Holy, that's tough. What is that one day, it's worth a sub one dollar, it's worth the all time. Oh my jesus, then it's worth less than a dollar. You guys what even happened.

What even happened is it. Is it actually a rug poll there's a couple of video edits and no shot? Oh, my god. I want to see it. How is it largest, luna and ust face extinction from a multi-billion dollar bank run that's billion with a b.

As of recording, i still don't know if these coins are going to recover and the big question on everyone's mind is how did this happen? I brought on an expert to explain it, but first we have to talk about the basics of this stuff. Terra usd also known as ust is an algorithmic stablecoin, which is different from fiat-backed stablecoins like tether, which at least pretend to be backed by real money. Algorithmic stablecoins, on the other hand, aren't backed by anything the way they maintain their peg to the us dollar or euro is with market dynamics by incentivizing arbitrage, usually there's a pair of tokens, one of them paired with currency, wait and the other. Why would you even why? Would you ever want that, though i don't get, it can fluctuate and i'm not going to get into exactly how this arbitrage thing works, because it's quite complicated and others have covered it in a great amount of detail.

The point is: is that usually these things work really well and make a lot of money, for it is it just chat, is just trading based on predicted value and what people think it's worth or whatever? That's it and there's nothing backing it up. It's just projections. Right up until they don't and things go boom historically, every single algorithmic, stable coin has eventually lost their peg in, what's known as a death spiral where people lose their faith in the coin. Finally, and rush for the excess, and because this stable coin is not collateralized in any real way, most people end up losing their money in these exit situations famously mark cuban got wrecked with a stable coin called iron and it's titan pair many people have compared this Token pair to ust and luna, however, there are differences which we're going to get into.

But the point is, there's been a lot of failure in the algos stablecoin space, which you need to know about people meme about all the stable coins you guys are trying out. It's impossible: you can't create value from nothing. Despite this fact, it hasn't stopped people from trying every time a new algorithmic, stable coin fails two more crop up with new strategies about how they're gon na finally defeat this death spiral and the most popular and successful attempt at this has come from terra labs. A company which created luna and ust these two coins are extremely popular and in the top ten of all cryptocurrencies, so the project is massive and popular bust.

Billions of dollars would vanish. One reason the people have invested so much. I wish i would be some people realize that how how bad uh this makes everybody look and how about it makes the space look when a top ten coin. Does this top ten few people trying to validate the crypto with the bad guys, bitcoin guys bitcoin guys on the news on the you guys, mainstream instruments and the top 10 does that into us? It's just it's just because of a savings protocol called anchor which promises people a stable return of around percent, which is obviously insane, especially given how stable stable coins are supposed to be.

As a reminder, bernie madoff only promised a stable return of ten percent a year, and the anchor protocol is nearly doubling that leading many people to accuse it of being a ponzi scheme. However, luna investors, who often call themselves lunatics, say everyone knows, these rates are unsustainable and claim they're just being used as a growth tactic to get people into the ecosystem and that they will eventually be lowered over time as of a day ago, there was 14 billion Dollars locked up into this 20 percent a year free money scheme - and this has been one of the major drivers of adoption - and this 20 return was seen as a great investment for many right up until the crypto markets went into free fall over the weekend and Luna and ust were hit. Some of the hardest of all luna fell, 50 percent in one day and ust actually de-pegged all the way down to 69 cents nice. As for the anchor protocol, there was roughly seven to eight billion dollars withdrawn from the protocol over the course of a couple days like what it was billion dollar bank run, and as of the time of writing, i really do have no idea if ust wait, why Don't you recover at all and that's why i brought on my guest today.

Bennett tomlin he's something of a stable coin specialist and you may recognize him from my tether video and i couldn't think of a better person to talk to to really get to the bottom of this bennett thanks for coming on the show. So this is absolutely insane. We have billions of dollars hanging in the balance here and i guess my question is: what are the scenarios here? Which ways could this go sure, so it could go down. The first way this could go is that people continue to lose confidence in this system and try to exit their terra into luna, which, when you do it below peg mints more luna and provides continued downward pressure on the price of luna, which is the algorithmic stable Coin death spiral - that's often talked about is once the confidence is shaken, it can feed into itself and, as the protocol is trying to protect itself, it's also destroying itself.

Wait if the transfer one to the other and sell the other to make money by draining any of the remaining value out. The other option is that uh, dequan and terraform labs are able to using their bitcoin reserves by partnering, with appropriate market makers and venture capitalists that they're able to at least for now get this back to peg once they have it at peg. They're going to need to convince the community that this is still a thing worth having confidence in what you might see in order to try that here's. My question chad, confidence in the what what's the actual product.

What's the thing is it's just just numbers and it's virtual, whatever confidence in the what what is the binance back is dokuan and terraform labs, or perhaps just the terra community broadly may try to find a scapegoat, some kind of entity firm or person who they can Come up with it has nothing tangible plausible motivation for wanting to attack tara, i'm already finding that by the way, they're coming out and saying that you know centralized banks, i get it to bring. So you have to be confident in the confidence of people, but the confidence of being confident. That's it down. They want to take down luna, so you're already seeing that occur.

This is one of the interesting things foundation guard or whatever it's called is that they bought bitcoin to supposedly protect the lunapag. But since the markets are pretty correlated when the markets go down like this, and you have like an attack on the peg, aren't they selling bitcoin at a loss to protect luna and then making bitcoin crash even harder. Like am i getting that right? Why would you invest in an asset that would probably be down when you need it the most, because i think dequan's goal with purchasing the bitcoin wasn't really to stabilize the peg or make the terra system better? I think that the primary goal in purchasing this massive amount of bitcoin was to make it harder for people who care about bitcoin to criticize luna or tara, because he was on pace to become like one of the single largest holders of bitcoin in the world. And once you're in that position you have a lot of influence over bitcoin and you can get a lot of things you may want, because no one wants you to.

Suddenly market sell 10 billion dollars worth of bitcoin. Okay, i think i get it. I think i get it be very bad for anyone who holds it, i get it that's kind of complicated gibberish. I think i'm done with this.

It's correlated with i eat money ends i get it, i get it. I get it so when boom and then boom everything exploded cool. So that sounds interesting.