Stablegains Destabilized: How the Stablecoin Crisis Happened and What I’m Doing Next

What I'm doing with my money in Stablegains, which has cratered in value.

written by oz chen

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stablegains destabilized luna ust depeg stablecoin criss may 2022

I stand to lose a lot of money. So do a number of my friends who were also using Stablegains as a crypto savings account. My heart goes out to anyone’s who’s affected, especially those who discovered the service through my review.

It’s painful to lose money, and to anyone going through this situation, I’m there with you.

It bears restating again: none of my content is financial advice.

Alright, let’s start with what the hell happened.

How UST stablecoin lost its peg, thus affecting Stablegains / Anchor Protocol users.

The context: Stablegains uses Anchor Protocol to generate its yields. When you bring USDC (stablecoin) or U.S. dollars into Stablegains, they convert that on your behalf to UST to deploy into the Anchor Protocol to generate returns.

But what happens if UST becomes unpegged, losing its 1:1 ratio with U.S. dollars?

That’s exactly what happened with the bloodbath starting Monday, May 9th 2022.

What does this mean? Your Stablegains balance is technically based on UST. So if you put in $1000 USD or USDC, then at certain points in time the true “value” of your account is worth less than $1000; more like $690, $900, or $100 for moments.

What we’re experiencing is a stablecoin losing its peg.

To be clear, Stablegains and Anchor have not been “hacked”…rather, its the underlying stablecoin, UST, that’s been subject to a type of economic attack.

These articles break down what happened:

It doesn’t help that all of this is happening with the backdrop of high economic uncertainty. The markets have been shit recently and investors have been fearful. The more fear, the more selling, the more that depresses prices.

So, what to do with your Stablegains account?

I’d first refer to Stablegain’s official own communication channels:

Then, do some account hygiene:

Check that deposits into Stablegains from your linked Plaid account have be disabled.
They should be, but make sure that incoming deposits / recurring deposits have been turned off.

Take screenshots of your whole account, especially your deposits coming in.
If there’s a class action suit involved you’ll want to have proof(s) of your account.

Check the Discord and Twitter for latest updates.

Ok, with that said…let’s talk about money.

These are the 4 scenarios across the spectrum of loss:

  1. No loss: UST repegs successfully 1:1.
  2. Minimized loss: UST does not fully repeg, but gets somewhere “near” like 80 – 90 cents to the dollar.
  3. Huge loss: what’s happening at the time of this writing. UST is hovering around $0.10.
  4. Absolute loss: UST and LUNA as a project go bust to 0. You lose all your money.

Given these 4 scenarios, there are 3 options you have, each with their own risk:

Option 1: Wait for UST to repeg.

Cross our fingers and wait for a successful repeg of UST back to $1. Then, you can either keep your money on Stablegains or withdraw your funds 1:1 back to U.S. dollars.

I don’t know what the chances of this are right now. The Luna Foundation Guard may have outside capital that can help with the repeg, but it’s hard to say how much of this situation is rescue-able.

Even if the repeg happens – and that’s a big if – that might take a very long time.

Option 2: Sell at a loss

At the time of writing, bank transfers are disabled. Going ahead with an ACH withdrawal would effectively mean that Stablegains would have to trade UST for USD at a loss for you, and Stablegains is not in the business of facilitating this type of trade.

However, you have the option of withdrawing UST to two exchanges: Kucoin and Kraken. Then on those exchanges, you can choose to sell. Here’s Stablegain’s Zendesk FAQ on the UST withdrawal process.

Caveat though: due to the fiasco, a lot of exchanges are halting transactions involving UST or Luna.

Option “2A” is to sell some of your holdings and

Option 3: Buy the Dip (not recommended)

This is not a real option #3, just an action in addition to the first 2 options. Luna and UST are at rock bottom prices, so some people might speculate that this is an opportunity to buy in cheap. Repeat: speculation.

The ecosystem has an incentive to increase supply of Luna (and sacrifice it) in order to prop up UST, so betting on Luna is an extremely risky bet. But I don’t know anything.

Feeling the pain? You’re not alone. Take a breather.

People are feeling pain. These types of situations can make it hard to think clearly, so if necessary give yourself space in the situation an. Getting away from the screen (this is just advice to myself now) is probably helpful.

If you’ve lost a lot of money, my heart goes out to you. Please prioritize your mental and physical health as those are the most important assets, especially in hard times like this.

The best advice I can give is that any individual life is worth more than money. You can make money, but money cannot make another you.

The National Suicide Help Line is 800-273-8255. Give it a call if you need to chat.

Silver Linings Playbook

Perspective is needed in times like this. Here are a quick few thoughts to share:

  • “What can I learn from this?” -> take a long term view of finance. You’ll be investing for a long time. If the takeaway is to be more cautious or to learn more about stablecoins (like I should have), then consider that you’ve paid tuition for those lessons.
  • Toughen your investor skin: black swan events like this can and will happen. If you’re a long term investor, events like this will act as a reference point for you, and help you stay calm in future downturns.
  • A healthier ecosystem: despite this crash, I believe that stablecoins should exist. I consider this as part of the evolution of crypto and decentralized finance. Stress tests like this break things, after which new regulations and more durable ways of building will arise. I have hope that the wider community learns from this and builds back better.
  • Buying opportunity: A down market is a great time to buy assets at a discount. Of course, only invest amounts that you can afford to lose, and in things you believe in.

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