The Weekly Wrap for Saturday, 14 May 2022
What do you need to survive when stuck out on the Alaskan tundra?
- Ukraine war update: still going
- Most Europeans are busy with Eurovision
- A study found 1m Britons are set to live in destitution
- A battered and broke Lebanon heads to the polls
- Sri Lanka's new-old PM rose after a week of chaos
- India's prolonged heatwave has seen birds dropping out of the sky
- Coral bleaching hit 90% of the Great Barrier Reef over summer
- The supermassive black hole in the Milky Way first pictured
- Peloton ran out of speed on the ascent
- $13bn in losses a hard pill to swallow for Softbank
It's been a bad week (month, year) to be a Web3 booster. Coinbase conceded that it may not be able to protect all the deposits it holds if it goes under. NFT's are evaporating and not even a CGI model of Madonna's vagina can save them. But in this edition we talk stablecoins, and why they don't always do what they say on the tin.
Algorithmic stablecoins are wonders of the modern imagination: code and belief intertwined with financial alchemy. The basic idea is to create a cryptocurrency that's pegged to a fiat currency, and collateralised by another cryptocurrency. Nominally, they are safe-havens amidst the choppy crypto seas. Practically, they have more in common with the Great Pacific Garbage Patch.
In 2018, a savvy 29-year-old named Do Kwon dreamed up TerraUSD: a cryptocurrency that would always trade 1:1 with the US dollar. The new currency was pegged to the dollar using a second new cryptocurrency, called Luna. The idea was that Luna could be exchanged for Terra, and vice versa. And while the exchange price for Luna would fluctuate, 1 Terra would always be worth 1 USD. Given the limited supply of both, if Terra rose to $1.01 then Luna holders would trade Terra for Luna, pocket the $0.01 and the arbitrage would bring the price of Terra back down to $1.00. On the other hand, if Terra fell to $0.99, traders would sell Luna, buy Terra, and the increased demand would raise the Terra price back to $1.00. The achilles heel of this plan is that since the currencies work as a pair, Luna itself must remain worth having and trading.
And that's where things went wrong. This week, belief in the system ran out, and instead of exchanging Terra for Luna, people cut their losses and sold both currencies. With the arbitrage opportunity lost, it became a race for the exits . At time of writing TerraUSD is trading at $0.19 and Luna is trading at next-to-nothing. Binance, the world's biggest crypto exchange, disallowed trades once Luna hit $0.008. The five biggest investors lost a combined $2.5bn in 24 hours . Not even Do Kwon's $10bn worth of Bitcoin was enough to defend the peg. Whether the Terra de-pegging started because of a coordinated attack, or simply due to panicky 'animal spirits' is still being fiercely debated online. What's certain is that a lot of people have lost a lot of money .
Untether your seatbelts
As Luna spun out of orbit other cryptocurrencies started to go haywire too. Bitcoin and Ethereum got whacked: the two largest coins dropped low double-digits over the week. The $200bn selloff is being felt far beyond the crypto world. As Bloomberg's Matt Levine wrote recently, the problem is that a lot of people are exposed to cryptocurrencies, albeit indirectly. There's a chance your pension fund has a stake in Bitcoin. Or, for that matter, in another type of stablecoin. Asset-backed stablecoins, as opposed to the aforementioned algorithmic stablecoins, are pegged to fiat currencies and collateralised by real things: cash or something you can exchange for cash with minimal fuss.
Tether is the largest of these asset-backed stablecoins. Unfortunately, as Terra collapsed this week Tether took a belting too. It broke free from the peg and dropped to $0.95 on Thursday morning. Considering it is the most important interface between traditional finance and cryptocurrency exchanges, this got people very worried very quickly. More than one commentator asked whether this would be crypto's Lehman Brothers moment. Thankfully during the day Tether climbed back to a respectable $0.98 and Tether's backers took a victory lap saying their solution works because it is backed by real stuff .
But is it? You'll have to take their word for it. Tether executives say their 69,000,000,000 coins are matched by $69,000,000,000 in non-crypto assets (~$24bn in commercial paper, ~$40bn in government bonds, and the rest in corporate bonds, funds, and metals). The company's lawyers promise that all their commercial paper has top marks from credit raters. But an investigation by Businessweek found that huge loans were backed by their Bitcoin holdings and there were a lot of short-term loans to Chinese corporates. As one banker who dealt with Tether said, "It's not a stablecoin, it's a high-risk offshore hedge fund". Perhaps that is why its executives are now the target of a DOJ criminal bank fraud probe.
Janet Yellen certainly isn't happy about any of this. As head of the Fed she was holding meetings trying to work out the financial system's exposure to Tether. Now as Treasury Secretary she has this to say, "I wouldn't characterise it at this scale as a real threat to financial stability, but they're growing very rapidly and they present the same kind of risks that we have known for centuries in connection with bank runs." Not exactly a vote of confidence.
It’s been all of fifteen minutes since the 2020 Presidential Election and now America is back at it! The pollsters are polling, the PACs are packing in dark money, and the candidates are being anything but candid. The early primary skirmishes have provided plenty to talk about. The Pennsylvania wild card Kathy Barnette is one to watch . We’ve got mixed results as to Donald Trump’s hold on the GOP. Inflation is the issue of the election. Gas prices have hit record highs . Places like Midland, Texas are being stretched bare by the worst inflation in the country. Usually in pressing economic times the government would just cut a cheque but there is a sense that the last $1,400 stimulus cheque may have helped kick this crisis along.
