Not all crypto crashes are alike. Most are foreseen accidents, though some may be engineered in their image.
To safeguard the overall blockchain industry and crypto market, TRON DAO Reserve will withdraw 2.5 billion #TRX out of binance.
— TRON DAO Reserve (@trondaoreserve) June 15, 2022
That’s Tron, which is a blockchain network in the Ethereum model. It includes a $700mn-ish valued token, usdd, that has been among crypto’s most obvious targets for attack in recent weeks.
Usdd (launched on May 5) is a decentralised algorithmic stablecoin that applies a near-identical arbitrage mechanism to Do Kwon’s Luna/Terra coin (which collapsed on May 10). Tron’s white paper for the coin was deleted and rewritten this month to add a promise of “guaranteed over-collateralisation using various mainstream cryptocurrencies”. (The old version is on Web. Archive.)
Usdd finally broke the buck late last week:
Justin Sun, Tron’s permanently online founder, has pinned the blame on the network’s native trx coin becoming a crowded short:
Funding rate of shorting #TRX on @binance is negative 500% APR. @trondaoreserve will deploy 2 billion USD to fight them. I don’t think they can last for even 24 hours. Short squeeze is coming. pic.twitter.com/VRExM6UK70
— H.E. Justin Sun 🅣🌞🇬🇩 (@justinsuntron) June 13, 2022
Sun is crypto’s most tenacious publicity hound. A vanity website leans heavily on his role as “Ambassador and Permanent Representative to the WTO in Grenada”, which last week allowed him to talk blockchain at the WTO’s Ministerial Conference. (Tourism, which pre-pandemic provided more than half of Grenada’s GDP, wasn’t mentioned.)
In 2019 Sun paid $4.6mn to have dinner with Warren Buffett, then cancelled, then on rearranging gave Buffett a phone loaded with bitcoin. A year later he was sucking the exhaust fumes of the NFT high-art bandwagon while self-identifying as a meme-stock bagholder.
Any entrepreneur so reliant on self publicity will be vulnerable to the law of diminishing returns. That’s how it was with Sun’s earlier attempts to shore up confidence, with reserve injections providing no more than short-term relief.
The market response to a withdrawal of deposits for the sanctity of crypto has been much more positive:
That’s because stated reserves aren’t Tron’s problem. The plummeting value of its native token is basically irrelevant to everyone but hodlers, because the usdd stablecoin is (on paper) more than fully collateralised by Tron’s $1bn of USD Coin and $140mn of Tether reserves.
Tron’s problem is that it’s a lobster pot. There’s no redemption mechanism for usdd. Once you’re in, there’s no way out other than through secondary market trading.
The only arbitrage opportunity on offer for usdd hodlers is to swap the tokens for a dollar’s worth of newly minted trx. Sun and the Tron grand council are the only ones with direct access to the reserves, so can choose whether to restore the peg or flip in and out of whatever asset will generate the most noise.
Pulling Tron’s trx deposits out of Binance therefore looks like an attempt to choke off liquidity in what is the crypto equivalent of a very heavily shorted small cap. It’s not a Terra/Luna arbitrage breakdown or a rug pull, though their similarity of appearance is probably not coincidental. It has a lot more in common with the simple meme stock-style manipulation of supply and demand.
Sun, however, has been very keen to make the shorters think otherwise:
Deploying more capital – steady lads
— H.E. Justin Sun 🅣🌞🇬🇩 (@justinsuntron) June 14, 2022
Deploying more capital – steady lads
— Do Kwon 🌕 (@stablekwon) May 9, 2022
Further reading:The many escapes of Justin Sun — The Verge
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