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The Götterdämmerung is one of the greatest masterpieces of Wagner: the opera recounts the final events that lead to Ragnarök. As a sharp contrast to the christian rapture where the good souls get airlifted to heaven, during Ragnarök Walhalla will be set on fire and the gods will croak their last breaths. And this is marked by the opera finale which is sung by the valkyrie Brünnhilde (aka the fat lady).

A partial list of all the VC backers of Terra

In such turbulent and revolting times we like to turn ourselves to the timeless artifacts of the past which have not only managed to capture the essence of humanity, but done so in such a way as to still be relevant in the modern day.

Hero or Villain

Akin to judging Siegfried’s involuntary betrayal of Brünnhilde, it is hard for any rational impartial observer having followed the meteoric rise of Terra to cast Do Kwon the unilateral villain of the story.

While his invention was hardly made on ‘terra firma’, pun intended, it was nevertheless a provocative attempt at freeing our industry from the grips of Wall Street; an attempt which swayed both big named investors in the space and the common folks.

A few strong headed arbitrators of crypto twitter like @MonetSupply and @0xHamz made their stances known early before the fall, but as any of them can attest, it was hardly a walk in the park. To speak against the hero of the masses was to offer yourself to the self-anointed inquisitors, the LUNAtics.

Ragnarök is still to Come

Like we said in the intro, the Götterdämmerung is not over until Ragnarök has come, and for that to happen, the fat lady must sing.

Taking a step back from the colloquialism, let’s have a look at the facts:

  1. The Terra explosion has wiped more than $40 billion in the span of 48 hours.
  2. While the above amount is a drop in the bucket of volatility that the industry experiences on a daily basis, the people the explosion affected matters.
  3. LUNA and UST were not your speculative tokens, they were ranked in the top 10 Coinmarket cap in terms of market capitalization.
  4. LUNA was a key component of your average crypto fund, with many crypto funds having an overweight allocation due to its overperformance for the year.
  5. Whoever was exposed to LUNA, not only lost their whole notional exposure, but also suffered significant collateral damage as the implosion dragged everything down with it.
  6. UST was the third biggest stablecoin before the implosion, and UST deposits on Anchor was the most used yield strategy in the whole of DeFi.
  7. In 2021 we saw the rise of a lot of market neutral funds whose objective was to make stable returns, and those funds were massively exposed to UST.

Terra was the soft patch in the back of a lot of institutional investors, and a spear was jammed straight through it.

Pulling the Ropes of Destiny

From a traditional finance perspective, suffering a big draw is not the killing blow, but what happens after does, let’s pull the ropes of destiny and see what the future holds.

  1. If you were a long fund, you did not only suffer a big draw for May, but you also had to write off all of your LUNA investments which are now worth nothing. You are not only down, but lagging massively behind any benchmark you can think of.

  1. If you were a market neutral fund, and had any significant exposure to UST (which almost everyone had), you are probably down between 10 % - 25% for the month. It will take you 2 - 5 years to claw that loss back. You promised stable returns, and you actually lost part of your capital.

In 2 weeks your investors will receive their statement and there is no pleasing an investor when you lose beyond their expectations.

Redemption notices will fly in and you will be forced to sell.

How much prices will go down is still to be determined, but what we can be sure of is that June holds further pain for the industry, global macro is just here to pour oil on the fire.

Only then, the fat lady will sing and we will all hear her.

By, Nathaniel Tsang Mang Kin