The other key battleground is abortion rights. This has taken precedent over the million Americans killed by Covid-19 , or last year’s 107,000 drug overdose deaths and 20,000 firearm homicide victims . It’s may be front of mind but neither side can quite pin down how it will impact their fortunes. Republicans are concerned that killing Roe may spark a backlash among liberal suburban voters . But Democrats are grappling with a problem of their own making. Aside from their doomed-to-fail Senate bills there is little they can do to stop it. The lame duck incumbent is hardly a convincing sell. As the culture war rages on in the lead up to the midterms we’ll leave you with this piece from The Atlantic to meditate on.
One of the most beloved journalists in the Arab world was slain in Occupied Territories on Wednesday. As always, any coverage of Palestine will be lofted up by different actors as a damning indictment, exculpatory evidence, or flat-out propaganda. To avoid this maelstrom journalists and editors strip down news reports to their least-objectionable components . Action is dampened by passive voices. It's how we get factually correct and largely useless sentences appearing in the press: Shireen Abu Akleh died after being hit in the head by a bullet. Or the headline: Shireen Abu Akleh dies at 51. Both of which sound like a tragic accident at the bullet factory. Words were Shireen's stock and trade during her 25 year career at Al Jazeera. Let's pay homage to her and make better use of them.
Shireen Abu Akleh was shot in the head during an Israeli raid in the West Bank city of Jenin. Her cameraman was shot in the back multiple times but survived. Both journalists were clearly identifiable in their blue flak jackets emblazoned with the word PRESS. Other journalists on the scene reported that Israeli occupation forces opened fire on journalists. Al Jazeera called it an assassination . If proven, Abu Akleh will have been the 45th Palestinian journalist killed by Israel since 2000. The International Federation of Journalists has added Abu Akhleh's killing to its complaint at the International Criminal Court over Israel's targeting of reporters.
Within hours, the Israeli Defence Force were gearing up to defend themselves in the media. And they appear to have taken inspiration from the Greg Norman School of Public Relations . An IDF spokesperson told Army radio, "[they were] filming and working for a media outlet amidst armed Palestinians. They're armed with cameras, if you'll permit me to say so."
The Best Of Times
Nurses top UK poll of who makes the biggest contribution to society
Half the world menstruates. The spectrum experienced runs from discomfort through to agony. But not many of them get the day off work for it. Spain is looking to rectify this historic double-standard with three days of menstrual leave per month for women who experience severe period pains.
The Worst Of Times
We’ve discussed the Burrup peninsula and its million ancient petroglyphs regularly in the Weekly Wrap. As Australian miners expand their enormous gas facilities in the area these priceless pieces of art are at risk. The Guardian has again brought this gnawing problem to the forefront. The Western Australian government is looking at a simple calculation: all it takes to enrich the present is to destroy the past and future .
Burnt from both ends
Poor countries used to suffer disproportionately from hunger. Now they managing obesity too .
Pope, photographer, and subject all in one frame. This week the war-defining photographer Nick Ut and Phan Thi Kim Phuc gave the Vicar of Christ a copy of the photo that brought them together in 1972. Image supplied by Reuters .
"[It's a shame the phone] is lying at the bottom of the sea in Davy Jones' locker."
"Who is Davy Jones?"
– One exchange between David Sherborne (barrister acting for Colleen Rooney), and Rebekah Vardy over the mysterious missing mobile. From what we've seen of week one, the 'Wagatha Christie' case is one of those piquant libel suits which will only further sully the reputation of the plaintiff. That it is being heard in the highest court of the land is divine. If Suez was the death of the British Empire, this is the wake being cleared out at 4am.
$2,420,000,000,000 market capitalisation
- Saudi Aramco overtook Apple as the world's most valuable company. It enjoyed a 124% profit surge in 2021 . CEO Amin Nasser said, "We continue to make progress on increasing our crude oil capacity, executing our gas expansion program, and increasing our liquids to chemicals capacity."
1,700,000 child labourers
- The children of Bangladesh are increasingly pushed into work as climate change inundates the low-lying country. When coastal families take refuge in cities; children have to leave school for the workplace . This cost in human potential is not mentioned by oil and gas executives on earnings calls.
"G-strings in the mist: 'You wouldn't expect Jane Goodall to be fronting a campaign for underwear" — The Guardian . No, you've got us there.
"Trump repeatedly asked if China had a secret 'hurricane gun' and if US could retaliate, report says"
— The Independent . Well???
The Special Mention
Tony Faddell gets the gong this week. As the last iPod is discontinued we should stop and remember the designer of the MP3 player that changed the world. In tribute, we are going to listen to what was on repeat on our first iPod (Mobb Deep and Dido).
The Best Long Reads
- Politico meets the El Salvadorans crushed by Bitcoin
- The Atlantic escapes from Hong Kong
- Businessweek gets a union vote alongside its frappe
A take-away order of lo mein, beef broccoli, and General Tso's chicken.