Many analysts have tried their best to model LUNA’s price action based on many different metrics. Here, I try to model UST adoption as a catalyst for LUNA’s price moves, as new UST minted requires the buying and burning of LUNA. This may become too technical for some people, but I try my best to break it down as simply as possible. At the end, I provide the spreadsheet with which I did my analysis for anyone to check my work, play around with other values, and potentially add on if they have a different model worth discussing.
So what is the best way to model the growth of UST? It’s best to first look at through the entire stablecoin market as a whole. It’s clear that stablecoins, and crypto as a whole, are following the standard adoption curve of new technology. Below is an example:
This growth curve has been seen throughout a number of technologies of the past and present. Innovators and early adopters push progress and adoption at an exponential level, until growth slows down as a majority of the population has already grown accustomed to using the technology in their day-to-day lives. This can be tough to model exactly, but the closest mathematical model with a curve like this is known as Simple Logistic Regression. One form of this model looks like this:
- “N” represents the maximum value achieved by the model. In this case, it would be the desired market cap of UST post-adoption.
- “t” represents the time. This could be in whatever unit you’re measuring growth. For this model, we will use days
- “k” represents the growth factor. As k increases, the overall acceleration in growth increases. In a graphical representation, this causes a steeper adoption curve. The same is true vice versa.
- “a” is a little more complicated. It represents a factor that changes the shape and acceleration of the curve. As “a” increases, the graph has decreased incline in the early stages and decreased decline in the later stages, while also pushing to midpoint (the point with highest acceleration) later in time. And the same is true vice versa.
But given that UST is just a fraction of the entire stablecoin market, we can expect it to follow its own path within the wider adoption curve. It goes exponential as new protocols enter the ecosystem, bull market price action brings a large amount of people into the space, or there becomes an escape from other stablecoin options. But eventually, demand stalls as there are no new catalysts for large growth, then this cycle repeats again. So rather, UST adoption will likely follow many iterations of adoption. In this case we can actually use multiple logistic regression, essentially adding many simple logistic curves on top of one another.
Let’s look at UST’s growth so far as it’s first iteration of adoption.
I used Excel to chart the market capitalization of UST since its inception on Nov 25, 2020. All data was gathered on August 10th, 2021, so any data past that point has not been regarded. Here is the graph below:
Using the equation mentioned above, I was able to use Excel’s Solver function in order to find the values for “N”, “k”, and “a” that reduced the sum of the squared residuals with respect to the real market capitalization values. Rounding for easier representation, the equation came out to roughly:
Here’s how that came out graphically:
In order to extrapolate this growth curve to LUNA’s price we can use the growth metrics of UST’s adoption curve, variables “k” and “a”, and once again use Excel’s Solver function to minimize the sum of the squared residuals from LUNA’s actual price. Here is the equation and how the graph looks
It’s clear that there is a large discrepancy between projected price and actual price. But after toying with certain numbers I came across a very strong correlation. What actually drives LUNA’s price increase is not only the amount of UST being created but the rate at which UST is growing. Let’s take a look at the LUNA price and UST velocity (The derivative of UST curve).
We see that the rate of change of UST has a strong effect on the price, with a delay of roughly 21 days (LUNA’s staking removal period). This makes intuitive sense because a large amount of UST being create requires large market buys in a short amount of time, as well as increased attention from speculators due to hyper growth. When we add this velocity with a factor of 0.0000004 and a delay of 20 days here’s how this graph comes out.
A lot more representative right? Now that we have the tools to extrapolate UST adoption to LUNA’s price, we can try to do so predicting $10b in UST creation by the end of 2021, since this has been Do Kwon’s goal and assumption for quite some time now.
I decided to look at three scenarios
- Scenario 1: UST gets adopted at the exact same growth rate as the previous cycle of adoption.
- Scenario 2: We see an average amount of growth over the next few months before reaching $10b by the end of the year
- Scenario 3: This is a hyper-growth scenario. This assumes that after the Col-5 release in September, we may see a large explosion in UST adoption that results in getting towards are $10b target a lot quicker.
For each scenario I decided to use a “price value” of LUNA at $60. This represents the top value of the growth curve. This value was chosen due to the 5x increase in UST market cap, and the previous LUNA curve had a value of $12 (5 x 12 = 60). This may be on the low end of possible values given LUNA’s decreasing supply, but will serve as a nice base case.
