Deposit and earn interest, lock-up scam

After the LUNA/UST death spiral of unlimited over-issuance of tokens on 5/11 and 5/12, another cancerous tissue was eliminated by the immune system, and the body became healthier.

The intensity of this deleveraging caused USDT to be decoupled at one point, which in turn drove the price of Bitcoin (BTC) to 25k.

After the panic, Bitcoin stood back above $30,000.

However, the body was still a little weak after the high fever, and the price of the pancake was still shaky around 30,000 dollars.

The key component of the LUNA/UST meat grinder, in addition to the automatic "stable" unlimited over-issuance mechanism, is the UST lock-up mechanism of the Anchor protocol.

Simply put, Anchor is a protocol for earning interest on deposits. The protocol is defined by smart contracts on the Terra /LUNA chain.

Any user can deposit UST into Anchor and obtain an annualized yield of up to 20% based on UST.

Those who have experienced the last bull market know that the tactic used by the project issuing the coin to control the market is "locking the position". For example, if you participated in the angel round or private placement round of a project, you exchanged your coin for the air coin A printed by the project. In order to prevent those of you who hold low-priced coins from dumping the market in the secondary market, the project will use sweet words to trick you into "locking the air coin A" and promise you a very good coin-based return, such as an annualized 20%.

For example, if you lock up 1 million A tokens today, and you will receive A tokens as "interest" every day, it means that in a year, you will receive about 200,000 A tokens as "interest".

In other words, if 1 million A tokens are locked for one year, a total of 1.2 million A tokens will be obtained including principal and interest.

The deceptive part is that when token A is rising rapidly in the early stage, you do the math, okay, Davis double-click - 20% annualized on the currency basis, multiplied by the expected increase of token A itself, if you are "conservative" and say 100% annualized (doubling in one year is indeed conservative in the currency circle, many project parties are calling for ten times or a hundred times). What is the total rate of return converted into the legal currency standard? 120% * 200% - 1 = 140%. 1 million becomes 2.4 million in one year!

But you miscalculated. The real purpose of the project owner to coax you to lock up your position is to prevent you from escaping at a high point, which affects the project owner's plan to control the market and harvest at a high point.

They push up the price, create the illusion of high returns from locked positions, and lure you to lock positions. When the liquidity is almost locked, the project party starts to control the market and continue to push up the price, and then sell at a high price. "Let the project party go first." You who have locked positions can only watch all this happen and can do nothing.

I saw him build a tall building, I saw him entertain guests, and I saw his building collapse.

Three thousand waterfalls fall straight down, as if the Milky Way is falling from the sky.

At the end of the year, the amount of coins unlocked increased by 20%, but the price of coins dropped by 10 times. After a quick calculation, 120% * 10% – 1 = -88%. 1 million became 120,000 in one year, a net loss of 880,000!

A netizen named Cobie once wrote an article questioning the staking of ApeCoin (Boring Ape DAO token), and bluntly said: "Creating new value is more meaningful than playing a shell game."

“Somehow over time the term staking has been redefined,” he wrote. “Staking now seems to mean that if you don’t sell your current holdings we will give you more tokens as a reward, rather than being rewarded for contributing to the security of the blockchain.”

“These new ‘staking’ mechanisms achieve nothing except reducing liquidity for potential sellers.

“Simply using rewards to encourage users not to sell, where the payment is the same asset that the user chose not to sell, seems like a late-stage Ponzi scheme.

“This staking doesn’t actually do anything in practice or technically, so you can simply think of it as a means of bribing users not to sell. The proposal reads: “If you don’t sell your APE or BAYC, we’ll give you more APE tokens!”

“Staking doesn’t serve any purpose, it’s just a bribe to people to continue to be members of the community.”

It seems to hit the nail on the head.

"Earn interest on deposits", "lock up funds", "pledge", no matter what words we use to describe this mechanism, it is essentially a means of "bribing" or "luring" users to temporarily lock up liquidity.

No matter how rich and prosperous you are when your locks are locked today, you will lose everything when your locks are unlocked tomorrow.

There is an old Chinese saying: It's not that there is no retribution, it's just that the time has not come yet.

Back to LUNA's UST lock-up and interest. As a so-called "stable currency", it is more confusing than the lock-up of the above-mentioned non-stable currencies.

After being fooled a few times, the leeks will start to think that the interest rate based on the currency standard is meaningless when the currency price falls.

But UST is a stablecoin, and its price will not fall.

So Leek was completely relieved.

This is rigid redemption.

Just after it passes, urge it.

Rigidity is fragile. Resilience is anti-fragile.

The leeks never expected that UST's rigid redemption could lead to bankruptcy, UST's rigidity could be broken, and UST's stability could be unmoored.

In fact, the Achilles' heel of the entire LUNA/UST system lies in the fragile stability of UST.

The death spiral of LUNA/UST also started with the de-anchoring of UST.

A thousand-mile long dike can be destroyed by a single ant hole.

One wrong move and the whole game is lost.

UST's high annualized stablecoin yield is like a free pie in the sky, a generous gift from fate.

Little do we know that all the gifts from fate have already been secretly marked with a price.