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MicroStrategy’s massive bet on bitcoin is in the red after the cryptocurrency’s price fell below the software company’s average purchase price.

MicroStrategy and its entities currently hold 129,218 bitcoins, bought at an average price of $30,700. The current bitcoin price is around $28,200, which translates to a paper loss of $330 million — although MicroStrategy hasn’t realized the loss by selling any bitcoin.

Amid broader market fallout, MicroStrategy’s stock price has also declined sharply over the past few days. It closed at $168 on Wednesday, bringing the decline this week to 45%. 

Microstrategy and its CEO Michael Saylor have become poster children for bitcoin enthusiasm after going all in on the cryptocurrency. MicroStrategy first purchased bitcoin on its balance sheet in August 2020, when Saylor told The Block that bitcoin is a superior asset for a treasury given it is deflationary by design.

“Gold is defective in the 21st century,” he said at the time. “It boils down to a very simple principle. It’s going to debase between 2% and 4% a year, certainly over the next hundred years.” As for the dollar, Saylor said, the problem is monetary policy expansion and inflation — which comes at the cost of purchasing power.

Bitcoin bull

Saylor has since maintained his bullish stance on bitcoin. For instance, he recently tweeted: “One thing matters more than the rest. #Bitcoin.”

MicroStrategy has also often said that it will continue to buy bitcoin irrespective of its price moves since it has a long-term bet on the cryptocurrency. Saylor told The Block in an interview late last year that the company has two strategies: the first is to grow its business software business and the second is to “invest our excess cash flows in bitcoin, and we hold it for the long term.”

Backed by debt 

Notably, MicroStrategy’s bitcoin bets have been funded by more than $2 billion of debt. The company has taken several convertible and secured loans to buy the cryptocurrency.

Most recently, MicroStrategy’s subsidiary MacroStrategy, which holds most of its bitcoins, took a bitcoin-collateralized term loan of $205 million from Silvergate Bank for purposes including buying bitcoin.

Saylor doesn’t seem to be concerned with bitcoin’s price drop. He tweeted earlier this week that MicroStrategy has 115,109 BTC that it can pledge, and even if the price of bitcoin falls below $3,562, the company “could post some other collateral.”

MicroStrategy is not the only company with bitcoin losses on paper. 

Elon Musk’s Tesla and cash-strapped nation El Salvador also have witnessed losses on their bitcoin bets amid crypto market turbulence.

The Block contacted Saylor for comment but had not heard back by press time. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The supply of Luna (LUNA) has increased by more than 20 times over the last few days, as the effect of TerraUSD (UST) losing its peg to the US dollar continues to take its toll.

This massive supply increase has accelerated the fall in Luna’s price, which is down 99% in the last two days. And if the price of Luna continues to fall, its supply will also continue to increase. 

Why is this happening?

To understand what is going on, we need to know the relationship between Luna and UST.

Luna is the token used to help UST meet its peg with the dollar. If the price of UST goes above a dollar, $1 of Luna can be burned and redeemed for 1 UST, a factor that helped push Luna’s price up during its epic rally earlier this year. Yet there’s a counterweight: if the price of UST falls the peg, traders can swap 1 UST for $1 worth of Luna.

At present, the value of UST is way below its peg, trading at just $0.57 as of 8:05 a.m. ET on Thursday. As a result, rather than sell on the market, UST holders are trying to cash out through Luna, using the mechanism designed to keep the peg in place. When this happens, more Luna is minted in response to the amount of UST being burned.

When Luna’s price was much higher, say $100, if you redeemed 1 UST for $1 worth of Luna, you would only get 0.01 LUNA. As a result, such swaps wouldn’t have increased Luna’s supply by very much.

Yet now Luna’s price is much lower and large holders are cashing out, it’s causing a big increase in Luna’s supply. At Luna’s current price of $0.10, swapping 1 UST gets you 10 LUNA. So if someone wants to swap a large amount, say 100,000 UST, that would lead to the minting of 1 million LUNA.

