Matthew Land
@ItsMeOhHeyMatty
Partner at @MarshlandGroup | OG Cypherpunk | Head of #NFT Acquisition | Co-Founder @RareVibesAVClub | Gutter Cat Gang #629 #2949 #GangGang
Market Order Flow After The Collapse Of $UST
Since May 9th, 2022 we have been living in a post #Luna collapse ecosystem.
The following is a thread on capital flow post $UST regarding what investors are viewing as "safe assets"... ๐งต ๐๐
To recap as most of you know $UST has experienced a massive bank run that eclipses the 2008 financial collapse in size.
To date, it has lost 96% of its market capitalization and failed to hold its peg to $1.
#Luna #Terra
With #Luna officially moving to Luna 2.0 and leaving "Luna Classic" behind it's safe to say that the money is not coming back.
But it begs the question of how is capital behaving now that the 3rd largest stable coin, equaling close to 1% of cryptos market share, is gone?
The first stage of my journey started with identifying relative dates to a timeline and noting key narratives for months prior.
Let's start with the simple dates first. May 9th is the official start of the $UST collapse. On May 11th FUD started circulating about $USDT
Some cliff notes before we head into the numbers.
#Dai has declined since February with borrowers closing out positions and removing Dai from circulation.
#USDT has been the stablecoin of choice since Feb as its market cap has risen while #USDC fell in the same time period.
Around May 12th an attack started on $USDT dropping its peg down to $0.94. A low the asset had not seen in over 3 years and joining only a handful of historical lows of the pair dating back to 2016.
To understand the rest of this thread it's important to provide context to how a number of these stable coins work in terms of backed collateral.
Attached is an infographic detailing backing estimates provided by Seedly. Note the cash equivalents of $USDT vs $USDC and $BUSD
Important to note that $USDT is backed by 50% commercial papers. This is essentially the company issuing debt as a note.
Part of this most likely came from Tether borrowing money to balance its books prior to NY Attorney general case where it had to prove its assets were backed
$USDT is also speculated to be backed by a portion of Chinese corporate bonds which are not doing very well in the current economic climate.
I don't really want this thread derailed about the history and concerns about $USDT backing but more to paint the picture of investor sentiment as it pertains to other stabecoins.
Let's talk about the biggest winners of the #StableCoinWars shall we?
As shown below since May 9th $USDC market cap is up 10.4% after declining for 3 months to its peak in late February.
Initially when $UST depeg began $BUSD took a hit seeing a 4.11% decline. This was most likely out of reservation for how exposed Binance might be to the coin collapsing.
The exchange also had several pairs tied to UST.
Binance eventually froze trades and switched pairs to #BUSD
Public sentiment and clarity of info towards $BUSD 96% cash backing have improved.
@cz_binance has also been vocal about transparency and Binance's limited roll in #Luna fundraising settling investor's fears.
The coins MC has seen a 12.18% increase since May 12th 2022.
Before I post my takeaways I think it also important to see how #Bitcoin and #Ethereum are handling this nomadic transition of capital.
$BTC has seen the least impact with the #cryptocurrency front running the collapse and having the least decline post $UST timeline.
Since May 9th #Bitcoin MC is only down 3.4% fairly stable to the range.
Most of the $BTC in #Terra reserve was OTCed and didn't hit the market.
On the flip side of this #Ethereum seems more exposed with bridges like #Wormhole bringing direct exposure to market participants via $UST and a separate $USDT conflict in the process.
From May 9th to May 12th $ETH MC saw a 19.4% dump. An almost 6x comparison to $btc
So what does this all mean?
Investors are realizing this is still early days for the #crypto economy.
If they are going to park money on-chain in the form of stables they prefer to place it into currencies that they believe are less likely to face a bank run.$USDC $BUSD $Dai even $BTC
Some investors in the case of $BTC MC vs $ETH even left the chain for other lower risk #cryptocurrency in the hope to derisk an ecosystem level collapse whose epicenter would be on #Ethereum
The first question I think a lot of investors are looking for answers to is where should I park my money when it comes to stables.
The bad news is there are no clear black and white answers. But there are clues to help based on your risk tolerance and time horizon. ๐๐
Let's start with decentralization. Unlike $USDC or $BUSD, $Dai is on-chain and works at the protocol layer. Its battle tested and overcollateralized(Its backed by ETH with a ratio > 1:1)
This only is true if you believe #Ethereum is decentralized enough to support the assertion.
If you aren't an ETH maxie buy $BTC and expand your time horizon. #Bitcoin is the best price-performing asset of the last 12 years but you need to be prepared for some significant drops along the way.
This takes us back to the Stone Age but at least there's something.
If you are jaded by onchain protocols due to $UST and don't like volatility IE you want something stable the most liquid assets are $USDC and $BUSD.
But as I said the solution is not as straightforward.
$USDC is highly centralized. Circle can freeze your assets if it believes you are a bad actor and confiscate USDC from your wallet.
tinyurl.com/3a24xz7y
Even worse a new filing shows assets owned by @coinbase can be seized if bankruptcy was declared.
businessinsider.com/coinbase-warning-users-could-lose-crypto-bankruptcy-earnings-2022-5
To be rational and not wear a tin hat Coinbase is very wealthy post IPO and though market turmoil is present it's unlikely this happens.
Imo someone would likely buy them out and funds would be fine.
$USDC is also likely to be the strongest against regulatory scrutiny on the horizon.
In the wake of $UST almost every government is ramping up regulation frameworks for stablecoins on behalf of the banking sector and wants their cut.
We were warned!
twitter.com/KimDotcom/status/1523454955507826688
This brings us to $BUSD . It claims to be backed 99% cash which makes it the least likely to suffer from a bank run. Though there isn't much transparency on the reserves.
Binance for better or for worse operates outside most regulatory jurisdictions creating lite versions of its platforms for end-users in those regions.
So what is the answer? Imo it's diversity.
Just like we reduce risk in investment our stable portfolios need diversification too.
Me personally I have them split proportionally in $USDC, $Dai, $BUSD, and actual cash.
You should even go as far as diversifying your stables on different chains in the event of a brick. Lets say $ETH 2.0 messes up and you are unable to access funds?
As mentioned earlier a portion of your portfolio in $BTC or even other L1s is not a bad idea. Become an Index!
If you have made it this far in the thread a big thank you and appreciation for digesting this content.
Please sound off in the comments to let me know your feedback and how you are structuring your portfolio in the wake of $UST
Please like and share. Knowledge is power!
You can read the unrolled version of this thread here: typefully.com/ItsMeOhHeyMatty/FC4EYYH