In the first scenario I chose to keep the values of “k” and “a” the same, and used Excel’s Solver function to ensure $10 billion of UST will be achieved on 12/31.
This resulted in a peak price of $100.12 on November 17th. In total just about 100,000,000 LUNA was burned and ended with a LUNA market cap of around $23,800,000,000.
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‘Overlooked’ Part of Senate Infrastructure Bill Renews Worries From Crypto Lobby
The $1 trillion infrastructure bill, which passed in the Senate in early August and is expected to be approved by the House, is the gift that keeps on giving.
At first, it was about roads, bridges, and clean water. Then a pay-for provision promised to give American crypto users new tax reporting requirements. And now there’s a new twist.
A report published today by the Proof of Stake Alliance (POSA), an advocacy group that counts Coinbase Custody and as members, details an “overlooked” amendment to the tax code within the 2,700-page bill that will make it a felony to incorrectly report receiving cryptocurrencies, , or other digital assets.
Writing in his role as an advisor to the POSA, law professor Abraham Sutherland details how the infrastructure bill amends Section 6050I of the tax code. The amended section 6045 that caused so much consternation when it made it through the Senate changed the definition of “broker” to cover those handling cryptocurrencies.
Industry lobbyists and cryptocurrency advocates such as the think tank Coin Center argued that the bill as written would force miners and validators on other networks to file 1099 forms for the people whose transactions they were processing—even though they lacked the personal information needed to do so.
Section 6050I, on the other hand, deals with the tax reporting requirements of those who ultimately receive the cryptocurrencies. While Americans must already report their crypto gains to the IRS just as they would with other investments, Sutherland says the amended provision goes much further: They must tell the government who sent it, including reporting social security numbers, when the value of the digital assets is more than $10,000. Not doing so within 15 days constitutes a felony.
This raises at least two issues. First, as Sutherland notes, it’s just as unwieldy as the section 6045 amendment: “This provision demands the impossible because the digital assets might not be ‘received’ from a person whose personally identifiable information can be verified and reported—including cases where the digital assets are not ‘received’ from a person or entity with a tax ID number, period.”
Second, as Sutherland alludes to and as Coin Center Research Director Peter Van Valkenburgh hammered home in a blog post, it might just be unconstitutional. The tax code currently mandates that people report such information to the IRS when they receive $10,000 in cash. That passes Constitutional muster because the bank acts as a third party; otherwise, authorities would need a warrant under the Fourth Amendment. But in cryptocurrency, a peer-to-peer transaction doesn’t have a third party.
Writes Van Valkenburgh: “One person to a two person transaction is obligated to collect a load of sensitive information from her counterparty and hand that to government officials without any warrant or reasonable suspicion of wrongdoing.”
Though he writes that Coin Center usually doesn’t “object to equal treatment of cash and cryptocurrencies,” in this case the “provision is a draconian surveillance rule that should have been ruled unconstitutional long ago. Extending it to cryptocurrency transactions would further erode the privacy of law-abiding Americans.”
Sutherland also calls into question the process by which the amended IRS code will become law—via a bill on completely unrelated topics. “A statute creating felony crimes for users of digital assets should be debated openly, not quietly inserted into a spending bill,” he wrote.
Avalanche (AVAX) bumps to near $70 after reveal of $230 million fundraise
High-speed blockchain Avalanche jumped to highs of $68.30 today after several influential crypto investors revealed the close of a private funding round involving $230 million worth of AVAX tokens in June, CryptoSlate learned in a release.
The Avalanche Foundation, a non-profit that oversees the development of the Avalanche blockchain, disclosed participants in the multimillion-dollar funding round were led by PolyChain Capital and Three Arrows Capital, and included R/Crypto Fund, Dragonfly, CMS Holdings, Collab+Currency, and Lvna Capital.
What a day! Just one of the many major initiatives the @AvaLabsOfficial team has been working on.
— Jay Kurahashi-Sofue 🔺 (@jayks17) September 16, 2021
What happens to Avalanche now?
Proceeds from the private sale will be used to support the burgeoning Avalanche ecosystem—one that has been positioned as a top contender against Ethereum for its high speed and low fees.
