This is How Airbnb Fell From Successful Startup to Crisis Mode

This is How Airbnb Fell From Successful Startup to Crisis Mode

Nesianetwork    Desember 27, 2023    Comment   

 

Nesianetwork.id - 2020 was supposed to be the golden year for Airbnb, it was supposed to be the year that Airbnb went public. They were supposed to be the hottest offering of this year.

In just under a decade, Airbnb went from a single air mattress for rent to a global company valued at more than 30 billion dollars. The home sharing giant has thousands of employees, over three million hosts, and seven million listings in over 220 countries. It even branched out with a new division called Experiences. Which allows guests to book outings. But travel is now at a stand still. Airbnb's planned listing is in doubt. 

Expected revenue is down by at least half, and CEO Brian Chesky said 25% of staff will be cut. So how did one of the most successful startups of the decade become such a vulnerable company? - Airbnb was founded in the aftermath of the 2008 financial crisis. A lot of ordinary people had lost their jobs and were looking for secondary income. 

Once the idea of sharing your home with someone took off, a lot of people bought into that promise. - You know we had revenue from day one. And we didn't actually need to raise money at any given point. We decided that we invest ahead of growth and we've always tried to think about it like a throttle. So that we could at any given point throttle into profitability. - Airbnb was profitable by a certain measure in 2017 and 2018. So that gave investors a lot of confidence and excited everyone, really, about the prospect of a startup like this that has become a household name around the world to go public. - These are beautiful homes. 

The company spent big during this period of growth. Administrative costs increased 113% between 2017 and 2019 as they hired thousands of employees and built out a corporate headquarters in a trendy San Francisco neighborhood. Then 2019 ended with a tragedy. - Airbnb now says it is banning house parties. That after a shooting left five people dead in San Francisco in a suburb there on Halloween night. - This mass shooting was really a moment of reckoning for Airbnb and that's what led them to invest over 100 million dollars into safety initiatives. 

These expenses helped bring Airbnb's total costs to 5.3 billion dollars last year. More than double what they were in 2017. - You had board members grilling some of the executives and saying, "Hey, your costs "are outpacing your revenue growth. "Lets reign that in, let's control that." And then of course the pandemic hit and changed everything for Airbnb. - China says the number of people infected by a mysterious respiratory virus has more than tripled over the weekend. In January, officials in China issued local travel warnings and restrictions following the spread of Covid-19. - It wiped out bookings over night in China. So remember at the time, no one thought this would become a global problem. 

And then on March 11th, President Donald Trump announced new international travel restrictions. As Airbnb bookings fell, Chesky held in-person meetings with employees to discuss what these new developments meant for Airbnb and their plans to go public. - What was happening was a lot of anxiety was building among employees because a lot of them have stock options. And those are set to expire later this year, which meant that if they didn't go public this year, a lot of valuable options that employees hold would just be worthless. So Mr. Chesky really took it upon himself to reassure employees, to say, "It's gonna be okay. "We are still very much going to list this year." That changed in a matter of days. By the end of March, he struck a more cautious tone. He held a video conference with employees where he said everything is on the table. 

Around this time many guests began to demand refunds for reservations. But Airbnb had a long time practice of allowing hosts to set their own cancellation policies. - But in a world where you have guests fighting back and saying, "Hosts are not giving us any refunds, "what's Airbnb gonna do about it?" I think that really shook the company as well. 

This led to a sudden decision by Chesky to give guests refunds for certain bookings. After backlash from some hosts, Chesky issued an apology to them. - I am sorry. I'm sorry we didn't consult you as partners. And I've heard from you ever since that decision. 

Airbnb said it would pay hosts 25% of what they would have received for canceled bookings. They also created a 17 million dollar mortgage fund to help top rated hosts cover mortgages. By April the company had barely any revenue coming in from short term stays. - So they ended up raising a billion dollars in debt at a very high interest rate that is associated with distressed assets. So overnight Airbnb went from being the Silicon Valley unicorn that is a household name around the world, to being reduced to business that is in distress. 

On May fifth, Brian Chesky announced massive staff cuts in a memo that has drawn praise for addressing the impending layoffs with compassion and clarity. Chesky said nearly 2000 employees, a quarter of Airbnb's workforce would be cut. He also said 2020 revenue would be less than half of what it was in 2019. - I think everyone would be very surprised if they choose to go public later on this year. What I'm hearing from investors is that Airbnb would need at least two good quarters before they go public. 

