 and $4.1 (for a $17.67 billion change in market value), so the answer is less than.

Nine, how to make money in UST anchor?

This is my & have spentHomework on May 11thQ 1. The method of making money can be roughly divided into four layers: dao body with art.

tao

1. Conservation of energy.

2. Entropy increase is irreversible, and entropy decrease (order) cannot be created in a vacuum.

All systems develop into chaos unless there is an infusion of external energy. For example, your room will always get messier unless you expend energy to tidy it up. I want to emphasize again here,The gap between knowing certain rules (such as conservation of energy) and understanding them is greater than a million miles.

Why do science majors earn more than liberal arts majors and dominate society more? Although both science and liberal arts students know that energy is conservedScience students through tens of thousands of exercises, the "conservation of energy" such a basic law of world operation, deeply written instinct.

Faced with the same pit, it is easier for science students to see that there is no conservation.

The body of the

1. Since entropy increase is irreversible, "algorithm Stablecoin" is regarded as an independent system, unless there is a steady infusion of external energy (such as continuous external input growth, market rescue and other funds), otherwiseThe algorithm Stablecoin is bound to fall into chaos.

2. When a death spiral occurs due to false market value, 10 times Luna cannot support 1 times UST market value, let alone UST market value even close to Luna market value.

with

1. Ways to profit: In your homework, many people said you should short Luna. Was that right?

You have one minute to think about it.

...

...

...

...

...

...

...

... (The ellipsis is actually 21. Were you fooled?)

... (Don't trust, verify it)

... (This is how the blockchain world should work.)

... (If you don't follow the rules, you'll die in the blockchain world.)

...

...

...

...

...

...

...

...

...

...

Wrong, becauseIt's impossible to predict Luna's rise or fall at any point in timeIn addition to Luna's probability of falling at the beginning of the anchor, Luna's chances of winning short at other time points are not stable.

Luna rebounded 11 times in the dead cat bounce before zero, destroying countless air units.

In this big rally, the first brother to do thanks to light A8, escaped an A7, while the second short light A8 brother, arbitrage back an A7.

Different choice, same fate, life is so dramatic.

Of course, there is nothing new under the sun that I have in 2016Pour cold Water on Zcash -- With Dark Black, does the market Really need pure black?", wrote a paragraph of his own experience: in the beginning of Zcash mining, from a few tenths of BTC rose to 3200BTC, was first exploded a small position, and thenWith the 10BTC limit on Bitmex futures, we made 100BTC back.

I mean, it was a small position to start with, butThis is the worst mistake I've ever madeAccording to rational prediction, Zcash refers to the two existing anonymous coins, Namely Menlo coin and Dashi Coin,A reasonable valuation should be between 0.01 and 0.03BTC. I shorted at 1.7BTC, which was already 100 times more than the fair price, but never thought that the market could rise 2000 times more than 100 times more than the bubble.

I ended up making money, but it was on the Bitmex futures price limit rule,Since then, I have never shorted any cryptocurrency. So I suggest you:

Don't short any cryptocurrencies. Go long and go down 100% at most. Go short and go up 100,000x. The market will always be irrational longer than you can stay afloat.

So the right way to make money is to short UST with leverage. UST anchoring a dollar is almost impossible for long. Much higher than $1, so the higher the leverage, the better, can be as high as 10 to 20 times.

2. Prediction of UST anchor release time:

Stablecoin interest rate chronically up to 20%, is Anchor Also Ponzi?This article puts forward a viewpoint that UST provides a financial management agreement Anchor with an annual interest rate of 20%, while & NBSP;Anchor's own operating income is less than 20%, and it will lose $4.18 million a day. The loss consumes a Subsidy from the Luna Foundation, which now has $360 million left,At the current burn rate, we can only last about three more months.

Therefore, this paper argues that:

According to the current consumption rate of Anchor reserve, we are most likely to be inThis year has been the breaking moment of the financial game

Is that right? You have a minute to think...

...

...

...

...

...

...

...

...

...

... (Don't trust, verify it)

... Did you verify it? How many ellipses are there?

...

...

...

...

...

...

...

...

...

The result was right, but the logic was wrong. Anchor's high interest deposit of up to 20% did accelerate the death of UST, butThe logical transmission of death is not insufficient interest. Do Kwon can easily pull $4 billion out of the system and buy 80,000 BTCS, and as the system continues to grow,Hundreds of millions of dollars to pay interest, no problem for three years.

In addition, the interest paid by Anchor is still UST.As long as the CREDIT of the UST is not broken, it is not even necessary to pay interest in real dollars. This is aCentral bank arbitrageA common sense of:National currency bonds will never defaultIf not, simply print more of your own currency.

Therefore, the key is when the credit of UST is broken? In other words,When did the market generally begin to doubt the solvency of UST?

Although, as mentioned earlier, based on the actual data of this crash,Unredeemable point of time: after Luna when the total market value of UST exceeds 10%. But most people in the market are bad at math and don't understand false market valueOn November 20, 2021, Do Kwon issued an additional 4 billion UST, and UST could not be redeemed after the market value of UST reached 40% of Luna.

Smart people should follow XX, XX consensus is consensus. (Note "is", not "is")

So,UST credit went bust when it approached or even surpassed Luna in total market value.

In the last week or two, I've seen several people point out the risk: UST's total market cap is close to Luna.Even the dullest person will realize: so Luna's total market value seems not enough for UST to pay?

The logical transmission of death is not that the interest rate is insufficient, but that the high interest rate rapidly attracts a large number of UST and increases the proportion of the total market value of UST until it is high enough to alert the majority of XX in the market.

So, is the real smart person who knows where XX is wrong? Of course not, the real smart people are those who know how stupid XX is and can synchronize with XX :)

art

How to leverage short UST, such as umbrella fund, lend UST on trading platform with leverage to sell, how to arbitrage UST by destroying UST in Luna zero process, etc.

Although I slept for 13 hours last night, it is very late now. All the knowledge points are trivial and boring to write. There are also many people who have talked about it.

So that's it for this article.

Today's homework is:How many ellipses are there?

The original link

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia