Several major backers of Terra (LUNA) and its failed algorithmic stablecoin terraUSD (UST) spoke out about last week’s dramatic events this Wednesday, after staying largely silent since the collapse happened 10 days ago. On the same day, Do Kwon’s plan for a new Terra blockchain was put to vote.
In either case, perhaps most prominent among the investors who broke their silence on the spectacular collapse was Mike Novogratz, the CEO of Galaxy Digital and a high-profile backer of Terra who apparently even got a LUNA tattoo on his left shoulder.
Writing in an open letter addressed to “shareholders, friends, partners, and the crypto community” on Wednesday, Novogratz said that he has spent the past week reflecting on the role his firm has, and its place in the markets and the broader economy.
“There is no good news in what happened in markets or to the Terra ecosystem,” he opened his letter by saying, adding that the collapse has “dented confidence in crypto and DeFi.” Terra’s algorithmic stablecoin was “a big idea that failed,” he said.
“Our principal investments team invested in Luna in Q4 of 2020 using balance sheet capital,” Novogratz wrote, adding that their thesis for investing was “the expansion of blockchain-native payments systems.”
“At the time, we understood that the Chai app, which was built on Terra, had more than 1.8m users and was a top 5 finance app in South Korea that we considered had significant growth potential,” he said.
Further in the letter, Novogratz placed part of the blame for the collapse on the macroeconomic backdrop, which he said has been “brutal for all risk assets” this year. The investor said that this macro backdrop added pressure on Luna and the reserves held to back up UST, including bitcoin (BTC), which in turn “triggered a stress scenario akin to a ‘run on the bank’.”
“With hindsight things always look clearer. My tattoo will be a constant reminder that venture investing requires humility,” he wrote.
According to Novogratz, the flash-crash of LUNA and UST “also reinforces a few core tenets of investing (especially crypto investing)”:
- keep a diversified portfolio,
- take profits along the way,
- have a risk management framework, and
- understand that all investments happen in a macro framework.
“Galaxy did all of these with regards to our investment in LUNA,” he added.
Meanwhile, Joey Krug, the co-chief investment officer (CIO) at crypto hedge fund Pantera Capital, said on Twitter on the same day that his firm never invested in LUNA during investment rounds.
“[…] we bought it once it was in the public markets in July of 2020 via our liquid trading vehicles, not our venture style investments,” Krug said, adding that the firm has been selling off LUNA tokens as the investment became “increasingly profitable.”
“We initially invested in LUNA because of the progress we saw in developer adoption, the payments usage, and the broader ecosystem being built on Terra,” Pantera’s co-CIO said.
The comments from Krug came in response to a report by The Block that said Pantera cashed out 80% of its investment in Terra before the collapse. In the report, the firm also admitted that a part of its LUNA holdings was staked in the LunaX liquid staking protocol, and that this could not be sold.
Lastly, Delphi Digital, a crypto research and investment firm that invested in LUNA in 2021, said Terra’s downfall is “arguably the most catastrophic event to happen to crypto since Mt Gox.”
The Mt Gox hacking in 2014 is one of the most infamous exchange hackings in the history of Bitcoin, where attackers got away with hundreds of thousands of bitcoin, leading to the closure of the exchange which at the time handled around 70% of all BTC trades.
Writing in an article published on its website, Delphi Digital walked readers through their journey from first discovering Terra, to placing “a big bet” on it that ultimately failed. “As for the future, after making a big bet on Terra and failing, we want to make sure we learn our lessons and make the right choice on where to focus our efforts,” the firm wrote.
Delphi’s report further described Terra as a strong community that was “growing rapidly” in early 2021, the period when Delphi said it began studying the network.
“[…] we believed in the Terra ecosystem, we made a big bet on it, and it didn’t turn out as expected, costing us significant money and time,” it said.
The article further said that although Delphi “understood the risks of the algorithmic model,” they still “miscalculated” those risks.
“To the vocal critics of Terra’s algorithmic design–you were right and we were wrong,” they concluded.
– South Korean LUNA Buying Skyrockets, Token Trading at Huge Premium on Domestic Exchanges
– From Silence to Humbling Hell – Major Terra Backers Keep Low Profile as the Small Guy Is ‘the Biggest Loser’
– Terra’s Do Kwon Liquidated the South Korean Arm of Terraform Before LUNA & UST Crisis
– Legal Storm Brewing for Terra’s Do Kwon & Co as ‘Hundreds’ of Investors Ready Complaints
– It’s Getting Personal – ‘Broke’ LUNA Investor Comes to Do Kwon’s House, Plans to Surrender to Police
– After Terra’s Collapse, Cryptoverse Reflects on ‘Ponzi-like Assets’, Role of VCs, and ‘Ignorant’ Crypto People
– Luna Foundation Says Nearly Entire Bitcoin Stack Spent, Promises Compensation to UST Users