🤷♂️ Is Stable Really Stable?! What Does Blue Chip even mean?!
A quick dive into Luna TERRA $UST and Azuki NFT project
gm mfers 🤑
There is so much to talk about. To the point where I just wanted to skip today’s newsletter and pretend like nothing happened. It has been absolutely wild in the last 15 hours.
I know your time is valuable so without further a day, let’s dive into it. Let’s see what’s in Specials from our menu today.
🤷♂️ Is Stable Really Stable? Luna TERRA and $UST case
🧞♂️ What Does Blue Chip Even Mean? Azuki Case
🧶 Tweet of the day
👩🏫 Lesson of the day/ How Blockchain Works
🤷♂️ Is Stable Really Stable? Luna TERRA and $UST case
Okay, let’s go one by one. There is this thing called stablecoin in crypto space. Stablecoins are cryptocurrency tokens where their value is pegged to stable assets like USD. If you don’t know what peg means, it is basically the value of stablecoin equals to the value of USD in this case. You will still get all the benefits from that digital coin, it just removes the uncertainty and the volatility that crypto markets have. $UST is an example of a stablecoin.
$UST is not backed by any specific asset (algorithmic stablecoin) which is different compared to other stablecoins. Its price is maintained by creating and destroying supply through a swap with Luna token. $UST is the third largest stablecoin by market cap, right after $USDC and $USDT.
So what happened last night?
This mechanism has been put into test many times last week as UST peg crashes below $1 a couple times. Last night was bad, like really bed. I mean look at the chart below. We all know what that red means. It went as low as $0.67.
That’s all it takes in crypto markets. FOMO and FUD and everything can go down or up from there, depending on the expectations of the market. Cryto market is relatively self-efficient. Information spreads fast and people act quickly.
The algorithmic stablecoin model used by $UST works well only in cases when markets are going up. That’s what David Moreno Darocas, a research analyst said in an interview with CNBC
This assumes normal market conditions. During periods of high volatility and one-sided buy/sell activity for UST, the above stabilizer may not be sufficient to maintain the peg in the short-term.
To address those issues in case of a market volatility, Terraform Labs and other investors created a forex reserve called the Luna Foundation Guard (LFG) to backstop UST in case of market volatility. Do Kwon (founder of Luna and $UST) plans to buy up to $10 billion worth of bitcoin through LFG to hold as reserves to back TerraUSD.
All this raises an important question. Is stable really stable?! You be the judge. This is crypto for you. Always DYOR and invest only a money which will not give you a heart attack if you lose it within a week.
Oh and one more thing. Stable ≠ Stable.
🧞♂️ What Does Blue Chip Even Mean? Azuki Case
It all started with one tweet where the founder of Azuki posted an article about his experience in web3 space. Although his intention was to inspire people with his experience, this lead to almost 50% drop in the floor price for Azuki project.
Although Zagabond is not doxed, in this article he wrote about his experience where he admitted that he was a founder of three other previous projects which failed. Those projects were CryptoPhunks, Tendies and Cryptozunks. All those projects were abandoned from the founding team. Twitter went crazy on this.
ZachXBT who is known for identifying people who have been scamming in crypto and NFTs, argued that he rugged three projects within a year.
Rug pulls are a lucrative scam in which a crypto developer promotes a new project—usually a new token—to investors, and then disappears with tens of millions or even hundreds of millions of dollars.
After ZachXBT’s post, floor price was rapidly decreasing and it went as low as 10ETH, only to half-recover few hours later. At the point of writing this newsletter, it is sitting at 15.44ETH.
This raises another really important question we should be asking ourselves. Most of the NFT projects we come across are built by teams who are not fully doxed (that was the case with BAYC as well). And cases when founders have been involved in other scams/rugpulls are pretty common lately.
There is this tendency identifying projects as Blue Chip projects. This terms is stolen from stocks trading. What Is a Blue Chip? “A blue chip is a nationally recognized, well-established, and financially sound company. Blue chips generally sell high-quality, widely accepted products and services.”- from Investopedia.
NFT investors, being degens they are have a tendency of calling a blue chip project, everything that has high trading volume and floor price keeps going up. There is no due diligence being done, in most of the cases people know nothing about the founding team, their past experience, yet when they see floor prices going up, tend to label them as Blue Chip projects.
What is the take on this?
Just because someone says Blue Chip, it does not mean sh*t. Always be careful when joining NFT projects. If possible, learn who is the founding team, what are their past projects and whether they have been successful with those projects or not. Do not FOMO into projects just because someone says Blue Chip on Discord about a specific project.
🧶 Tweet of the day
We all know what the End will be on this!!🤦 McDonald’s Careers
👩🏫 Lesson of the day/ How Blockchain Works
You can go ahead and read the entire article here. I came across this illustration that I consider it does pretty good job on explaining how Blockchain works. We are developing our own content which will be sharing with you soon, but in the meantime we will be leveraging on other sources as well.
