Ep. 182 Centrally Planned Bitcoin Paradise
On this episode of the Unhashed Podcast, we cover the collapse of the Luna ponzi, every libertarian’s favorite centrally planned city, Saylor’s leverage, coinbase revenue woes, and Rusty Russell proposes an op code dedicated to our show. Thanks, Rusty!
What’s been developing over the days is the depegging of the Terra stablecoin (UST) to the U.S. dollar now with Terra currently trading at $0.85. Many of these market dynamics have been playing out in near real time today as the situation worsens and will likely change again over the next 24 hours. It started with billions of dollars in UST leaving the high-yielding Anchor Protocol over the weekend and turned into a full-on digital bank run. UST relies on the LUNA token to maintain its price through algorithmic minting and burning mechanics. Through this method, an arbitrage opportunity is created when UST is off its $1 peg. Traders can burn LUNA and create new UST when UST is priced over $1 and profit. When UST is below $1, UST gets burned and LUNA is minted to help stabilize the peg. Yet, as UST has suffered a blow to demand and liquidity, LUNA has fallen nearly 26% in just one day while BTC is down nearly 8%. Why this matters for bitcoin is because the centralized Luna Foundation Guard (LFG) has accumulated 42,530 bitcoin ($1.275 billion at a $30,000 price) as reserves to be used in these exact situations, to defend the UST peg when it sustains below the $1. And currently, that is exactly what they are attempting to do. As a response, the LFG voted earlier today to loan out $750 million of bitcoin and $750 million of UST to OTC trading firms in efforts to help sustain the UST peg. Later in the day, the LFG announced a withdrawal of nearly 37,000 BTC to loan out to market makers highlighting that it is currently being used to buy UST.
Bitcoin company Casa has announced a new application programming interface (API) to integrate wallets leveraging its platform with third-party financial products and services, per a press release sent to Bitcoin Magazine. The API will allow developers of third-party organizations to integrate with Casa wallets while allowing users to maintain full control over their private keys. Users will be able to confirm financial information for situations including taking out loans, managing retirement investments and automatically depositing bitcoin to their Casa self-custody setup. “Bitcoin and traditional financial services have a shared destiny: they are increasingly converging, and we’re seeing hugely increased demand for solutions that tie the two ecosystems together.That’s why we created Casa API, which makes it easy for trusted organizations to start integrating with Casa customers’ wallets – all while the customer continues to hold the keys.” said Casa co-founder and CEO Nick Neuman.
President of El Salvador Nayib Bukele released a model of Bitcoin City after announcing the bitcoin nation-state had bought the dip. The first pictures released showcase a golden city with a Bitcoin centerpiece and a caption from Bukele stating “Bitcoin City is coming along beautifully.” Bitcoin City is said to have 0% income, capital gains, property, payroll, and municipal taxes, as well as 0% CO2 emissions. The location is meant to be near La Unión, a small Salvadoran city. Bukele followed up with another set of pictures detailing four landmarks to be scattered through the city, one of which looks to be a gigantic bitcoin. Bukele then clarified that Bitcoin City would not be golden. The color choice was simply a design decision from the architect but the actual city will host far more green and blue between the vast amount of trees and expansive sea surrounding the city. Who knew centrally planning a city could be so popular among Bitcoiners?
MicroStrategy CEO Michael Saylor took to Twitter on Tuesday morning to alleviate fears that his company would face liquidation risks in its bitcoin-backed loans if BTC maintained its downwards trajectory on price. “MicroStrategy has a $205 million term loan and needs to maintain $410 million as collateral,” Saylor said, linking to his company’s Q1 2022 investor presentation. Although MicroStrategy owns 129,218 BTC, 115,109 BTC are unencumbered and available to be put as additional collateral if needed. With a $410 million collateral requirement in its loan, this amount of bitcoin would be enough to avoid a margin call if the bitcoin price sustained above $3,562. However, Saylor added that the company wouldn’t sell even if that level got breached. “If the price of BTC falls below $3,562 the company could post some other collateral,” he wrote in the same tweet. The software analytics company took out the $205 million loan to purchase more bitcoin in early April as the price started to dip – its first-ever bitcoin-backed loan. MicroStrategy bought 4,167 BTC at the time for roughly $190.5 million at an average price of about $45,714 per bitcoin.
Hidden away in Coinbase Global’s disappointing first-quarter earnings report—in which the U.S.’s largest cryptocurrency exchange reported a quarterly loss of $430 million and a 19% drop in monthly users—is an update on the risks of using Coinbase’s service that may come as a surprise to its millions of users. In the event the crypto exchange goes bankrupt, Coinbase says, its users might lose all the cryptocurrency stored in their accounts too. Coinbase said in its earnings report Tuesday that it holds $256 billion in both fiat currencies and cryptocurrencies on behalf of its customers. Yet the exchange noted that in the event it ever declared bankruptcy, “the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.” Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible.
Rusty Russell has made a proposal to the mailing list for an implementation of Russel O’Connor’s OP_TXHASH idea, which would be an alternative to OP_CTV for enabling covenants. Main differences are that it would be a tapscript instead of its own independent opcode, it is a more modular, lower-level design (meaning less space-efficient, but more generalizable), and one of the OP codes contains a subtle nod to our podcast, being named OP_UNHASHED. We see you Rusty, thanks for listening! – https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2022-May/020450.html
https://twitter.com/1st_SF_Command/status/1521617816822161415?s=20&t=HUGvU8kbHr5zxlnh85RYiw
https://twitter.com/gavinnewsom/status/1521934666877464577?s=21&t=QlJRjKL3OkU5hkin7mejnA
https://twitter.com/SomsenRuben/status/1524150595149606914?s=20&t=5eu6pqDGjQi9T-eUfD3ftA
https://twitter.com/terra_money/status/1524785058296778752?s=21&t=DeHFhnyevPdlfrzZrmeAL