Back in March, a Brazilian video blogger predicted the collapse of Luna and called the project a pyramid scheme.
A month ago, when the Terra LUNA project coin was still worth $88, Brazilian analyst and YouTuber Caio Garé published video in which he predicted her imminent and inevitable fall.
“Terra LUNA is a pyramid scheme and it could collapse,” he said in his video message. However, the crypto community practically did not react to Gare’s expert assessment.
According to the blogger, the first assumption that the Terra ecosystem has signs of a financial pyramid did not belong to him, but to a crypto expert under the pseudonym Sensei Algod.
Gare recalled a $1 million bet between Algod and Terraform Labs project founder Do Kwon that LUNA’s price would be lower than it was at the time in a year. Algod was confident that despite the current positive price dynamics of LUNA, this did not eliminate his serious concerns about the viability of the project.
The Brazilian blogger said that he had previously noticed signs that something could go wrong. For example, of the nearly $16 billion in collateral held by the Terra project in the UST stablecoin, more than $11 billion was in DeFi savings product Anchor Protocol (ANC).
Investors placed interest-bearing deposits in UST stablecoins on the Anchor platform, under the promise of accruing 19% per annum as a reward. It was assumed that the profitability of Anchor’s deposits would be provided by the difference between the cost of placed and borrowed funds.
However, Gare said the problem is that the lending platform offered $11 billion and only $2 billion was borrowed. So Anchor was unable to pay the promised interest.
The analyst recalled that two supporting investments had already been made in Anchor: $50 million in 2021 and $500 million in 2022. In October 2021, the Terra developers activated the Columbus-5 update on the project’s main network, including a deflationary pressure model on LUNA. They stated that the upgrade will stimulate demand for LUNA and UST among users and developers of decentralized protocols.
As a reminder, UST is an algorithmic stablecoin that uses LUNA to maintain the token price of one US dollar. The LUNA crypto asset is released when demand for UST is low and burned when demand for UST rises.
“However, when we buy UST, we don’t realize that we are adding value to LUNA at the same time. What in addition increases the income of Terraform Labs [орган, контролирующий экосистему]made up of LUNA,” Gare said.
Thus, the expert believes, the more people bought UST to earn money on Anchor, the more LUNA grew in price. This generated revenue for Terraform Labs, which continued to fund Anchor.
Observation Gare confirmed macrostrategist Lyn Alden, who compared Anchor Protocol’s high APY to a “time bomb” ready to explode at any moment if the main demand driver – Anchor’s artificially high yield – disappears and demand for UST falls.
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