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LP Letter Excerpt — July 20th, 2022
Summary
- A recent market selloff has impacted crypto assets, with Bitcoin and Ethereum down 49% and 58% YTD, respectively. - The selloff has exposed unhealthy leverage throughout the crypto ecosystem, triggering a daisy-chain of distress and bankruptcy. - Despite the negative market conditions, the long-term conviction in crypto as a technology and asset class remains strong. - The first domino to fall was the Terra blockchain, which collapsed due to a loss of confidence in its USD-pegged stablecoin (UST). - This collapse then led to the bankruptcy of 3AC, a crypto lending company that had amassed a large amount of debt. - DeFi protocols have fared better than CeFi companies during the selloff, demonstrating the advantages of their transparent, on-chain design. - Overall, the crypto ecosystem is progressing despite the challenges of the past year and the market selloff.
Q&As
What was the cause of the crypto market selloff?
The cause of the crypto market selloff was a global selloff that impacted tech, crypto, and other markets.
How did the Terra blockchain collapse?
The Terra blockchain collapsed because the UST stablecoin broke its $1 peg and is now worth close to $0.
How did Three Arrows Capital (3AC) accumulate so much debt?
Three Arrows Capital (3AC) accumulated so much debt because they were able to borrow billions of dollars worth of assets with little to no collateral.
What are the advantages of decentralized finance (DeFi) protocols?
The advantages of decentralized finance (DeFi) protocols are that they are on-chain, transparent, and have code that anyone can inspect.
What is the long-term outlook for the crypto market?
The long-term outlook for the crypto market is positive, despite the recent market selloff.
AI Comments
👍 I'm glad to see that there are still people who are optimistic about the future of crypto despite the market crash. It's a tough market to be in right now, but I believe that the strong will survive.
👎 I don't see how the crypto market can recover from this. This crash has exposed so many problems and there's no way that things can go back to the way they were.
AI Discussion
Me: It's about how the crypto market has been unstable recently and how that has impacted different companies and funds.
Friend: That's interesting. I didn't know the market had been so unstable.
Me: Yeah, it's been pretty crazy. But it's interesting to see how different companies are handling it and what lessons they're learning.
Action items
- Learn more about the risks associated with algorithmic stablecoins.
- Understand the importance of risk management in the crypto lending ecosystem.
- Stay up to date on the latest developments in the crypto space.
Technical terms
- LUNA
- the native blockchain asset of the Terra blockchain
- UST
- a USD-pegged stablecoin built on top of the Terra blockchain
- COIN
- a cryptocurrency
- YTD
- year-to-date
- BTC
- bitcoin
- ETH
- ethereum
- DeFi
- decentralized finance
- CeFi
- centralized finance