The pandemic has shifted Airbnb in fundamental ways. The company is pivoting to longterm stays, and recently rolled out cleaning guidelines to help guests feel safe whenever they do return to rentals. The sudden collapse of the Airbnb economy that was a lifeline for many has also exposed deep cracks in the sharing economy. 

If you think about it, Airbnb is really a property manager without the property risk. Unlike hotels that run and manage their properties, Airbnb doesn't own any of the properties. The pandemic has really held a mirror and has really made us all question the very fundamentals of the sharing economy. Who takes on the risk.

Source:

Youtue Channel Wall Street Journal

Link:

https://youtu.be/c-y69rCGx_8?si=5ekNo_hx00N0HlH4

This is Pantone, The Company That Turns Color Into Money

This is Pantone, The Company That Turns Color Into Money

Nesianetwork    Desember 27, 2023    Comment   

 

Nesianetwork.id - This is Peach Fuzz. Pantone's 2024 Color of the Year. It'll make headlines, but we're not gonna talk about it a lot in this video because selling colors is not how the company makes money. It also doesn't make money selling paint or color mixing machinery or even color itself. 

What Pantone sells is something much more abstract, a promise of uniformity so that the color Peach Fuzz looks the same, whether it's printed out on a billboard or a ceramic mug. This whole idea that you can sell consistency is relatively new. It's the brainchild of this guy, Lawrence Herbert, AKA, the king of color. This is the economics of Pantone. New Jersey, 1956. Recently graduated chemistry major Lawrence Herbert joined a small printing company called Pantone as a part-time printer. 

At the time, product packaging was less consistent. Now we're used to seeing products come in identical packaging, like all these blue Modelo boxes. But Pantone's president says "It didn't use to be that way, "back when everything was done over the phone." - It's really difficult to say, "Hey, that's a, it's kind of like a cherry wrap, "but not as bright, but maybe slightly darker." It is really hard to actually convey that message. - For example, see these two camera boxes? The yellow on the right is brighter than the one on the left. Kodak says customers were more likely to buy the lighter yellow boxes, logically thinking that the darker boxes were older and therefore contained older film. 

Customers didn't know that the difference in color was due to the fact that the boxes were printed at different factories. Each of which mixed their own versions of Kodak yellow. Herbert recognized this was a problem as he worked his way up the ranks at Pantone, he became known for his expertise in color chemistry, and when he bought the company in 1962, he had an idea to change it from a printing company into something entirely different that could solve Kodak's problems. H

is team created a set of formulas, so every factory printed the packaging in the same color. - For a lot of companies, color is part of their brand identity. There's Tiffany and they have that specific blue, and it's very important because we say, "Oh, that's Tiffany Blue." We see the box and we go, "Oh, you got me a Tiffany ring." - 67 years after Herbert joined the company, Pantone has developed these formulations into over 10,000 colors, - So no one actually owns color. What we have is the IP of the Pantone color system, which is a collection of colors that we have selected for it's not just this beauty, but it's reproducibility across different formats. 

Matching colors across formats is harder than it sounds, but it's vital for companies. - They may have a color in mind that they want to make sure that can be reproduced across different materials that they may be presented color, whether it could be from their clothing line, all the way to the storefront, all the way to the internet representation on the website. - So say a company wanted the same color on its packaging and its magazine ads, the ink might look one way on cardboard and another way on glossy paper. 

So Pantone would have to provide slightly different formulas to make the colors look exactly the same. For example, the cardboard formula would be adjusted to a matte, absorbent, slightly textured surface, while the formula for magazine paper would be altered to account for the shiny finish. To ensure all colors look the same, Pantone has a rigorous quality control process. 

The company uses a tool called the Spectrophotometer to compare the same color on different surfaces. So Pantone would analyze reflected light from the materials and generate a number value based on that color. Then they'd compare it to the number for the color in their official index. If the data doesn't match, they'd have to reformulate. - You know, basically someone's out there checking these cards to make sure that the fabric that we've dyed are within a certain Delta E difference, meaning that it the color is consistent one by one, and it's highly, it has to be highly accurate. 

Pantone has done color testing for over 10,000 colors, which it compiles into these Color Guides, like this 1964 version, which cover the whole gamut or range of colors logged by the company. There are dozens of different versions of the guidebooks. Some are even made specifically for certain companies. - About half of our revenue comes from the physical Guides that we have. Because there are so many different formats of it. 

