- I am not a registered investment, legal, or tax adviser or a broker/dealer, and all opinions expressed by me are from my research for educational purposes only.
- Past performance presented here is not an indicator of future performance.
- This post expresses my own opinion about the cryptocurrency mentioned herein and is not an offer to buy or sell, or a solicitation of any offer to buy or sell the cryptocurrency mentioned in this post.
- I do hold a long position in RUNE as a token holder.
THORChain's Successful Hard Fork
After a successful THORChain's hard fork (a pre-requisite that is needed before LUNA integration) yesterday, a LUNA integration is imminent.
Luna Foundation Guard (LFG) To Purchase Bitcoin As UST Reserve Asset
Terraform Labs, the developer of both Terra blockchain and very first algorithmically maintained decentralized stablecoin, Terra USD (UST) has recently donated 12 Million $LUNA (valued at around $ 1.13 Billion at today's price) to Luna Foundation Guard (LFG) for the purpose of buffering UST reserve.
Furthermore, Do Kwon, founder and CEO of Terraform Labs made some important announcements to include Bitcoin as another reserve asset for UST ecosystem, making UST a hybrid stablecoin backed by both LUNA and Bitcoin. He reportedly plans to add $10B of BTC as UST reserve asset on top of LUNA which now having a total market cap of $34B.
Increasing Interest of Bitcoin Maximalists on LUNA
This announcement has sparked a massive interest in the Bitcoin maximalist community (i.e. people who hold only Bitcoin and think that Bitcoin is the only crypto that is needed).
Jack Dorsey, founder and former CEO of Twitter who is a heavy proponent of Bitcoin has shown up to the Twitter space where Do Kwon discussed the LFG's plan to build a Bitcoin-backed UST tokenomics.
Anthony Pompliano, in his recent newsletter (The Pomp Letter) which exclusively talked about Bitcoin all this while wrote about Terra Luna (a non-BTC crypto asset) for the very first time.
Inclusion of Bitcoin to Terra Luna's UST tokenomics would definitely spark the interest of both Bitcoin and Terra communities, with people of both sides having interest to own both tokens at a certain degree. Bitcoin and Luna are both deflationary assets with Bitcoin having a cap of 21 Million BTC, and Luna tokens being burnt at a fast rate (102.71 million LUNA tokens have been burned as of last December since the Columbus-5 upgrade went into effect at the end of September). As UST adoption increases, so would the values of both BTC and LUNA.
THORChain Is The Only Decentralized Way That Facilitates the Native LUNA/ BTC Asset Swaps
Now, here comes the question of how could a Bitcoin maximalist sell some of their BTC to purchase LUNA and how could a LUNA maximalist sell some of their LUNA to acquire BTC ?
There are 3 ways, and in this article today, we would explore what are the pros and cons of each method. In the end of this article, you would find out that THORChain is the only way where hodlers of both BTC and LUNA could swap natively with each other at lowest cost, within least amount of time (hence lowest slippage cost) and censorship-resistant.
Method 1: P2P Transactions
With P2P transactions, one would sell BTC/ LUNA to interested buyer(s) in exchange for cash, then use the cash proceeds to buy LUNA/ BTC.Problems with P2P Transactions:
- Price of BTC/ LUNA traded usually priced higher for the buyer and priced lower for the seller as compared to crypto exchanges.
- As cash payment is involved, details of bank accounts would be needed, hence, this method is not censorship-resistant.
- Hard to carry out block trades that involve large sum as P2P trade does not have concentrated liquidity. E.g. if you were to sell $ 1M worth of BTC for an equivalent value of LUNA, you may find it very hard to find an individual that is willing to commit a $ 1M transaction with you, most likely, you would have to sell your $1M worth of BTC to many different individuals, and as the number of transactions increases, the network fees that you need to pay would be expensive.
- Trust is involved, hence due diligence cost would be incurred in order to ensure that the counterparty which you transact with is a genuine buyer/ seller with whom you could trust. Even so, it does not completely eliminate the risk of you transacting with a scammer.
- You would still hold the ultimate custody of your crypto asset as no third-party is involved.
Method 2: Centralized Crypto Exchanges
Alternatively, you could transfer your BTC/ LUNA from your cold wallet to a centralized exchange like Coinbase, Binance or Kraken, and trade it there for an equivalent value of LUNA/BTC then withdraw from the exchange to your cold wallet. Problems with Centralized Exchanges:
- Although this method is usually cheaper than P2P, the exchange fees involved are usually higher than the decentralized exchanges in most cases.
- KYC is required before you are able to trade via the centralized exchanges, hence, this method is not censorship-resistant either.
- By depositing cryptos into centralized exchanges, you are giving up the ultimate custody of your crypto assets to the exchanges.
- Although the trust issue with P2P transaction is mitigated, it's not completely eliminated with centralized exchanges as you have to trust that the exchanges which you are using are honest entities that function well
- Centralized exchanges usually have deep liquidity, hence, making large-sum transactions efficient at relatively lower cost.
Method 3: Decentralized Exchanges that Run On THORChain (so far the only decentralized liquidity network that supports native asset swap)
All problems that Method 1 and Method 2 are facing could be solved by THORChain. Furthermore, all benefits that both methods offer are enhanced by THORChain. Benefits of swapping BTC/LUNA to LUNA/BTC on THORChain:
- Exchange fees on decentralized exchanges powered by THORChain (e.g. THORSwap, xDEFI, Rango Exchange) are negligent as compared to centralized exchanges.
- You hold the ultimate custody of your assets throughout the entire transactions.
- THORChain is censorship-resistant as no details would be collected from you.
- All transactions on THORChain are happening in a trustless manner and maintained efficiently by smart contracts.
- As a LUNA holder, you may want to get some exposure to BTC without actually paying the Bitcoin network fees. This has been made possible with THORSynths where you could first convert your LUNA to sLUNA (synthetic LUNA), then swapping sLUNA for an equivalent value of sBTC (synthetic BTC) with close-to-zero transaction fees. All synthetic assets on THORSynths are priced and maintained 1:1 to its L1 native assets with the help of THORChain's Incentive Pendulum Reward Mechanism.