This has led to a downward spiral. As holders redeem UST for Luna, they increase the supply of Luna and likely sell these tokens on the market. This puts the price of Luna down even further, meaning the next person to redeem their UST creates even more Luna — putting an even greater downward force on the market.

It has also led to an exponential increase in the supply of Luna. On Wednesday the supply of Luna increased from 386 million to 1.5 billion — up by 1.2 billion. So far today, the supply has already increased to 7.1 billion — up a further 5.5 billion.

The supply of Luna has increased by 5.5 billion in just a few days. Image: The Block Research.

At the same time as this huge supply increase, the price keeps driving lower.

On May 10, the price fell 64%. On May 11, it fell a further 95%. So far today, it has slid a further 90%. The coin now trades at a fraction of a fraction of what it was worth just a few days ago.

The price of Luna keeps collapsing under large selling pressure. Image: TradingView.

What’s being done about it?

Currently Terraform Labs is backing a few proposals to try to rescue the ecosystem. One would increase the amount of UST that can be swapped for Luna per day by four times. This would increase how quickly the supply of Luna could be expanding — making the situation even worse for the Luna price. The theory is that rescuing the UST peg would be the fastest way to redeem the situation, even though it would impact Luna.

Terraform Labs is also pushing forward proposals that would see it burn 1.39 billion UST held in community and incentive pools. The idea is that this may reduce pressure on the system.

At the same time as this is happening, many Luna holders are watching their tokens lose more than 99% of their value — and can’t do anything about it. This is because many had staked their coins, a way of locking them up to receive rewards. The current unstaking period is 21 days, so stakers had no way of selling their coins unless they had already moved to unstake them three weeks before this crash.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Mike Dudas of 6^th Man Ventures has amassed the bulk of $145 million from a who’s who of big name crypto investors for his second venture fund.

6^th Man Ventures, a venture capital firm co-founded by Dudas and StayTuned Digital CEO Serge Kassardjian, is the final stages of closing the $145 million raise, Dudas said in an interview with The Block. They have already collected $140 million.

Limited partners for the fund include Galaxy Vision Hill, Three Arrows Capital, Sino Global Capital, FTX Ventures, Animoca Brands and AngelList. They are joined by a bevy of individual investors including billionaire Bill Ackman, Marc Andreessen and Chris Dixon of Andreessen Horowitz, Tushar Jain and Kyle Samani of Multicoin Capital, ParaFi’s Ben Forman, Kevin Colleran and Sam Lessin of Slow Ventures, and Solana’s Raj Gokal.

Dudas founded The Block in 2018 before departing last year to join stablecoin firm Paxos. He transitioned to an advisory role at Paxos in February. Dudas also co-founded LinksDAO, an NFT-funded attempt to acquire, decentralize and widen access to golf clubs.

Dudas and Kassardjian had a mere $7.4 million to play with for 6^th Man’s first fund. Dudas called it an “operator fund,” with an average check size of around $100,000. But 6^th Man has now completed investments in over 100 projects and protocols, though only around 20 of those are public.

Some investments have taken off. 6^th Man has backed the likes of NFT marketplace Magic Eden; STEPN, a startup that gamifies exercising; Rainbow Wallet; and Etherscan. These successes convinced Dudas to give venture capital a go full-time. He started raising capital for the second fund late last year.

That fund and indeed 6^th Man in general is purely focused on venture capital — as distinct from those that also dabble in liquid token investing and late-stage rounds. It targets pre-seed, seed and some Series A stage deals, but with a larger check size than its predecessor at $1 million to $2 million.

“We’re purely venture and that’s a big, big thing. We’re not going to be the guys that dump your tokens,” said Dudas, adding that while some funds are now expecting to see returns on their investments within four years, 6^th Man has a ten-year return horizon. The $145 million won’t have to be deployed until five years after the fund has closed, he added. “We think that’s a real advantage in this market — we don’t have to rush,” said Dudas.

Roughly 20 investments have already been made through the second fund. Broadly speaking, Dudas is targeting three areas of crypto: play-to-earn gaming and metaverse projects; web3 networks and Decentralized Autonomous Organizations (DAOs); and infrastructure.