They can cost about $700 for this essentials kit to about $9,000 for a set of color display towers. Pantone says the guidebooks generate the most revenue. It sells them to designers, marketers, and artists annually. Each year they're updated with new colors. - Your book is exposed to air and it can oxidize, and then what you see in your book can visually change when you look at it. So then you won't accurately know if that's the exact color that you are looking for. So for that reason, it is important to keep getting fresh books so that you can view them accurately. 

Pantone says the other half of its revenue comes from its consulting and licensing and digital services businesses. Universal Studios approached Pantone for the 2015 movie "Minions", asking them to make a new yellow. It made this banana inspired hue and standardized it for the franchise. - Banana? - Uh, Stuart? (foreign language) - Banana! 

Companies can trademark specific colors, so you can't say, "Make and sell your own competing products "using Tiffany Blue," but when it comes to all the other colors in Pantone's guidebooks. - So those who get their hands on the color, of course they can use the color, but when we're communicating colors between different people, and this is where the Pantone IP comes into handy because we can refer to a specific shade, a hue of a color through its name.

While the majority of Pantone's revenue comes from those branches, it's well-known marketing campaign might be what makes it a household name. 2024's Peach Fuzz is inspired by warmth and healing. A Pantone spokeswoman said they anticipated increased interest in self-care in the next year, which they felt the shade represented. 

We want to make sure that our community of creatives and designers, you have a conversation about color every year, at least once a year. After nearly five decades of ownership, Lawrence Herbert's family sold Pantone to X-Rite in 2007. The company makes color measurement tools, which helped to cement Pantone status as a color authority. Just five years later, X-Rite was acquired by the Danaher Corporation, a life sciences and technology conglomerate. In October, Pantone and X-Rite spun off from Danaher with 11 other companies into a newly traded company, Veralto Corp. 

While Lawrence Herbert could have never predicted Pantone's evolution. His idea was a leap forward for the marketing industry and the world of color. And as products advance from physical to digital, Pantone's scope will have to keep evolving. - When it comes to color, we want to make sure that it's always going to be consistent no matter where you are, whether it's in digital format where we can continue to expand on that, those products and services, or in different types of physical format to help by our customers and clients find the right color and be able to execute those colors the way that they want it to be.

Source:

Youtube Channel Wall Street Journal

Link: 
https://youtu.be/y4HfxwzdCNg?si=xWQg4EnkZnp4K-ez

This is How WeWork Went From $47B Startup to Bankrupt Penny Stock

This is How WeWork Went From $47B Startup to Bankrupt Penny Stock

Nesianetwork    Desember 27, 2023    Comment   

 

Nesianetwork.id - This is How WeWork Went From $47B Startup to Bankrupt Penny Stock. We work once a venture capital darling has filed for chapter 11 bankruptcy. The filing marks a stunning reversal for the desk rental giant that was once valued at $47 billion. 

Wework was the poster child of the unsustainable start up frenzy of the 2010 s rise and fall so dramatic. It was characterized in an Apple TV series who is in a fight, the smart guy or the crazy guy. Are you crazy enough? I may be, I may be, here's how we work went from being one of the country's most valuable start ups to a bankrupt penny stock now worth a fraction of its peak value. 

We work co founded by Adam Newman specialized in leasing shared workspaces in metropolitan areas around the world. We're a company that builds communities. We have our mission. Our main thing that we do is curate and create culture. Wework was founded in 2010 right after the global financial crisis and it basically seized on this casualization of the workforce that was emerging after that, we work raked in funding from a roster of major investors from venture capital firm, benchmark capital to banks like JP Morgan and Goldman Sachs, the founder, Adam Newman was able to convince all of these people that, that we work was a disruptive tech company that that was going to do to the office market. 

What, what Facebook did to sort of social media and, and, and what Uber did to, to uh transportation, they ended up raising over $10 billion for what was effectively a real estate company worth a lot less than $10 billion. In 2019. Wework hit a peak valuation of $47 billion and took steps towards an initial public offering. At the time, the private tech start ups were seen as this really sort of powerful engine of the future economy. And there was a lot of optimism about them.

