Several major backers of Terra (LUNA) and its failed algorithmic stablecoin terraUSD (UST) spoke out about last week’s dramatic events this Wednesday, after staying largely silent since the collapse happened 10 days ago. On the same day, Do Kwon’s plan for a new Terra blockchain was put to vote.
In either case, perhaps most prominent among the investors who broke their silence on the spectacular collapse was Mike Novogratz, the CEO of Galaxy Digital and a high-profile backer of Terra who apparently even got a LUNA tattoo on his left shoulder.
Writing in an open letter addressed to “shareholders, friends, partners, and the crypto community” on Wednesday, Novogratz said that he has spent the past week reflecting on the role his firm has, and its place in the markets and the broader economy.
“There is no good news in what happened in markets or to the Terra ecosystem,” he opened his letter by saying, adding that the collapse has “dented confidence in crypto and DeFi.” Terra’s algorithmic stablecoin was “a big idea that failed,” he said.
“Our principal investments team invested in Luna in Q4 of 2020 using balance sheet capital,” Novogratz wrote, adding that their thesis for investing was “the expansion of blockchain-native payments systems.”
“At the time, we understood that the Chai app, which was built on Terra, had more than 1.8m users and was a top 5 finance app in South Korea that we considered had significant growth potential,” he said.
Further in the letter, Novogratz placed part of the blame for the collapse on the macroeconomic backdrop, which he said has been “brutal for all risk assets” this year. The investor said that this macro backdrop added pressure on Luna and the reserves held to back up UST, including bitcoin (BTC), which in turn “triggered a stress scenario akin to a ‘run on the bank’.”