You could make that argument about the majority of the crypto-currency universe, yes. I wouldn't consider an algorithmic stablecoin a ponzi scheme, though. People don't buy UST because they expect to be able to sell it to a greater fool for more; they buy it, because they expect to be able to sell it back to an equally-great fool for the same price. That expectation is founded in a shared belief in the 'value control algorithm' -- which I still think is a neat idea, in itself, because it's like a central bank in code form.
This particular algorithmic stablecoin is and has always been 100% a scam. If you actually look at the way the system works, it's pegged by exactly nothing, the only demand for LUNA is to burn it for UST, or to hold it for speculative purposes. Terra was never going to survive a bear, and this is only a little blip compared to past bear markets (so far).
Considering the market caps of other crypto currencies that serve no purpose whatsoever (other than going to the moon, obviously), one could argue that by being interconnected with UST, LUNA is actually one of the more sensible currencies. Because at least it's not _just_ for speculative purposes. Though I suppose that says more about the rest of the crypto space than about LUNA's legitimacy.
You could argue that, from a naive understanding of how it works. Of course, it's worse than even a useless speculative asset, because it was designed to scam people out of money. The mechanism is designed to prop up the value of LUNA while the creators accumulated BTC, not to maintain a pegged stablecoin, as stated.
> For every $1 of UST, there’s an algorithm to maintain parity with the US Dollar
Well that was broken yesterday. The algorithm is not sufficient because you have to have collateral to maintain parity correlation. Why would I "believe" in an algorithm? It either works or it doesn't. This one obviously doesn't.
Interesting the title of the section is "belief." Things are not worth what we think they're worth because we believe it. It's a common misconception. Something is used because we believe it will still be worthwhile tomorrow, but something isn't worthwhile tomorrow just by believing it will be.
> Belief in the protocol based on its mechanics, its math, its history, and its team.
Belief in it's team? Nobody in their right mind in this market would ask you to believe in a team. Belief in the mechanics? Based on the writing, I'd be willing to bet the author doesn't understand the mechanics. I do, and I've explained it in this thread a few times, it is nonsensical.
Then there's an admission of investment into the project and therefore bias.
Then ample appeal to authority, fallacious explanations as to why Terra is different than competitors with a similar scheme, "cash flow" which is laughable in a decentralized context. The author has the audacity to claim that Luna is backed by transaction fees. This is absurd.
Th rest is just shitting on something called Titan and something called Iron, which are probably low hanging fruit.
Go read about nubits and nushares and learn a thing or two about previous attempts to do this.
The algorithmic part itself I think is fine. It's similar to the mechanism ETFs use to stay close to the benchmark they want to track: if the ETF ever tracks above or below its benchmark, you can arbitrage by converting the component shares to ETF shares, or by redeeming the ETF for its components.
That all depends on liquidity though. The arbitrage mechanism is only compelling and effective if you can reliably take some asset you actually want (say, USD), put it into one side of that market, do the arbitrage, and get USD back out from the other side. If that route becomes risky then you're mixing the arbitrage mechanism up with significant asset pricing and/or counterparty risk.
The problem here is that the country with the most guns (largest armies) gets to define what a "productive citizen" is. So the parent comment still stands.
I think a lot of people hear ponzu scheme and think pyramid scheme, but the true definition is more “pay old investor returns from new investor principal” rather than “pay all investor returns from economic profit”
By that definition almost all crypto is currently behaving like a ponzu scheme.