So they get ready to go public and sort of reveal their numbers to the world and people kind of wake up while we worked revenue was growing. So were its expenses despite raking in billions in funding, we were yet to announce a profit since its founding in 2010. There were also all of these, these conflicts of interest and related party transactions that are really concerning for investors in the IPO documents. So Adam Newman owns stakes in four buildings that he leased to Wework. And so he's on both sides of those deals on top of concerns about wework from public market investors. Questions over Newman's leadership style also threatened the company, Adam Newman had this a chaotic approach to management. 

One day, he would decide that 20% of the staff, the bottom 20% needed to be fired every year. Adam was really into spending in all these eclectic ways. They had a small unit and we work that was making self driving robots to go around and drop mail off at people. They bought a $63 million jet that Adam directed and was a huge fan of it is just like one excess after the other at its peak, we work ultimately their 2019 IPO and shortly after Newman resigned as CEO walking away with more than $1 billion from Softbank, a tech investor that acquired Wework. 

It was such an extraordinary amount of money for someone who had actually really destroyed so much value after creating it. I think that's a stain that still stays with him. When you sort of mention Adam Newman and we work, people often say like, isn't that the guy who got really rich while investors lost everything? And that's accurate. 

Not long after Newman's departure, COVID-19 spread across the globe. Demand for office space decreased rent dropped and we work's entire business model became its own Achilles Heel. So they just have these rents that are from a different era that they're paying while their tenants are paying them a lot less. They have been burning through $300 million a quarter of cash. Four years after pledging to restructure to rationalize. It's just completely untenable. 

We filed for bankruptcy barely four years after the company reached its peak valuation and more than two years after it went public under new leadership in 2021 the tank of cash that once overflowed ran out, they were never able to make a profitable business. It's an extraordinary tale in that they raised over 16 billion of equity and debt over 13 years, but this may not be the end of wework story. 

The business will likely go on. They're going to need to cancel a ton of leases, cancel their debt and presumably can come out of this a real business that can make money. They have some locations where it's profitable, but it's going to need a lot of work in bankruptcy court to get there.

Source: 

Youtube Channel  The Wall Street Journal

Link: 

https://youtu.be/p3q5m0ILTfk?si=R3PM6-5dfy26B6Ml

TikTok to invest $1.5B in GoTo’s Indonesia e-commerce business Tokopedia

TikTok to invest $1.5B in GoTo’s Indonesia e-commerce business Tokopedia

Nesianetwork    Desember 21, 2023    Comment   

 

Nesianetwork.id -  ByteDance’s TikTok wants to do more business in Indonesia — Southeast Asia’s biggest e-commerce market. So after facing roadblocks from the regulators, it’s now come up with a new route to get there.

TikTok is putting up $1.5 billion in a new joint venture that will bring Tokopedia, the e-commerce unit of the Indonesian tech giant GoTo, together with TikTok Shop Indonesia, the local division of TikTok’s e-commerce business. TikTok will have a controlling stake of 75.01% in the new entity.

The $1.5 billion is not coming in one investment but will be put into the combined business “over time,” the companies said in a statement today. Initially, it will pay $840 million to take its stake, according to Reuters. GoTo’s stake in the JV as a result of today’s deal is 24.99%, and that will remain fixed, it added.

That joint ownership detail is key: This deal comes on the heels of TikTok coming under the scrutiny of regulators over its wholly owned effort, TikTok Shop Indonesia, which provided online shopping via TikTok’s wildly popular flagship social media app. About two months ago Jakarta banned direct payments for online purchases on social media platforms to protect smaller local merchants and users’ data. TikTok was forced to suspend its e-commerce service on 4 October to comply with the new rule.

This deal has a couple of parts to it that work in reverse to the final outcome. First, Tokopedia will actually acquire TikTok Shop’s Indonesia business for $340 million in the fourth quarter of this year, according to GoTo’s investor note. Second, TikTok will acquire the majority stake in Tokopedia, via the new entity, for $840 million. Third, there will be further money invested, up to $1.5 billion over an unspecified period, to build out the JV further.

There are some forecasted valuations at play, as well as valuations that have been impacted by the regulatory issues. GoTo notes, for example, that TikTok Shop Indonesia “was valued based on a backward looking view of the TikTok Shop Indonesia business under the current environment during the fourth quarter of 2023 and does not reflect the forward looking potential of the combined entity.”

The overall transaction is expected to close in the first quarter of 2024. Today’s deal is a direct result of TikTok getting scuppered from doing business in Indonesia over the small business rules.

