Is Terra Luna a ponzi scheme or a fantastic Bitcoin backed bank?

I’ve been using Terra lately loving the stable coin returns and swift price action of the native token. I’ve heard some accusations it’s a Ponzi scheme and I realized I don’t actually understand **where the Anchor yields are coming from.(?)**

I also heard Terra Labs is looking to buy 10 billion dollars of bitcoin. This seems like the smartest idea ever to back stable coins with bitcoin. That also got me wondering **how/where is Terra getting 10 billion dollar to buy bitcoin?**

**How can I better understand and find out if Terra can sustain all this or if it’s a Ponzi scheme?** Seems like if Terra’s model is sustainable and regulators allow them to do their thing with stable coins, they are the most important useful/valuable blockchain network below bitcoin. It could be the bridge between bitcoin and fiat.

Someone please help me understand and hopefully give reassurance. Cheers!

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38 thoughts on “Is Terra Luna a ponzi scheme or a fantastic Bitcoin backed bank?”

  1. Generally, the issue most people get caught up in is the fact that they think the only reason to own UST is to use Anchor. If you believe that’s true, then yeah, UST could be in very serious jeopardy and a bank run could occur as the interest rate is reduced and yield chasers move elsewhere and more copy-cats crop up.

    But UST also has a lot of more organic buildout (in so far as anything in DeFi is organic). There were billions of Terra stable coins in demand before Anchor was even released, and now UST has basically become the de facto stable coin for the entire Cosmos ecosystem and exported to several other blockchains. Not to mention the emergence of real-world payment cards in Korea, Vietnam, the US, etc.

    I have 5 figures in UST and only about $500 in Anchor via the White Whale and Pylon. There are more productive uses for it.

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  2. People are quick to label everything a Ponzi scheme, half of them probably don’t even know what the word means

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  3. The 20% APY is essentially marketing spend, to attract users into the Terra ecosystem and to give incentive to use their stable coin UST.

    There is already a mechanism in place that will dynamically adjust the APY based on reserves on a monthly basis. I believe in the long term the APY will bottom out at around 10-12%, assuming TFL does not continue to top up the anchor yield reserves.

    At around 8-10% the yield is sustainable. Minor top offs or additional marketing spend can keep yield at 12-15% for the next few years.

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  4. I won’t draw any conclusions because I really am not smart enough, but this is my understanding of how LUNA and UST works:

    1) When there is UST buy pressure, i.e. people want to sell their crypto for a stablecoin, UST has more demand than supply. This means UST price must go up. However, the Terra blockchain sees this and locks the staked LUNA in and prints more UST. This increased supply of UST cancels out any additional buy pressure and UST remains $1.

    2) When the opposite of 1) happens, i.e. people selling UST to buy crypto, the staked UST is locked and staked LUNA is introduced in the supply. This decreases UST supply and it remains at $1.

    What’s happening now is essentially 1). People selling crypto for UST instead of fiat or USDT using CEFI and DEFi exchanges meaning more UST must be introduced to maintain peg. This means staked LUNA is taken away from supply. This causes LUNA price to spike. This results in FOMO and people staright up buy LUNA, further increasing its price.

    Now, when/if 2) happens, and people start seling UST to buy other cryptos, hell will break loose for LUNA. To maintain peg, LUNA will have to be mass printed to decrease UST supply to maintain peg.

    The real question is, during this rapid UST adoption phase, we are seeing 1) happen. But will there be a mass UST selling to buy crypto? Or, after UST widescale adoption, will UST buy/sell pressure remain mostly the same?

    To somewhat combat this, the LUNA devs bought a shit tonne of Bitcoin as collateral but I am not too sure how that all works.

    If you still don’t get how UST peg works, give this a read [https://www.crypticinvestor.com/2022/01/the-brilliant-algorithm-behind-terrausd.html](https://www.crypticinvestor.com/2022/01/the-brilliant-algorithm-behind-terrausd.html)

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  5. > where the Anchor yields are coming from.(?)

