Terra Investor Mike Novogratz Breaks Silence on UST and LUNA Collapse


There was one person notably absent from the conversation about the collapse of Terra’s $18 billion algorithmic stablecoin and $30 billion network token LUNA: investor Mike Novogratz.

After not tweeting since May 8, just when things started to turn pear-shaped for Terra, the founder and CEO of crypto investment firm Galaxy Digital today tweeted a memo to shareholders and stakeholders describing how it all fell apart.

Explained Novogratz, who typically composes one to tweets a day, “I’ve spent the last week thinking about the macro economy and markets, our industry and Galaxy’s place in it.”

Galaxy Digital has been investing in the Terra ecosystem since September 2020, before the “Ethereum killer” became a top 10 blockchain. Both Galaxy and Novogratz have invested money in the network, a fact underscored when the latter recently got a tattoo of a wolf howling at the moon with “Luna” written underneath.

Novogratz walks readers through the firm’s investment thesis, highlighting a “projected expansion of blockchain-native payment systems”; he was specifically interested in the Chai app, which has a strong user base in South Korea.

He goes on to give his view on what went wrong – a combination of central banks “unwinding a huge liquidity bubble” caused by expansionary monetary policies and higher fiscal spending and too much pressure on Terra to deliver. high interest yields on user assets.

“UST’s growth had exploded from the 18% yield offered in the Anchor protocol, which ultimately outpaced other uses of the Terra blockchain,” writes Novogratz. “Downward pressure on reserve assets, coupled with UST withdrawals, triggered a stress scenario akin to a ‘run on the bank’.”

Novo says Galaxy will be able to survive the crash because it did four things: diversified its portfolio, frequently took profits instead of letting it all roll, used a risk management framework, and understood that its investment would be affected by macroeconomic events. .

That doesn’t mean Terra’s collapse won’t hurt. As of December 31, Galaxy held over $400 million in LUNA, a token that once sold for over $100 and is now worth less than a penny. Last week, Galaxy Digital projected a loss of $300 million for the quarter, as its equity fell 12% to $2.2 billion.

“With our diversified businesses, Galaxy remains in a strong capital and liquidity position. We are well positioned for long-term growth,” he said nonetheless.

As for what he personally gets out of it, he says, “My tattoo will constantly remind me that investing in venture capital requires humility.”

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