Indonesia has an outsized presence in the e-commerce landscape of Southeast Asia. Its value was estimated between $50 billion and $60 billion in the past year, working out to around around two-thirds of the revenues generated across the region as a whole.

A lot of that e-commerce revenue comes from small and medium businesses selling on marketplaces. TikTok and GoTo are well aware of this fact and are working hard to show respect for it. They noted today that “more than 90 percent of the combined business’s merchants are micro, small and medium enterprises (MSMEs) and the companies will undertake a series of joint initiatives to support them.”

But critically, now TikTok has also conceded that it needs to have an Indonesian partner in the mix when working with them.

The ByteDance-owned short video app launched TikTok Shop Indonesia in 2021 and had around 106 million users in Indonesia as of October, which came in second after the U.S. Indonesia is the third biggest market in Asia, only behind China and India in terms of the number of active social media users at 167 million, with 60.4% of the total population using these platforms.

“Going forward, TikTok, Tokopedia and GoTo will transform Indonesia’s e-commerce sector, creating millions of new job opportunities over the next five years,” the two companies said in a joint statement.

Source: https://techcrunch.com/2023/12/11/tiktok-to-invest-1-5b-in-gotos-indonesia-e-commerce-business/

Waste4Change is building a circular economy in Indonesia

Waste4Change is building a circular economy in Indonesia

Nesianetwork    Desember 21, 2023    Comment   

 

Nesianetwork.id -  Even the largest landfills in Indonesia are at (or nearing) capacity, and the government has set an ambitious target of 30% waste reduction by 2025. Waste4Change is one of the companies that wants to help by increasing rates of recycling and enabling better waste management. The startup, which currently manages more than 8,000 tons of waste very year, announced today that it has raised $5 million in Series A funding, co-led by AC Ventures and PT Barito Mitra Investama.

Other participants in the round include Basra Corporation, Paloma Capital, PT Delapan Satu Investa, Living Lab Ventures, SMDV and Urban Gateway Fund. Founded in 2014, Waste4Change has seen a CAGR of 55.1% since 2017, and is present in 21 Indonesian cities, where its services are currently used by about 100 B2B clients and more than 3,500 households.

Waste4Change was created by founder and CEO Mohamad Bijaksana Junerosano based on conversations between PT Greeneration Indonesia, an NGO, and waste management organization PT Bumi Lestari Bali (ecoBali) to form a company that reduces the amount of waste that ends up in landfills. Junerosano is an environmental engineer by training and spent 16 years working in the solid waste sector.

Junerosano says that a major opportunity is created by Indonesia’s low recycling rates (about 11% to 12%), which means there is a lot of valuable recyclable material that is being left behind.

“Waste reduction is a top priority, followed by material optimization and recycling which supports the concept of a truly circular economy,” he told TechCrunch.

Waste4Change will use its new funding on expansion and increasing its waste management capacity up to 100 tons per day over the next 18 months, with the target of reaching more than 2,000 tons per day over the next five years.

Junerosano said Waste4Change differentiates from traditional waste management solutions by providing an end-to-end solution, with a focus on sustainability and zero waste. Part of its strategy includes more digital integration for monitoring and recording the process of waste management and automating its material recovery facilities.

“We see digital integration as a valuable tool to build a sustainable waste management ecosystem,” he said. “The goal is always to create harmony between the environment, the economy and the people.” Waste4Change’s digital integration strategy this year and next include improving its waste journey report and monitoring, which its customers receive after their trash is processed.

To use Waste4Change, customers can ask for a pick-up team to collect their pre-sorted trash or drop it off themselves. The company currently has 108 employees and 141 waste management operators, with plans to add 52 more people to its team and work with 300 informal waste collectors and SMEs. Informal waste collectors include scavengers, waste banks, waste stalls and waste aggregators.

For recycling business partners, including informal waste collectors, Waste4Change is building a platform to help them sell and buy solid waste with the company. The goal is increase the traceability and accuracy of the waste management process. It is also working on a program called Send Your Waste, where consumers can send waste to Waste4Change’s pick-up points. An app tells them what kinds of waste to send, where the nearest pick-up point is and what kind of reward they can receive.

Junerosano says informal waste collectors tend to be selective about the materials they collect, picking out PET bottles, glass and cardboard. But this means less desirable materials like PP plastic, multilayer packaging and styrofoam are often left behind, polluting the environment. To combat that, Waste4Change has started a service called Waste Credit, which gives incentives for picking up certain materials, and also makes it easy for waste collectors to build this businesses.

