One person was noticeably absent from the conversation about the collapse of the algorithmic stablecoin Terra’s $18 billion and $30 billion network token, LUNA: investor Mike Novogratz.
After not tweeting since May 8, exactly when things started going pear-shaped for Terra, founder and CEO of crypto investment firm Galaxy Digital today tweet a note For shareholders and stakeholders who describe how it all went down.
“I’ve spent the past week thinking about the economy and macro markets, our industry, and the Galaxy’s place in them,” Novogratz, who usually posts one tweet a day, explained.
Galaxy Digital has invested in the Terra ecosystem since September 2020 – before it became an “Ethereum killer” in the top 10 blockchain. Both Galaxy and Novogratz poured money into the network, a fact that was confirmed when the latter recently got a tattoo of a wolf howling at the moon with “Luna” written underneath.
Novogratz briefs readers on the company’s investment thesis, highlighting the “expected expansion of local blockchain payment systems”; He was specifically interested in the Chai app, which has a strong user base in South Korea.
He goes on to offer his view on what went wrong – a combination of central banks “solving a huge liquidity bubble” caused by expansionary monetary policies, higher fiscal spending, and heavy pressure on Terra to deliver high-interest returns on user holdings.
“Treasury growth exploded from the 18% return provided in the Anchor protocol, which eventually overwhelmed other uses of the Terra blockchain,” Novogratz wrote. “Downside pressure on reserve assets combined with ground treasury withdrawals has given rise to a stress scenario similar to a ‘bank run’.
Novo asserts that Galaxy will be able to survive the meltdown because it has done four things: diversified its portfolio, took profits frequently rather than letting it all out, used a risk management framework, and understood that its investment would be affected by macro events.
That doesn’t mean Terra’s collapse won’t hurt. As of December 31, Galaxy held over $400 million in LUNA, a token that has sold for over $100 and is now less than a penny. Last week, Galaxy Digital expected $300 million loss this quarter as equity decreased 12% to $2.2 billion.
“With our diversified business lines, Galaxy remains in a strong capital and liquidity position. We are well positioned for long-term growth,” he said nonetheless.
As for what he takes personally, he says, “My tattoo will be a constant reminder that investing in projects requires humility.”
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