Closing Thoughts on Algo Stables

May 23, 2022 • 8 Min Read
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Closing Thoughts on Terra

Earlier readers of DeFi Digest will remember our initial primer on Anchor Protocol and the update we published when Anchor introduced the Dynamic Earn Rate. While we attempted to quantify the runway LFG had before they needed to replenish the Yield Reserve, $LUNA’s sudden death spiral was difficult to predict.

Instead, as detailed in last week’s Crypto Weekly, it took a series of concurrent events (Terra moving Curve liquidity from UST3Pool to 4Pool) and a malicious actor (or a nervous whale) to trigger the ensuing mayhem over a mere three days.

A plausible alternative scenario would have been for Do to run out of venture funding to replenish Anchor’s Yield Reserve, Anchor Earn Rate dropping before $UST demand falls and compresses $LUNA's price. $UST would eventually de-peg, perhaps unfolding across the span of a year.

Interestingly, DeFi’s transparency only exacerbated the panic. On-chain sleuths first reported LFG’s UST liquidity withdrawal on Curve Finance. The proceeding size swap of UST to 3Pool could have been a malicious actor, but it could also have been a whale (or a consortium of whales) farming 20% US...

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