“Considering the crucial role of the informal sector in improving Indonesia’s recycling rate, we aim to build a waste recycling platform that will keep the system sustainable,” he said. “We are more than happy to bring it to life with a joint venture or joint operation with other industry stakeholders, including those in the informal sector and local Reduce, Reuse, Recycle (3R) temporary waste storage sites.”

In a statement, AC Ventures founding partner Pandu Sjahrir said, “Waste4Change is a pioneer providing an end-to-end waste management solution. Sustainability is the team’s main focus, with a demonstrated commitment to building a better future for Indonesia. The company is proving that it has reached product-market fit and has the potential to scale across the nation.”

Source: https://techcrunch.com/2022/10/13/waste4change-is-building-a-circular-economy-in-indonesia/

The outlook for startups in 2024 is hazy

The outlook for startups in 2024 is hazy

Nesianetwork    Desember 21, 2023    Comment   

 

Nesianetwork.id - Even though the economy is signaling a bit of a bounce-back, 2024 might not be much better than 2023 when it comes to startups sharing a piece of the budget pie.

If startups want a chance of making it through yet another bumpy year, they need to prove their worth now more than ever. Investors told TechCrunch’s Ron Miller and Rebecca Szkutak that they’re still expecting some pockets of growth. And don’t forget the elephant in the room: generative AI.

Thanks for reading!

Source: https://techcrunch.com/2023/12/19/the-outlook-for-startups-in-2024-is-hazy/

This is What Happened To LUNA Crypto Must You Know

This is What Happened To LUNA Crypto Must You Know

Nesianetwork    Desember 01, 2023    Comment   

 

Nesianetwork.id - What exactly happened to Luna crypto? We break down everything that you could want to know about the disastrous collapse of the Terra Network, which caused $60 billion worth of digital currency to be wiped out. 

What is Luna crypto exactly?

You may have heard of TerraUSD and Luna, here is a quick breakdown of what they are exactly. Lots of moving parts within the Luna network ahead of its collapse.

TerraUSD (also known as UST) and Luna are two sister coins on the same network.

Terra is a blockchain network, similar to Ethereum or Bitcoin, that produces Luna tokens. The network was created in 2018 by Do Kwon and Daniel Shin of Terraform Labs.

Terraform Labs created the UST coin to be an algorithmic stablecoin on the Terra network. While other stablecoins (USDC or Tether) are fiat-backed, the UST would not be backed by real assets. Instead, the value of UST would be backed by its sister token, Luna. More on that later.

Stablecoins are supposedly safe havens in the crypto space since they’re meant to have a fixed value of around 1 USD. The goal being, a steady store of value for investors, unlike other volatile coins (like ethereum).

Luna was Terra’s blockchain native token, similar to how ether is used on the Ethereum network. Luna had four different roles in the Terra network:

A method to pay for transaction fees in the Terra network.

A mechanism for maintaining Terra’s stablecoin peg.

Staking in Terra’s delegated proof of stake (DPoS) to validate network transactions.

Participation in the platform’s governance by adding to and voting on proposals when it comes to changes in the Terra network.

How much was Luna worth?

A Luna coin was going for around $116 in April and ended up dropping to a fraction of a penny before being delisted. Before that, the coin went from being worth less than $1 in early 2021 to creating many crypto millionaires within a year. This led to Kwon’s cult hero status among (some) retail crypto investors. Many success stories popped up in the media about how regular folks were able to get rich from Luna.

The Luna token skyrocketed about 135% in less than two months until its peak in April 2022. The largest incentive was that you could stake your UST holdings on the Anchor lending platform for a 20% annual yield. Many analysts felt that this absurd rate was unsustainable.

The Anchor Protocol was a decentralized money market built on the Terra blockchain. This platform became popular for its aforementioned 20% yield for UST holders who deposited their tokens on the platform. Then Anchor would turn around and loan the deposit to another investor. Many skeptics were concerned about where the money came from to pay these rates. Some considered this an obvious Ponzi scheme. At one point, as much as 72% of UST was deposited in Anchor because the platform was the primary driver of demand for Terra.

What happened to UST?

