The chief executive of crypto derivatives exchange FTX says that the downfall of Ethereum challenger Terra (LUNA) was due to faulty marketing rather than outright deception.
Sam Bankman-Fried says that it’s unfair to compare the collapse of LUNA and its stablecoin TerraUSD (UST) to the disintegration of former healthcare unicorn Theranos.
According to Bankman-Fried, Terra founder Do Kwon did not deceive investors.
“Now, LUNA/UST were bad, and ended badly! So did Theranos. But the core accusation against [founder Elizabeth] Holmes isn’t that Theranos failed. Startups fail all the time. The accusation is that she lied.
In particular, she said that Theranos was doing specific things that it wasn’t doing; the fraudulent behavior was her pretending to investors that one type of test was another.
LUNA is different. The LUNA/UST mechanism wasn’t misrepresented – it was, in fact, very transparent. And, I think it was transparently going to falter at some point. Do Kwon obviously stood by it, morally and in terms of press, long after he should have backed off.”
Bankman-Fried says that while Do Kwon is not a fraud, his marketing campaign could have done a better job of letting investors know that TerraUSD was not fully backed by US dollars.
“[Kwon] didn’t claim that UST was backed 1:1 by USD. He claimed, accurately, that it was backed by a bunch of volatile assets. It was very publicly clear that those assets might go down, and the rest followed. Again, I don’t want to condone the behavior. But it’s different.
Luna was a case of mass enthusiasm, excitement, and frankly – marketing and memes – driving people to believe in something which was going to falter according to publicly available information. That marketing was probably bad. But it wasn’t the same type of bad as Theranos.”
Bankman-Fried goes on to say that bad investments aren’t necessarily Ponzi schemes, citing prominent companies that have seen 50% dips in their stock prices, such as video streaming service Netflix, movie giant AMC, and Cathie Wood’s ARK Innovation ETF.
“But most bad investments aren’t ponzi schemes. Some are fraud, some are bad luck, and some are somewhere in between. Here are a set of investments that would have lost >50% since the start of the year:
NFLX went up a lot and then down a lot, and is a real company.
LUNA went up a lot and then down even more, and had a very transparent but also very bad problem.
AMC went up a lot and then down a lot, because memes got more and less popular.
ARKK is a combination of those.”
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