In this week’s Metacast Roundtable episode, Anton Gorodetsky, Nicolas Vereecke and Aaron Bush, join your host Maria Gillies to discuss the recent Luna/UST Crash - why it happened, who it impacts and what happens next. The team also discusses the broader bear market and dives into InvestGame’s recent Q1 2022 report.
Luna/UST Crash
Context
From the start of May, Terra’s blockchain began to implode. The price of Luna, their coin, and UST, their stable coin (a concept explained in the episode), has since collapsed.
Today, Luna is worth 1% of 1¢. The UST, which should theoretically be worth $1 USD, is now worth 10¢.
A few weeks ago, the UST’s value decreased marginally due to sell pressure → many sold their UST in panic → created downward pressure on the UST → prompted even more people to sell their UST → the UST collapsed.
The UST is an algorithmic stable coin, meaning that Luna’s value is calculated based on that of the UST. The UST’s collapse hence led to the collapse of Luna.
This was the result of Terra’s recklessness
Aiming for UST to become a ubiquitously used currency, they created the Anchor Protocol which promised a perhaps unrealistic 20% yield on the UST.
The entire incident is reminiscent of the Ponzinomic model, as both involve companies creating a scheme so incentivising that it attracts far too many people and causes the system to collapse.
Has led to ripple effects on the larger crypto economy.
Terra tried to stabilise the UST by selling $3 billion of Bitcoin → Bitcoin destabilised → given Bitcoin’s major significance in crypto, this destabilised the whole crypto economy.
How should blockchain game developers choose a currency to build their game on?
Build your game on a reliable ecosystem, keeping in mind the Lindy effect and EVM compatibility (Luna was not EVM compatible).
This Naavik blog post provides an in-depth analysis of the pros/cons for the most popular blockchain solutions.
The incident has led to many netizens denouncing crypto as volatile and unreliable. However, we should keep in mind that crypto is nascent technology and mistakes are bound to happen.
Bear Markets
Context
The pandemic led to a rise in demand in the gaming industry, which pushed the evaluations of gaming companies to unsustainable highs, leading to debt and inflation.
Hence, we’re now seeing major pricing resets and likely, an economic recession.
A significant number of layoffs have already been observed in the technology industry and is thought to soon impact the gaming industry.
The gaming industry in the past, such as during the 2008 economic crisis, has generally proven to be “recession proof.”
This is because during difficult times, many are unwilling to give up playing games and may even be more likely to turn to games as a source of comfort. This is especially so for widely accessible and free to play games.
Effects on the venture market:
Some funds have lost billions of dollars due to the collapse of Luna.
The evaluation of blockchain gaming companies will likely decrease over the next few months.
The quality of the market may increase as companies with loyal audiences and creative, viable products are more likely to survive or be formed.
This effect was observed with Axie Infinty, which was created in 2018 when the market went down.
InvestGame’s Q1 2022 Report
Context
The report found that the total value of both closed and announced deals in the video game industry in the first quarter of 2022 reached an astounding $100b, exceeding the recorded value of the entirety of 2021.
5 notable deals contributed to 68% of this figure.
About 50% of private investment deals in the report was associated with blockchain gaming.
The growth rate between this quarter and the last quarter of 2021 is not significantly different.
However, future quarters are not forecasted to see such phenomenal growth, especially as less deals are expected for the rest of 2022.
Some are expecting a major economic slowdown and a great change in the dynamic of the market.
The decreasing evaluation of companies may lead to less M&A in future quarters.
Most companies may aim to save money and make more conservative M&A decisions.
Companies may be less willing to go public or sell their company at a lower than expected value.
This is especially so if interest rates rise to counter inflation, which would render even more companies unable to make deals at the same pace as before.
On the other hand, large technology and entertainment companies, which are more stable, may start making major, otherwise unexpected acquisitions.
