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Terra supporter Mike Novogratz comments on the collapse of the Terra ecosystem



 In a new letter to shareholders, Mike Novogratz discusses the collapse of Terra.


Mike Novogratz, who has always been a supporter of Terra, commented on the recent collapse of the Terra blockchain ecosystem, which saw both the LUNA token and the algorithmic stablecoin UST collapse.


The letter to shareholders, written by Novogratz, follows days after Galaxy Digital released an update on its liquidity position. The company is a former supporter of Terraform Labs, having participated in a $25 million funding round announced in January 2021.


Novogratz wrote:


"There is no good news about what has happened in the markets or in the Terra ecosystem."


“In Luna and UST alone, $40 billion in market value was destroyed in a very short time. Both large and small investors saw profits and wealth disappear. The collapse has shaken confidence in crypto and DeFi. Whenever money goes so abruptly out of fashion, people want answers.”


Novogratz further wrote that the main investment team invested in Luna in the fourth quarter of 2020. He said he's drawn to investing because of the focus on payments.


He said last week's market event came in the context of a "brutal" macro environment. He cited a fall in global asset prices since early 2022, a highly inflationary environment and central bank action to "defuse a massive liquidity bubble."


He further wrote:


“This macro backdrop put pressure on Luna and the reserves held in support of UST. UST's growth had exploded from the 18% yield offered in the anchor protocol, which eventually overwhelmed other applications of the Terra blockchain.”


“The downward pressure on foreign exchange reserves combined with UST withdrawals triggered a stress scenario akin to a 'run on the bank'. The reserves were not enough to prevent the collapse of UST. It always looks clearer in hindsight."


He added:


"My tattoo will be a constant reminder that risk investing requires humility."


Novogratz concluded the letter by underscoring the financial health of his company, Galaxy, and his belief in the broader ecosystem.


“This does not mean that the crypto market will hit a bottom and go straight back up. It will require restructuring, a payback cycle, consolidation and renewed faith in crypto.”


“Crypto moves in cycles and we just experienced a big one.”

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