Reading and Writing｜UST/LUNA Death Spiral Incident, Reflections after the Ending

Cryptocurrency researcher The DeFi Edge posted his review of the LUNA crash on Twitter (see original link for details) on May 13, 2022, and the lessons learned from this incident. Chinese translations can be found on the Internet, and some citizens have shared them in the Matters community (see related works at the end of the article for details).

This article is only a brief excerpt of the " Ten Lessons ", and it has been categorized and curated (rearranged), and some small comments have been added to facilitate everyone's absorption and understanding. Without further ado, let’s get started!

■ Excerpts from the original text

The original text is excerpted first, which is the advice given to readers by The DeFi Edge. The order is as follows:

My Lessons From the Terra Luna Collapse:
① Avoid the Cult of Personalities.
②Risk Management.
③ Ecosystem Blindspot.
④ What's a Blue Chip?
⑤ Don't Catch a Falling Knife.
⑥ Never Use Leverage.
⑦ Stablecoin Risks.
⑧ Doxxed Founder Risks.
⑨ Too Big to Fail Bias.
⑩ Haha, should've been a BTC／ETH Maxi.

Next, I gathered them into four major categories and left them numbered for easy comparison.

■ Gathered into four categories

1・Don’t do this

① Don’t worship too much personality ⑤ Don’t take the knife ⑥ Don’t open the lever ⑨ Don’t be too superstitious to fail

The golden rules of stock investment in the physical world can be applied to the "currency circle" without any sense of violation. Seeing ⑥ reminds me of what Grandpa Warren Edward Buffett said a thousand and one times, "Don't borrow money to buy stocks."

Looking back at ⑤ and ⑥, it is a kind of execution surface that "water can carry a boat, but it can also capsize it." It may be because the water is very deep , so most people are advised not to touch it. But if you clearly know "what you are doing" and have your own set of judgments (not blindly follow them) , for example, if you plan to help the spot position avoid risks, then making an inverse contract - with leverage turned on - is OK.

＊

2. Don’t just care about “your” asset allocation

② Risk control (individual)
③ Ecosystem blind spots (project party)

The DeFi Edge said he has a rule: no token (token) exceeds 15% of my portfolio.

Earlier, in the article How Much Cryptocurrencies Are in Your Asset Allocation Ratio , I set the digital asset holdings for myself, which is about 7 to 10% of the total assets, and I plan to HODL for a long time. How much this ratio should be grasped should be secondary. The key is to draw a dividing line that can "sleep peacefully" , so that in the face of the ups and downs, you can still calm down.

After talking about "individuals", The DeFi Edge also pointed out that the "project party's" asset allocation is overly exposed (reliant) on the Terra ecosystem.

The warning this brings is that the allocation must not only be diversified, but also ensure that the correlation (linkage) between assets is low . I think of the metaphor of the burning chain ship in the battle of Red Cliff, and we have to break the chain (as much as possible).

Not only examine "your" asset allocation, but also care about "asset's" asset allocation.

＊

3・Big brother and second brother are right

④ What are blue chip stocks?
⑩ Are Bitcoin and Ethereum supreme?

After this incident, The DeFi Edge believes that a currency must "stand the test of time." Specifically, it must survive for more than two cycles and be in an upward trend to become a blue chip stock.

The only blue chip stocks currently are Bitcoin/Ethereum.

Since it is a blue-chip stock, its potential should not be viewed with a "growth stock" mentality. The DeFi Edge prefers to view Bitcoin/Ethereum as a store of value rather than maximizing profits . This is related to your investment style.

＊

4・The killer whale is staring!

⑦ Stable coins also have risks ⑧ Non-anonymous founders also have risks

From a conspiracy theory perspective, those "snipers" who are not happy to see the success of decentralized currencies may still continue to attack other currencies if they get the opportunity in the future.

The DeFi Edge said that he had to diversify his holdings and set the investment limit for each stable currency at 5% to prevent problems before they occur.

Point 8 is really like an election. All the unknown black histories of the candidates are dug up, and they even choose to "snipe" the opponent by blasting at specific times.

Maybe it's just fantasy, but imagine there's a whale in the market - and a killer whale at that - eyeing you. I used to put eggs (stable coins) in different baskets (wallets), but now I’m learning to pick more eggs of different varieties .

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