As to what 6^th Man can offer startups in an extremely crowded crypto venture market, Dudas said the fund’s personnel will assist portfolio firms with marketing, media relations, go-to-market strategy and business development.

In addition to Dudas and Kassardjian, 6^th Man has brought in Carl Vogel and Aaron Kern as partners. Vogel, who was most recently a senior product manager at Paxos and before that a product manager at Google, is overseeing a new research initiative at the venture capital firm. The aim is to produce practical research that 6^th Man can share with founders, offering insights on topics like ZK-rollups and how to structure DAOs.

Dudas has one more selling point in mind for enticing founders to his fund: “we’re not assholes, and we’re not mercenaries,” he said.

Mike Dudas is the co-founder and former CEO of The Block. He no longer has a financial interest in The Block.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Contributors to the Terra-based Anchor Protocol have proposed reducing to 4% a yield of 19.5%  on terraUSD (UST) deposits in an effort to make its yield reserves more sustainable. 

The governance proposal is now undergoing a community vote, and comes at a time when the UST stablecoin has been struggling to maintain parity with the US dollar. The algorithmic stablecoin is currently trading at about $0.50, half of its supposed dollar value. 

The crisis surrounding UST’s dollar peg has seen users make large withdrawals from Anchor. Since last Friday, Anchor’s UST deposits have plummeted from 14 billion UST to about 2.5 billion UST. 

Anchor depends on UST for its operations, and the failing peg is a major cause of concern. To mitigate some of the negative effects of the depeg, the proposal calls for sharply reducing the high yield offered on UST.

On Thursday, Terra contributor Daniel Hong wrote the “emergency proposal” and posted it on Anchor’s governance forum. In it, he made the case that “a depegged UST cannot sustain 18% [to 20%] APY any longer.” Rather, he advised that Anchor revise its interest policy to help protect its yield reserves from depletion. 

The voting will end on May 18. If the proposal passes, the targeted 4% rate on all UST deposits will be implemented on Anchor. Still, it will not have a fixed yield. Depending on demand for the service and the amount of yield reserves, the rates will range between 3.5%, and 5.5%.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin (BTC) is trading below $30,000 on Thursday amid a broader market downturn that’s been led by the troubled Terra ecosystem.

As of Thursday morning, bitcoin was trading at $27,665 dollars, down from $32,056 just 24 hours previously, according to Coinbase data via TradingView. Thursday’s losses mean that bitcoin is down just over 30% in the past week from $39,486 on May 5. 

This has seen bitcoin fall to its lowest levels in 18 months, when it last traded around $27,000 on December 21, 2020.

The contagion from the Terra ecosystem breaking down has spread across the whole crypto market. The price of ether (ETH) has plunged below $2,000 this week, trading at $1,878 according to Coinbase data via TradingView — down 23% in 24 hours. 

Other coins have also felt the pressure as the market compresses, with solana (SOL) trading down at $43.58 after trading above $50 since August 2021. Avalanche (AVAX) is also trading significantly lower at $28.24, down from $40.50 on Wednesday

The crypto market has been in tumult over the past few days as investors digest the ongoing issues with the Terra blockchain.

Terra’s ecosystem has come under pressure after its stablecoin, terraUSD (UST), lost its peg against the dollar. Due to the close relationship between terraUSD and luna (LUNA), Terraform labs’ other offering, both have plunged in price. 

Luna is used to maintain the price of terraUSD through a burn mechanism, meaning that terraUSD is burnt when the price drops below its $1 peg. This creates more luna and while terraUSD remains below the peg and this mechanic persists, luna’s supply grows exponentially.

As a result luna hit new lows on Thursday, trading at $0.04 at the time of writing, according to Binance data. It’s now down 99% in just 24 hours.

Stablecoins have also come under pressure after the UST de-pegging, as tether (USDT) slipped below $0.96 earlier in the day on Thursday.

For more breaking stories like this, make sure to follow The Block on Twitter.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Terraform Labs published extra measures on Thursday to help restore the TerraUSD (UST) peg with the US dollar and support Luna’s cratering price.

