It was just simple math, Luna short seller says after coin's fall

In market collapses, many lose and some win, and win big. Short sellers and other contrarians can do well in the panic.

Trade history of the interviewee who said to have made money from short selling Luna. [SCREEN CAPTURE]

In market collapses, many lose and some win, and win big. Short sellers and other contrarians can do well in the panic.

One anonymous Korean blogger claims to have shorted Luna before its crash on Thursday and said that his returns were in the triple-digit-percent range. His claims could not be verified, though he did provide screenshots of his trades.

“I was surprised to see my blog post shared in a chat room,” said the blogger, who has worked as a developer for six years. His previous blog posts received views totaling fewer than a thousand. But the posts he wrote about short selling Luna from May 8 through May 13 received more than 150,000 views and hundreds of replies.

In a post on May 8, the blogger claimed the Terra-Luna system to be a “Ponzi scheme.”

"For Terra to be maintained, the market needs to keep purchasing Luna,” he wrote, referring the dollar-pegged Terra coin. “Under this structure, those who hold onto Luna in the end have to bear the losses.”

Below is an edited excerpt from an interview with the blogger on Sunday.

Q. When did you predict the crash of Luna?

A. I witnessed the crash of the Waves cryptocurrency in April following the start of the Russia-Ukraine war. The reason for the fall was the algorithm-based stablecoin USDN. As USDN lost the dollar peg, value of Waves fell. Luna and Terra have the same structure. I predicted the same scenario to roll out when Terra’s peg broke.

Why do you describe Terra-Luna structure as a Ponzi scheme?

Terra has no value at all. I don’t mean holding it is useless. To create actual demand for Terra, an anchor protocol was created. It is a lending and borrowing protocol that provides crypto investors a high interest rate, offering up to 19.5 percent. At the same time, Terra was lent out at an annual interest rate of 12.4 percent, creating a reverse margin. Unless the money kept coming in from the market, interest could not be given to investors.

Do you think the developers knew it was a Ponzi scheme?

We can’t conclude that the entire Terra system is a Ponzi scheme. But seeing the protocol, it isn't sustainable. It seems Terraform Labs devised a plan so that Terra would have an actual value, like having more platforms trade using Terra and creating games based on Terra. But due to the abnormally high interest rate, it could not survive. The developers must have known that it could not last. It’s such a simple math.

Why do you think people failed to recognize the problems of the structure?

Most people jump into investments because they feel rushed after hearing other people earned a lot of money without analyzing the structure. My principle is not to invest in a product I don’t understand. If I don’t act, I at least don’t lose money.

Faith in stablecoins plummeted from the Luna incident. What do you think of other stablecoins, like Tether?

Investors also have to be careful with Tether because the U.S. government now has the grounds to regulate it. Tether is a reserve-backed stablecoin. Its assets include bonds, which were bought when the interest rate was very low. So its value goes down in the time of rising interest rates. Even if Tether sells all the bonds it owns, the amount may be smaller than its market cap. This means if investors suddenly try to take out money, they may not get it.

How did you gain an understanding of economics?

I’m an average office worker who majored in engineering. I practiced investing in stocks and real estate since I was a university student. Right now, I mostly invest in domestic stocks.

BY SONG SEUNG-HWAN [jin.minji@joongang.co.kr]