Before we look at this crypto disaster, we need to discuss stablecoins briefly. A stablecoin is pegged to a more stable currency like the US dollar. Tether and USDC are both tied to USD. Stablecoins are used to hedge against volatility in the crypto space. For example, let’s say that Ether’s price is $1,000. You could exchange one Ether for 1,000 USDC tokens. When investors expect a hit in the crypto market, they put their money into stablecoins to protect their assets.

The UST coin was not backed by an actual US Dollar but rather an algorithmic stablecoin. The belief was that Terraform Labs could use clever mechanisms along with billions in Bitcoin reserves to maintain the peg of UST without the backstop of the USD.

To create UST you have to burn Luna. So, for example, when Luna token's price was $85, you could trade one token for 85 UST. This deflationary protocol was designed to ensure there was long-term growth for Luna.

For UST to retain its peg, one UST could be changed for $1 worth of Luna at any time. If UST slipped, traders could make money from buying UST and then exchanging it for Luna.

Both Luna and UST crashed once UST lost its peg to the dollar, which was what qualified it as a stablecoin.

TerraUSD was risky because it wasn’t backed by cash, treasuries or other traditional assets like the popular stablecoin tether. The stability of UST was derived from algorithms that linked the value to Luna. Many experts were skeptical that an algorithm could keep two tokens stable.

Why did LUNA crash?

The Luna crypto crash was caused by its connection to TerraUSD (UST), the algorithmic stablecoin of the Terra network.

On May 7, over $2 billion worth of UST was unstaked (taken off the Anchor Protocol), and hundreds of millions of it were quickly liquidated. There’s debate as to whether this happened as a response to rising interest rates or if it was a malicious attack on the Terra blockchain. The huge sell-offs brought down the price of UST to $0.91, from $1. As a result, traders started to change 90 cents worth of UST for $1 of Luna.

Once a large amount of UST had been offloaded, the stablecoin started to depeg. In a panic, more people sold off UST, which led to the minting of more Luna and an increase in the circulating supply of Luna.

Following this crash, crypto exchanges started to delist Luna and UST pairings. Long story short, Luna was abandoned as it became worthless.

What happened after the Luna crash?

The Luna meltdown impacted the entire cryptocurrency market, which was already highly volatile and experiencing difficulty at the time. It’s estimated that the Luna crash ended up tanking the price of bitcoin and causing an estimated loss of $300 billion in value across the entire cryptocurrency space.

Crypto leaders Voyager and Celsius filed for bankruptcy. Three Arrows Capital (3AC) was forced into liquidation.

Many people lost their life savings and suffered financial hardships due to the Luna crypto crash. If you do a quick search online, you’ll find many of these terrible stories. Many loyal Luna fans (who referred to themselves as “Lunatics”) took to Reddit threads to share their disastrous stories. One retail crypto investor even confessed that they lost their savings of $20,000 in Luna.

The only winners were those who exited their positions before the crash. One winner that we have to highlight is the hedge fund Pantera Capital. They saw a 100x return on an initial investment of $1.7 million. The company liquidated its Luna position prior to the collapse for a return of $171 million.

What happened to the Luna crypto founder?

Do Kwon shared a recovery plan for Luna, and things looked promising for a brief period of time in May after the original crash. But the coin ultimately plummeted. It was promptly abandoned. Terra ended up launching a new coin, Luna 2.0.

On September 15, it was announced that a court in South Korea had issued an arrest warrant for Do Kwon. This came almost four months after the collapse of Luna and UST, the two tokens that Terraform Labs issued. Do Kwon and five other people are currently accused of violating local market laws.

Officials in South Korea seek to revoke Kwon’s passport as they believe he’s currently residing in Singapore. In theory, if this legal action goes through, Kwon would have to return to South Korea within 14 days of receiving the notice of the revocation. The ministry is currently evaluating the request.

Some investors who lost money in Luna have filed a complaint with local prosecutors claiming that Kwon was involved in fraud and illegal fundraising. It’s estimated that about 280,000 people in South Korea had invested money in Luna.

How should you be investing?

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The bottom line

If you’re going to invest in digital currency and other particularly volatile assets, you have to accept that there’s going to be some outsized risk associated with it. Hopefully, this disastrous Luna collapse is more of a cursory, black swan event than the start of an era. The key takeaway should be that if an investment seems too good to be true, it usually is. Secondarily, for investors who are still bullish on crypto over the longhaul, it would be prudent to limit these investments to 5-10% of one’s portfolio.