Episode 144 · 2022-07-03 · 59:21 · Original in Finnish
The Crypto Crash: Terra, Luna and Celsius | Martin Wichmann and Rami Kurimo | Negotiator 144
Originally published as “Kryptoromahdus Terra-Luna-Celsius | Martin Wichmann Rami Kurimo | Neuvottelija 144”
Crypto markets have fallen sixty to ninety per cent from their peaks, Bitcoin has slid from seventy thousand towards twenty and Ethereum has lost around eighty per cent of its value. Martin Wichmann and Rami Kurimo of the Lohkoketjupodi programme dissect the anatomy of the spring 2022 crash: why the algorithmic stablecoin Terra UST went literally to zero, why Celsius froze its customers' withdrawals, and how veterans such as Three Arrows Capital burned through billions. The conversation also asks why decentralised protocols like Aave came through the same stress test intact.
Core theses
- Terra UST went to zero rather than merely breaking its peg, and the difference is the whole argument against algorithmic stablecoins.
- Celsius freezing withdrawals is a bank run in a system with no lender of last resort and no deposit insurance, which is what the product was implicitly promising.
- Aave surviving the same conditions is the episode's most load-bearing observation: the protocols that stated their rules in code held, and the ones that took discretion did not.
- Three Arrows Capital failing shows the losses were concentrated in leverage rather than spread across holders.
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Summary
Crypto markets have fallen sixty to ninety per cent from their peaks, Bitcoin has slid from seventy thousand towards twenty and Ethereum has lost around eighty per cent of its value. Martin Wichmann and Rami Kurimo of the Lohkoketjupodi programme dissect the anatomy of the spring 2022 crash: why the algorithmic stablecoin Terra UST went literally to zero, why Celsius froze its customers’ withdrawals, and how veterans such as Three Arrows Capital burned through billions. The conversation also asks why decentralised protocols like Aave came through the same stress test intact.
Zero is not a broken peg
Stablecoins lose their peg routinely and recover. Terra UST did not lose its peg; it went to zero, because the mechanism holding the peg was a promise to mint more of a token whose value depended on the peg holding. That circularity is the design flaw, and it is why the case generalises to every algorithmic stablecoin rather than only to this one.
A run without a backstop
Celsius offered a yield on deposits and paid it by lending them out. That is banking, and when confidence went it suffered a run — but without deposit insurance or a lender of last resort, the only available move was to stop customers leaving.
Why Aave held
The protocols that survived were the ones whose liquidation rules were written down and executed automatically. The ones that failed had a human deciding when to enforce, and deferred. Stated that way the lesson is about discretion under stress rather than about blockchains.
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The recording lives on the Neuvottelija channel: Kryptoromahdus Terra-Luna-Celsius | Martin Wichmann Rami Kurimo | Neuvottelija 144. A Finnish edition of this episode is published at www.neuvottelija.fi.
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The Neuvottelija AI editions carry a long-form write-up of this episode: English · suomeksi.
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Guests: Martin Wichmann, Rami Kurimo