Part of the funds will be funneled to support DeFi (decentralized finance) projects on Avalanche as well as enterprise applications through grants, token purchases, and other forms of investments.
Avalanche’s smart contract is able to execute Ethereum Virtual Machine (EVM) contracts, making it possible for developers to ‘reuse’ their codebase if they have a working/testnet product on the Ethereum blockchain.
Converting assets on-chain using a ‘bridge’—a way for two separate blockchain to communicate with and transfer value between each other—are also simple as applications querying the Ethereum network can be adapted to support Avalanche by changing API endpoints and adding support for a new network.
Meanwhile, the news caused a surge in AVAX prices last night. The token jumped 30% to over $68.30 to set a new all-time high, reaching a $14 billion marketcap and becoming the 12th-most-valuable cryptocurrency by that metric.
At press time, AVAX continues to trade above its 34-period exponential moving average, a metric used by traders that determines asset trends using historic prices. It has been been in a gradual uptrend since breaking the $15 mark in late-July, and has returned several multiples to investors in the past three months alone.
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Can NFTs impact the economic livelihood of artists in developing nations?
- Aversano deployed the first NFT portrait photography.
- The total sales volume of NFTs in the art segment rose from $64 million to $774 million.
- NFTs ensure an artist is paid royalty whenever their art is used.
Aversano, an artist known for deploying the first-ever NFT portrait photography, says he sold more than 100 NFT portraits between February and June. He said the sales earned approximately $130,000 within five months. The Twin collection in which he sold the 100 portraits are photographs of twins, which he says are in memory of his fraternal twin.
What are NFTs?
NFTs are non-fungible tokens which are real-life assets that are sold on digital platforms. The viability of NFTs depends on the uniqueness and the utility of possession. This means that tokens can only be relevant to an owner if he can prove ownership of the token. The tokens can range from unique pieces of art from artists to current assets like cars. The digital platform gives an easy and availed proof of ownership.
Non-fugitive assets are made more desirable by the fact that they are unique and one of a kind. This makes them very valuable.
According to Statista, the total sales volume of NFTs in the art segment rose from $64 million to $774 million within a record period of 30-days (August 15 – September 15, 2021). The chart below shows the fluctuation of NFT sales per 30-days period between April and August.
How can NFTs make artists’ lives better?
As the digital world takes significant steps ahead, more investors try to get a niche to explore the same fruits. When Jack Dorsey sold his first tweet at $2.9m, it started a buzz on and around NFTs. Not only for the amount of money fetched but the ‘absurdity’ of buying a tweet when there are millions of them already. However, there is much more to it. It brought about the concept of owning a one-of-a-kind piece of art which for sure is an advantage to artists.
First, NFTs guarantee immutability to the artist. There is uniqueness where the artist has complete copyrights on his art. This is enabled by the ID or metadata issued to an artist to prove possession of the art. It is offered to give essential data about the piece of art.
Second, there are no intermediaries during the trading of art on cryptocurrency platforms. Once there is an interested party, they are connected to the individual artist who lays out the asset’s guidelines to change possession. This is advantageous to the artist since transactions are done on his terms. It also keeps in place his profile and reputation as an artist. The artist also cuts the marketing cost and the issue of art brokers.
Next, there is exposure for the artist. When trading NFTs, artists are at ease to do collaborations with other artists. This is a guarantee as the platform is a haven where artists can interact and flourish while teaming up with even more significant expertise in different fields. Apart from collaborations, there is a world market availed. Geographical borders or any particular divisions do not limit the crypto platforms. Once an artist avails art on a digital platform, the piece is available for everybody.
One other factor pulling artists to NFTs is smart contracts. This is a feature that keeps a contract in code form. It works best for decentralized platforms. Smart contracts are programmed to suit an investor’s interest in trade.
For example, smart contracts can be used by artists dealing with NFTs to store data or be used to get royalties each time the piece of art changes possession. This means that the artist keeps reaping from the art long after the sale. A smart contract can be programmed to work without involving a party to set it up time and again.
On the other hand, since the buzz around NFTs began, more people are trying to get into the trade in an attempt of minting. This is leading to flooding in the market and the uniqueness of NFTs diluting. However, this is not a guarantee for the near future failure of NFTs. Artists can reap much from the NFTs.
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