Chief among them is proposal 1164, as Terraform Labs CEO Do Kwon highlighted yesterday. This is designed to increase the amount of UST that can be swapped for Luna by four times. The goal is to allow UST holders to cash out, with the hope of improving its peg to the dollar. The move, however, puts significant downwards pressure on the price of Luna — which has fallen even further overnight to $0.09.

The proposal has reached the pass threshold but appears to have six days remaining. “Once the new base pool proposal passes, this will also expedite the process,” Terraform Labs said in a tweet thread on Thursday.

Terraform Labs also mentioned three further actions which it is taking. First, it is going to burn the remaining UST in Terra’s community pool. This is currently just over 1 billion UST, although that’s only worth about $590 million at current prices.

Second it will burn the 371 million UST that’s currently on the Ethereum blockchain, which is being used for liquidity incentives. This will be sent to the Terra network and then burned. In total, this adds up to 1.39 billion UST — around 11% of the stablecoin’s liabilities, according to the proposal.

Third, Terraform Labs has staked 240 million LUNA in order to protect the network against potential attacks. Since the price of Luna is so low, it’s theoretically possible that someone could buy up a lot of cheap Luna and use it to attack the network. Yet with this amount of staked Luna defending the network, that becomes a lot harder.

“Please note that TFL [Terraform Labs] is in the war room and has been non-stop for the past four days working on solutions and potential avenues to help affected users and stop the bleeding,” Terraform Labs said in one of the tweets.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Tether (USDT), the largest stablecoin, slipped below $0.96 early Thursday in a further sign of stress in the crypto market. 

The token dropped to a 24-hour low of $0.956 on FTX as of 3:15 a.m. ET, and is currently trading hands at $0.954. On Bitfinex, USDT is trading at $0.998. Bitfinex and the stablecoin Tether are subsidiaries of the same parent company. 

Over the past few days, TerraUSD (UST) — an algorithmic stablecoin native to Terra that is supposed to track the price of the US dollar — has drastically de-pegged. 

It’s unclear at this time what’s driving the market event, though broad fears around continued market turbulence, spurred on by the market collapse of both UST as well as Terra’s native asset, LUNA, have affected crypto prices in recent days. Bitcoin is currently trading at roughly $25,800 on Coinbase, according to TradingView data. 

Other stablecoins in the market are trading at a premium against USDT as of press time. Binance USD (BUSD) and USD Coin (USDC) are trading at $1.08 and $1.09, respectively, via trading pairs on Binance. 

Unlike UST, USDT is backed by a pool of invested assets and investors are supposed to be able to redeem one USDT for $1 at any time. 

Paolo Ardoino, Tether’s CTO, had tweeted his confidence earlier in the day, saying that the stablecoin operator is “honouring USDt redemptions at 1$” and that more than $300 million had been redeemed in the last 24 hours “without a sweat drop.”

When contacted by The Block for further comment on Thursday, Ardoino elaborated in a statement:

“Tether continues to process redemptions normally amid some expected market panic following yesterday’s market. In spite of that, Tether has not and will not refuse redemptions to any of its verified customers, which has always been its practise. In the last 24 hours alone, Tether has honoured over 300m USDt redemptions and is already processing another 1bn so far today without issue.”

“On Bitfinex the Tether peg is > 1$ while on Kraken it is slightly lower than 1$,” Ardoino continued. “This has resulted in arbitrageurs buying USDt cheap on Kraken and selling it on Bitfinex for profit. While other market makers have bought USDt < 1$ on Kraken and directly redeemed it for 1$, still enjoying the profit.”

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The price of LUNA, the native token of the Terra blockchain, hit new market lows Thursday morning.

The cryptocurrency dipped below $0.30 for the first time early on May 12, hitting a low point of $0.21 as of press time, based on Binance data. Binance currently facilitates more trading in LUNA than any other exchange, according to CoinGecko.

The price of LUNA first fell below $1 yesterday, down from more than $65 at the start of the week.

