That point was the crux of Matt Levine's argument: Terra and Luna were unregulated and easy-to-game securities. So you can't complain when the smartest people on Wall Street figured out how to pop the balloon in their favor -- (not ai emdash) particularly when it's their job.
I will quote the first few paragraphs leading up to it though:
>The basic story of Terra is:
>Terra was a big crypto project, led by a company called Terraform Labs and a guy named Do Kwon, which at its peak had a market value of about $50 billion.
>It had a token, the currency of its blockchain, called Luna, which at its peak traded at almost $120 per token.
It also had an algorithmic stablecoin, TerraUSD, whose mechanism was that it could always be redeemed for $1 worth of Luna.
>That’s a bad idea! The problem, which was extremely obvious and which everyone knew about, was that, if people lost confidence in Luna, there would be a death spiral: People would redeem TerraUSD for Luna and sell the Luna, which would drive down the price of Luna, which would lead to more redemptions, which would create even more Luna, until Luna was trading at a tiny fraction of a penny and every TerraUSD would be redeemed for millions of them.
>In May 2022 that very much happened. Terra collapsed, people lost a lot of money and Do Kwon got 15 years in prison for fraud.
>At its peak, though, Terra was a pretty big crypto project, and it had various dealings with some very smart and somewhat sharky trading firms like Jump Trading and Jane Street.
“Can’t complain” doesn’t make it legal. I had this argument a number of times with cryptobros at the time “if it’s on the chain it’s fair game” I heard quite often. Just, no. Just because some code allows you to get away with something doesn’t make it not illegal[1].
The thing is you or I don’t get to say what is or isn’t a market that is covered by market abuse laws. Regulators do, and while it’s true to say none of the relevant regulators had stepped up and conclusively shown these markets were under their jurisdiction, they had repeatedly said they were looking into them and given hints they felt they had jurisdiction. Heck, I was in a meeting with Kevin Warsh around 2014 or so[2] where he asked about bitcoin so it’s clear the fed was at least looking into crypto at that time long before they made public comment. ISTR talking to the cftc at the same time and they asked about it too.
So “unregulated” in this context doesn’t mean “not covered by regulation” it means “regulatory status extremely uncertain”. If you want to go in with a very aggressive strategy you’re taking some risk that regulators will post facto go after you because they do that a lot in conventional markets.
[1] Market abuse in this case, but it’s obviously the case in cybersecurity also.
[2] This isn’t some kind of weird boast btw, cbankers and regulators meet with people from industry all the time as part of their normal information-gathering process and he met with a group of us who were working with some bank on detecting things like market abuse. He had some sort of academic position at Stanford at the time iirc looking into various types of bank regulation, but he was still plugged into the fed governors because he had only just left that.
bb88|3 days ago
https://www.wsj.com/finance/currencies/jane-street-accused-o...
That point was the crux of Matt Levine's argument: Terra and Luna were unregulated and easy-to-game securities. So you can't complain when the smartest people on Wall Street figured out how to pop the balloon in their favor -- (not ai emdash) particularly when it's their job.
I will quote the first few paragraphs leading up to it though:
>The basic story of Terra is:
>Terra was a big crypto project, led by a company called Terraform Labs and a guy named Do Kwon, which at its peak had a market value of about $50 billion.
>It had a token, the currency of its blockchain, called Luna, which at its peak traded at almost $120 per token. It also had an algorithmic stablecoin, TerraUSD, whose mechanism was that it could always be redeemed for $1 worth of Luna.
>That’s a bad idea! The problem, which was extremely obvious and which everyone knew about, was that, if people lost confidence in Luna, there would be a death spiral: People would redeem TerraUSD for Luna and sell the Luna, which would drive down the price of Luna, which would lead to more redemptions, which would create even more Luna, until Luna was trading at a tiny fraction of a penny and every TerraUSD would be redeemed for millions of them.
>In May 2022 that very much happened. Terra collapsed, people lost a lot of money and Do Kwon got 15 years in prison for fraud.
>At its peak, though, Terra was a pretty big crypto project, and it had various dealings with some very smart and somewhat sharky trading firms like Jump Trading and Jane Street.
seanhunter|3 days ago
The thing is you or I don’t get to say what is or isn’t a market that is covered by market abuse laws. Regulators do, and while it’s true to say none of the relevant regulators had stepped up and conclusively shown these markets were under their jurisdiction, they had repeatedly said they were looking into them and given hints they felt they had jurisdiction. Heck, I was in a meeting with Kevin Warsh around 2014 or so[2] where he asked about bitcoin so it’s clear the fed was at least looking into crypto at that time long before they made public comment. ISTR talking to the cftc at the same time and they asked about it too.
So “unregulated” in this context doesn’t mean “not covered by regulation” it means “regulatory status extremely uncertain”. If you want to go in with a very aggressive strategy you’re taking some risk that regulators will post facto go after you because they do that a lot in conventional markets.
[1] Market abuse in this case, but it’s obviously the case in cybersecurity also.
[2] This isn’t some kind of weird boast btw, cbankers and regulators meet with people from industry all the time as part of their normal information-gathering process and he met with a group of us who were working with some bank on detecting things like market abuse. He had some sort of academic position at Stanford at the time iirc looking into various types of bank regulation, but he was still plugged into the fed governors because he had only just left that.