“At the height of their civilization, the Spartan society functioned astutely and was popular throughout Europe. We still talk about it today because it was a unique experiment that held its own for a long time. However, its inflexibility in the face of a dynamic adversary and internal saboteurs led to its downfall.” – Mitch Rankin, Co-founder of Forward Protocol.
Throughout history, tales of solidarity and camaraderie have been passed down through generations because they highlight the bravery and indefatigability of the human spirit. Poets sing about them, writers recount them in colorful details, and actors reenact them in iconic venues. However, on the other side of the story, there’s the villain – a person or group that must pursue their interests without considering how it affects others.
This week, one of the best-coordinated attacks on any financial system rocked the crypto world to its core, sending the market into a dip of epic proportions. Compared to the Greek government-debt crisis, its effect might not be as devastating. One could even find solace that it was about gross mismanagement and a general lack of foresight.
However, in a multi-trillion-dollar market, with retail investors operating with limited personal funds, a coordinated, greed-fueled attack like this looks even more distasteful.
How did we get here, though?
All for One – One for Themselves
Participants in the blockchain sector have become accustomed to the periodic peaks and troughs of the market, riding the exhilarating highs and enduring its lows. However, something about this latest dip feels hard to accept.
This ain’t our first rodeo. In May 2021, optimism quickly made way for resignation as we watched the market bleed following Elon Musk’s 180 on BTC. Even then, we were not entirely surprised – billionaire screws over the market for personal gain. It’s a classic.
So, here’s what happened this time around – earlier this week, an entity (person or group) borrowed 100,000 BTC and exchanged 25% of it for UST. Then the entity dumped the UST and BTC on the market when trading volume was at its lowest. We know this part to be 100% true, with on-chain data backing up this claim.
However, in a tweet posted by Charles Hoskinson, the Founder of Cardano and Co-founder of Ethereum, an unidentified character, simply called ‘Anna,’ volunteered some juicy information. She revealed that BlackRock, Citadel Securities, Gemini crypto exchange, and LUNA Co-founder, Do Kwon, were involved in different but equally dodgy market maneuvers that blew in their faces spectacularly.
In the end, UST and LUNA crashed, with the former, an algorithmically pegged stablecoin, losing nearly 50% of its value. This level of unprecedented capitulation caused market-wide panic, with a further decline in the value of other major cryptocurrencies. From there, it just snowballed to where we are currently.
The accused parties have denied every allegation, and no one has found the smoking gun yet. Of course, there’s a smoking gun. These transactions are available on-chain; we just can’t link them to anybody yet.
Forgive my affinity for comparing disasters, but it is relevant to where we are going with this. While Elon Musk’s tweet from May 2021 was a simple, almost whimsical decision that sent the market spiraling, this one was a coordinated attack. This time too, it was definitely an entity with access to enormous resources. A pattern is beginning to form here.
In an interview with Alex Botez, Do Kwon was quoted saying, “95% are going to die [coins], but there’s also entertainment in watching companies die too”. It is beginning to become apparent that there is recklessness and egotism spreading among a few larger-than-life characters. Who cares that a few people are getting too big-headed?
Well, we care! These people are the custodians of billions of dollars in investor funds and industry goodwill.
Burden of Proof
First, let’s get this out of the way – all of the accused parties have denied their involvement in the activities that led to the crash of LUNA and UST prices. However, where there’s smoke, there’s fire. It also takes one with considerable resources to pull off this attack. So, if it is not the billionaires that ‘Anna’ accused, it was some other billionaires.
Although the burden of proof is usually on the person who brings a claim in a dispute, in this case, we may not be able to reach Anna. The next best thing is for the accused to prove their innocence adequately. Out of line? Definitely not. This is the blockchain. These records should probably be openly available anyways. So, let’s make the ledgers public and prove innocence beyond all doubt.
The trail of evidence that has steadily formed since the event probably calls for more than a simple denial of the fact. Recently, another document turned up where the CEO of Terra, Do Kwon, apparently filed to liquidate the company’s assets in South Korea days before the network collapsed. The Luna Foundation Guard and Do Kwon remain embroiled in legal battles about tax evasion and the subsequent collapse of LUNA/UST in South Korea.
An unfortunate coincidence or an informed decision, the truth is the least that investors deserve after seeing their capital obliterated by serious foul play within the market.
Unnatural Market Forces Grow Stronger
The DeFi space is a multi-trillion-dollar industry with influential characters that can single-handedly affect market sentiments. Add this to external forces such as federal regulations, and we have a market that can swing wildly in response to the slightest provocation. Panic spreads fast around here, and why not? Retail investors are the darling of the DeFi space, and these are real people with limited buffers to absorb losses.
When things get wild, at least, they can wait out the craziness in the safety of stablecoins. The latest episode robbed them of this security, as UST lost more than 50% of its value. Even USDT, the largest stablecoin by market capitalization, also lost as much as 5 cents.
This can’t be the new normal. It takes collective responsibility and accountability to prevent things like this in the future. For now, we can only continue to follow the trail and hope we find the culprit before the trail goes cold.
Hopefully, this also comes as a timely reminder for everyone in the DeFi space. We can’t always look to CEO with a savior complex to always come to our aid or do a number two on our parade. Thankfully, the market seems to have moved on from Elon Musk. Now, we need to wean ourselves from these second generation overlords too.
It’s still about money, and historically, the worst of humanity has always been motivated by financial incentives. Communities need to remember this event and realize that the only way out of this hellish situation is through truly decentralized projects.
So far, LUNA does not look good on the decentralization spectrum. The top 10 addresses hold 70% of the LUNA in circulation, and any of them could negatively impact the token as we head into an uncertain future for a token that once occupied the number six position by market capitalization.
LUNA remains in recovery, and we hope to see a full recovery at some point. For some, there is no alternative. In the meantime, they deserve to find solace in the knowledge that this was not an inside job. Those pills can be the hardest to swallow.
On the other hand, if this was an external hit job, it makes it a different type of hard pill to swallow. At least, we’ll know it was only a ‘security breach’ and not a back door to one of the most widely used protocols in the DeFi space.
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