Over the past few days, TerraUSD (UST) — an algorithmic stablecoin native to Terra that is supposed to track the price of the US dollar — has drastically de-pegged, throwing crypto markets into crisis. 

UST’s price currently stands around $0.60, according to Binance, but it had dropped as low as $0.02250.

Bitcoin’s price has also fallen sharply this week. At press time, the cryptocurrency is trading at roughly $26,660, having hit a local low of $26,607 on Coinbase, per TradingView data.

The fact that LUNA continues to plummet while UST has made some progress towards regaining its peg may be connected to the efforts of Terraform Labs CEO Do Kwon, who outlined a plan to try to restore the peg yesterday.

Kwon endorsed a community proposal to increase the amount of LUNA being minted per day by four times to help UST holders cash out, easing selling pressure. The proposal acknowledged that burning billions of LUNA would dilute the currency significantly.

“Nevertheless, there are no limit in LUNA supply, this market mechanism will actually work to bring stable UST and stable LUNA price (although likely at lower price point for LUNA),” the proposal stated.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The Securities and Exchange Commission is likely already investigating what happened to UST over the past week, two former SEC lawyers tell The Block. 

“The SEC is already on the scene as they are investigating the Mirror protocol,” said Philip Moustakis, who left the SEC’s enforcement division for law firm Seward & Kissel in 2019, in conversation with The Block.

A spokesperson for the SEC told The Block: “The SEC does not comment on the existence or nonexistence of a possible investigation.” The regulator also declined to comment on TerraUSD

The status of stablecoins in the US regulatory framework is the subject of a great deal of debate. Kwon himself wrote on Twitter on April 21:

Stablecoins arent securities brah

No expectation of profit

— Do Kwon 🌕 (@stablekwon) April 22, 2022

But it gets more complicated, according to Moustakis.

“Even if there’s a question as to whether UST is a security,” Moustakis continued, “Even if the stablecoin as designed may have eluded the application of the federal securities laws, the subsequent transactions could drive it back into the purview of the SEC.” 

Moreover, a stablecoin that loses its stability may well lose its claims not to be based on an expectation of a third party acting to create profit for investors. Which is to say, changing facts and circumstances surrounding an asset can change whether the SEC approaches it as a security. 

This draws attention to the associated Anchor protocol’s promise of 20% returns on staked UST, as well as the Luna Foundation Guard’s frenetic efforts to inject new capital to preserve the peg. 

Beyond questions of whether stablecoins are securities is the question of the SEC’s international sway.

Though members of the crypto world have denied that Do Kwon, a South Korean national, will face repercussions from the US regulator, the commission subpoenaed him personally over the activities of Terraform Labs and Mirror, a protocol for synthetic assets. It’s difficult but not impossible for the US regulator to cross borders.  

That SEC famously served Kwon papers in September 2021 at the Messari Mainnet Conference in New York before he was to speak on-stage. Kwon subsequently disputed the SEC’s right to regulate him — a case he lost in a Manhattan court in February, giving the SEC the right to continue its investigation into Terraform Labs. 

At the time, Kwon denied being served at all, a fact CoinDesk asked him about in December. In a moment from that conversation that went viral, Kwon said: “It’s fascinating when talking to Americans that they’re sort of obsessed with American policy and American regulators and things like that. It’s quite possible that in other parts of the world they have other priorities and other things to pay attention to.”

Despite this disinterest in American policy and American regulators, TerraUSD was pegged to the US dollar. Mirror Protocol allowed trading of synthesized or “mirrored” versions of US stocks like Tesla and Apple in exchange for the Terra blockchain-based UST. 

In December, Kwon’s lawyers argued that “the court lacks jurisdiction over Mr. Kwon because he is not a United States resident and has no case-related contacts with the U.S.” That argument failed to hold up. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Quick Take

• Founded in 2013 by Richard Rosenblum and Cristian Gil, GSR is a crypto market-making firm offering risk management and structured product strategies for investors
• GSR was one of the most active investors in the crypto venture market, with 29 investments in Q1’22
• The firm has publicly deployed capital to at least 95 projects across 9 verticals, which The Block has mapped out

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