Will Terra’s LUNA Top $88 This Time Next Year? A $1M Bet Says It Will

Crypto trader Sensei Algod has been so adamant about his bearish take on Terra’s native token, LUNA, that he decided to put his $1 million where his mouth is.

“Who wants to take a $1,000,000 bet that LUNA will be lower price [sic] in 1 year than now?” he tweeted yesterday.

“Cool, I’m in,” replied CEO and founder of Terraform Labs, the firm behind Terra, Do Kwon, betting $1 million that the price of Terra’s LUNA token will be higher than $88 on March 14 next year.

The duo agreed to appoint Cobie, a co-host of the crypto podcast UpOnly, as their escrow agent. They have each transferred $1 million in Tether’s stablecoin USDT to an Ethereum address, which Etherscan has now labeled as “Cobie: LUNA Bet Escrow.”

Everyone wondering “what happens if Cobie dies during the bet” but the real question is… do I get to keep the money if Do, Algod and GCR all die during the bet???

— Cobie (@cobie) March 14, 2022

Luna’s trading for $92.85 a pop, as of this writing, according to data from CoinMarketCap. It’s the seventh-largest cryptocurrency, boasting a market capitalization of $34.5 billion.

Despite the token’s recent bullish activity, however, Sensei Algod believes the price action doesn’t reflect his major concerns with the project.

The Big Short: Terra’s LUNA

Terra’s native dollar-pegged stablecoin, UST, maintains its stability through a swap mechanism, where traders sell 1 UST for $1 worth of LUNA at any time.

Whenever UST drops below its $1 peg, an arbitrage opportunity emerges. Clever traders can swoop in and trade that discounted UST for LUNA, turning a profit.

This helps maintain UST’s peg to USD because each time they buy UST and swap it for LUNA, the Terra protocol destroys that UST and removes it from circulation. This means you have spot buy pressure on UST as well as a diminishing supply.

Conversely, whenever UST rises above its peg, a similar arbitrage trade emerges. To capture this upside, traders will buy LUNA and swap it for UST. This process destroys LUNA and mints more UST.

Both forces help push the stablecoin back towards its peg.

In a twitter thread on February 16, Sensei Algod argued that because there’s now more UST in existence than ever, though, the LUNA cryptocurrency won’t be able to sustain its price unless Terra changes the model.

So basically 11,7bn UST is basically backed by luna orderbooks, in best case it can maybe sustain a 1-2bn sell right now. For now they driven up demand with the 20% fixed apy printed out of tin air which is unsustainable.

The further it grows, the more pressure there is on Luna

— Sensei Algod (@AlgodTrading) February 16, 2022

“So basically 11.7 [billion] UST is basically backed by LUNA orderbooks, in best case it can maybe sustain a 1-2bn sell right now. For now they [have] driven up demand with the 20% fixed apy printed out of [thin] air which is unsustainable,” he said, referring to Anchor Protocol, where UST stablecoin deposits currently earn investors 19.45% APY.

UST borrowing and lending on Anchor Protocol. Source: Anchor.

“What Lunatics are expecting is that demand will infinitely keep exceeding supply, the moment supply exceeds demand people will panic and start mass redeeming ust for luna -> [UST]. Does this remind you of something? (cough cough ponzi),” he tweeted.

He called LUNA “the bitconnect of this bull run” in another tweet on March 13, referring to crypto’s most infamous ponzi scheme that went bust in 2018.

Kwon also offered to Sensei Algod another wager to double down on his show of confidence in the Terra network.

“Furthermore, happy to do the bet where UST is not depegged same time next year, I shall even give you 2:1 odds,” he said. Sensei Algod hasn’t responded as of this writing.

But if this second bet is taken, there could be another even bigger wager.

Kwon has agreed to a $10 million bet with crypto trader Gigantic Rebirth, under the same conditions, but Gigantic Rebirth hasn’t sent the money to escrow agent Cobie’s wallet yet.

For the rest of us without millions to throw at our deep crypto convictions, today’s wager ensures that at least there’s going to be free entertainment come next year.