Gm. Somewhere in Omaha, Warren Buffett and Charlie Munger must be smiling.
Welcome to Issue 11 of The Quest Digest, where we break down Silicon Valley news for you every week, in 3 minutes.
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Stablecoins in chaos and $LUNA goes to zero
Before we dive in here’s some context…
What are stablecoins?
A cryptocurrency made to avoid wild price fluctuations like Bitcoin. They are meant to maintain a value of $1 and often bridge transactions on crypto trading platforms which don’t support many fiat-based accounts.
How does TerraUSD ($UST) and Terra ($LUNA) work?
Most stable-coins are dollar backed (each token is backed by traditional money).
But $UST is an algorithmic stablecoin that automatically adjusts supply of coins depending on demand. And instead of being back by traditional money, it’s backed by $LUNA.
When $UST value falls below $1, traders can “burn” a $UST and be paid to do so with $1 worth of $LUNA. Traders can pocket the small difference between the prices in what is known as arbitrage.
In aggregate, this arbitrage trading would shrink the supply of $UST, raising the price back to $1.
This week, the volatility in the cryptocurrency market tested the $UST. With major selloffs occurring, the peg was lost – leading to a death spiral where $LUNA fell from $85 to now less than 1 cent.
Terra founder, Do Kwon shared an update on the situation and steps moving forward.
Our Take
It’s possible to compare the collapse of the UST stablecoin to a black swan event signalling a crypto winter or market slowdown. Market volatility will be here to stay for awhile so prepare for the bumpy ride.
Amidst the collapse, the UST situation could give governments an excuse to crack down on stablecoins even harder.
Zooming in, the crash has and will affect many people’s livelihoods. In the r/TerraLuna subreddit members have posted the loss of all their savings and or homes.
It’s a sad but powerful reminder that if you’re trading cryptocurrency, have a firm understanding of your risk profile and the % you can allocate accordingly and safely.
Winter is coming with hiring freezes
Major companies and startups have been laying off employees or pausing hiring.
As a Recap:
Meta has paused hiring for the remainder of the year as the company struggles with slowing revenue growth.
Amazon’s CFO announced that the company has too many workers after hiring due to the emergence of the omicron COVID-19 variant.
Uber plans to slow hiring and cut marketing spend. CEO states “we will treat hiring as a privilege and be deliberate about when and where we add headcount”.
The north star for many big tech companies are to maintain profitability, and focus on “free cash flow” according to Uber CEO.
Our Take
The market isn’t looking too hot. We think this is a smart move for big tech companies to stay afloat ahead of a market slowdown.
The move could signal to other industries of making similar moves – putting a lid on hiring. In a world just post the Great Resignation, this could affect many people who left their jobs if jobs become scarcer.
Instacart files confidentially for an IPO
Instacart, said it confidentially filed documents for an initial public offering. Confidential filing allows the company to file privately and delay public filing until close to the actual IPO date.
The company didn’t disclose details of its IPO plans. Instacart is working with banks such as Goldman Sachs and JP Morgan on an offering.
Our Take
As a beneficiary of the coronavirus pandemic, Instacart’s growth has decelerated more recently. In March, the company cut its valuation by 40%, from $39B to $24B.
The company’s public debut could come at a turbulent time as high-tech growth stocks have been plummeting and in a market scarce of IPOs. Only two IPOs of more than $500M have been made this year in the US, with the performance of new IPO companies being quite low.
🔥 Press Worthy
Instagram tests NFTs with certain creators
Airbnb launches a new suite of product features
Nintendo has more than 100 million annual active users
Disney reports streaming subscriber growth
The iPod is dead
Elon Musk says he will reverse Trump’s twitter ban
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The Quest Digest is written by Hannah Ahn and edited by Brent Liang, two dropouts who hate long tech newsletters. You can sign up to our next issue below.