    Simple: Borrowing interest and collateral yield. The reason it is currently not sustainable is because there are way more people lending UST than doing any of the above.

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  6. Terra is VC. Anchor is not a ponzi, Terra tops up the anchor reserves when they are low with investment money to drive users to the ecosystem. Everyone knows the 20% isn’t sustainable. Rate will begin dropping by 1.5% next month and each month after until borrow rates can more sustain deposit yield.

    Also, CoinBureau has a good video on it.

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  7. Here’s a deep dive on Anchor Protocol and its mechanics, including how the APY is earned and how sustainable it is.

    [https://www.youtube.com/playlist?list=PL_HuGPTZn6Wv3r5Zs6eGDnw8sFR4In2_1](https://www.youtube.com/playlist?list=PL_HuGPTZn6Wv3r5Zs6eGDnw8sFR4In2_1)

    Also, you can track the Luna Foundation Guard balances yourself, including wallets and recent news.

    [https://analytics.zoho.com/open-view/2528727000000006323](https://analytics.zoho.com/open-view/2528727000000006323)

    What’s your question on Terra sustenance? Per se, Terra doesn’t have to sustain anything since in itself, is just an L1 blockchain facilitating dapps built on it.

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  8. ITT: everyone think anchor is Terra. Anchor is marketing to bolster adoption. Everyone SHOULD know that anchor isn’t sustainable at 20% and never claimed to be. Was never meant to be and was never promised to be. Terra, Luna, and UST are way more than anchor. It’s defi it’s non custodial banking. Does noone really understand that? I feel like I’m taking crazy pills.

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  9. if this sub tells you something is too good to be true it’s probably just good and true, these motherfuckers would talk you out of heaven if they were betting on hell

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  10. I wouldn’t call Luna a Ponzi, but like almost all crypto these days it’s designed around enriching the founders. Why? In PoS the entire supply originates with the founder’s so they can sell it to the public for profit. Add to that staking rewards, for example there was a post here previously showing Charles hoskinson earning around $40million/year from staking rewards alone on the coins he allocated to himself.

    Even some PoW cryptos would premine a large portion of their supply to sell to the public via an ICO sale, Ethereum for example. This essentially classifies a coin as a security and comes with regulatory risk.
    Back in the day people would instantly label premined cryptos as shitcoins, now it’s just standard practice.

    For lunas case, that $10B that is intended to buy Bitcoin reserves comes from investors money ofc, but it’s better used on propping up Luna and it’s tokens than in Do Kwons pocket. The problem with all coins that arent PoW is not just centralization risk, but also that they cost nothing to produce and with no production costs there is essentially no floor.

    In the case of stable coins if they lose their peg to fiat they are over, so makes a lot of sense to back them with Bitcoin.

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  11. It’s creating 20% interest out of thin air and NEEDS new money coming IN to keep that going .

    Tell me how that’s not a ponzi.

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  12. Anchor is kind of like a bank, it takes your deposit, providing you an interest rate, then loans out your asset to people looking to borrow the asset. In this case it is UST. The difference between Anchor and normal banks, or even exchanges like binance & coinbase, is that the borrowers collateral, which provides insurance in case of unreturned UST, produces a yield of its own, which is swapped to UST and then payed to you.

    All the yield that goes towards Anchor Depositers is put in a large pool. Which by there is a corresponding amount of aUST token minted for provided to the depositer, representing their current share of the pool. As the pool grows in size, so to does the relation between aUST and UST. The current aUST/UST swap rate is on the Dashboard page, top right.

    aUST appreciates in relation to UST. this appreciation is in essence the yield rate. Current ‘real’ rates are about 6%. Worst case 19.45% drops to 6% and everyones aUST appreciates slower.

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  13. They have acknowledged the rates are high because they are meant to be to encourage adoption. Long term it will go down, which will be in about a year unless they fill the pool again.

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  14. Do you think the Federal Reserve is not a Ponzi?

