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Last week, the UST disastrously reversed its peg to the dollar, wiping out more than $40 billion for investors. Delphi, which competes with The Block to offer research in the crypto industry, was a sponsor of the Luna Foundation Guard (LFG), a Singapore-based nonprofit whose mission is to develop the Terra ecosystem.
“We’ve always known that something like this is possible, and we’ve tried to highlight the risks to such a system in our research and public comments, but the fact is that we miscalculated the risk that a death spiral event would occur,” Delphi said. Last week, we suffered a little bit for that, and we deserved it. The criticism is fair and we accept it.”
As recently as April, Delphi wrote in a research bulletin that LFG’s purchase of bitcoin “provides higher security to protect the UST’s peg to the dollar” and “likely reduces the risk of it falling into a death spiral.” And in March, the firm launched a proposal that allows customers to pay for their subscriptions with their UST balance and interest earned from the Terra Anchor protocol.
Delphi is one of a large number of crypto operators who had a significant impact on the Terra ecosystem during its collapse. In its post, the group publicly assessed the damage for the first time.
Delphi said its venture capital arm Delphi Ventures Master Fund acquired a Terra Luna token equal to 0.5% of its net asset value (NAV) in early 2021. This risk increased over time, leading to “large unrealized losses.” At their peak price, Luna and other Terra-native tokens accounted for about 13% of Delphi Ventures’ NAV.
Those figures include a $10 million investment in Luna in February, part of LFG’s $1 billion token sale. Delphi said the investment is “completely lost” due to Luna’s current price, but stressed that it did not sell Luna during the token’s fall. José María Macedo, Partner at Delphi Digital, is a member of the Governing Board of LFG.
Delphi Labs, a software research and development company, was hit hardest among the group’s branches. Delphi Labs has spent more than a year working on joint ventures focused on the Astroport and Mars protocols on Terra and has received grants of LUNA 30,000 and UST 466,666 from Terraform Labs for its work. The group stressed that the lab has never sold any of its existing tokens.
“We decided to use Terra because we believed that decentralized money had the greatest chance of success if it was integrated into L1, focused on real-world adoption, and built on a relatively scalable and interoperable blockchain,” Delphi said. “As for the future, after we have made a big bet on Terra and failed, we want to make sure that we have learned our lessons and made the right choices about where to focus our efforts. We have assembled a multidisciplinary team of the brightest minds from the research and laboratory department, and we will take the time to evaluate all possible options and make the right long-term decision.”
Not fast enough
Delphi also shared her thoughts on Terra’s Anchor protocol, which advertised 20% interest rates for UST depositors.
The group said it viewed the LFG — and the bitcoin reserves it has accumulated to support UST during times of stress — as a “massive step” toward reducing the bank’s risk of using the Anchor Protocol. “This actually converted some of the excess demand for UST into exogenous reserves that could be used to protect the binding if needed,” Delphi said. “Creating partial exogenous collateral while reducing anchor APY will significantly reduce systemic risk in the network.”
“We believed that a high level of external support was necessary in the long term and we saw this as a way to achieve this goal. Unfortunately, it did not grow fast enough compared to the UST offering, and, combined with the fall in the value of BTC reserves, the excess liability was too great to be protected.”
Delphi’s research arm has released six reports focused on Terra since February 2021, none of which have been paid for, according to a blog post by the group. It says that from a financial point of view, Delphi Research was practically not affected by the Terra explosion.
#wrong #risks #Terra