    If Terra can pull this off this will be one the most innovative systems in our lifetime.

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  15. If anyone reads this, I would like to put my 2 cents in. Anyone who willingly claims LUNA is a ponzi lacks critical thinking.

    Why do I say that? Because every time this is brought I up, they ask the same questions, and they get the same answers; which are all available on the internet btw. The entire way luna and UST functions is no secret. Just because YOU do not understand now, does not mean you will not understand in the future. Take some time to actually research what is going on before using your naive ego to claim you have knowledge on shit you have absolutely 0 clue on, because you lack the critical thinking to figure shit out yourselves. Rant done

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  16. Everything is a ponzi scheme nowadays! It‘s the same as people get „hacked“ when they enter their seedphrase in a total suspicious site.

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  17. Look at Terra’s total supply of Luna tokens vs. circulating supply. They can release those tokens into circulating supply via LFG whenever they want as “gifts”. LFG then sells those tokens or burn them to mint UST. Basically, the money for UST yield and BTC reserves comes from luna holders.

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  18. Almost a hundred comments and almost none of them answered the question, don’t we love moons here?

    Anyway I’ll answer it OP. Anchor is subsidized by the Luna Foundation. They are keeping the rate high using their own money. You can see how much yield reserve remains on Anchor and calculate the runway yourself if you want.

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  19. Just remember ust(and other stablecoins) is basically luna debt. With luna having a current supply of 736m tokens that means 264m (1b max) luna can be minted to cover for the stablecoin debt. They currently hold a big bunch themself and are actively converting luna to ust (which is why you see such stable growth). They use the ust to fund for the high interest rates and to fund the bitcoin treasury.

    The total stablecoin current marketcap is about $19b(their debt), their bitcoin treasury currently holds 42500 bitcoin ($1,8b) and the 264m ($25b) luna not in circulation.

    If we exclude the bitcoin treasury luna can’t pay all its debt when it drops to $71,40 a luna. Including bitcoins treasury while assuming bitcoin doesn’t drop in value it’s $66,64.

    Now they also still hold about 287m($27b) luna in their wallets which they are using to swap to ust or let people swap the luna directly. If we even include this then a drop to $47,95 is enough to drain treasuries.

    When any of these events happen at some point it will trigger a chain effect and put massive sell pressure on luna.

    Why does it work for now and who knows how long? Because they simply own the majority of luna and ust. They have enough luna to convert to ust and fund the high interest rates. On top of that they have a big chunk of ust farming liquidity themself. A higher luna price means they can convert ust cheaper.

    Is this a ponzi scheme? I would say yes, just with extra steps. They offer high returns created out of debt/a promise to be able to convert back. To keep up the returns so that the scheme doesn’t break they need new investors to buy and pump up the price so they can keep creating ust to pay off investors.

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  20. I don’t have anything to add in terms of content – the article linked by the top comment explains it really well. I just wanted to say that open minded posts and well thought out questions like this are what make time spent on Reddit spent well in my opinion. It fuels constructive and informative discussion, and even helps readers with similar questions in mind broaden their perspective. There is always something new to learn.

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  21. People buy doge or Shiba not sure why they are so concerned with a utility token that actually does something useful…. all those calling LuNa ponzi schemes probably have 1 billion Shiba sitting around somewhere waiting to become rich lol

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  22. >I also heard Terra Labs is looking to buy 10 billion dollars of bitcoin. This seems like the smartest idea ever to back stable coins with bitcoin.

    So you give you hard earned money to another organization.

    They use that money to buy Bitcoin.

    If Bitcoin value plummets, you lose all of your money.

    If Bitcoin value increases, that organization gets rich. You get to keep your original investment.

    Can you please lend me $1000? I will put all of it on 00 on the roulette table. If the pick misses, we are even. If the pick hits, you get your money back.

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  23. Definitely not a Ponzi scheme. Think they are just making an ecosystem which is backed and sustainable in the long term

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