- If others were to enter the ecosystem, the early holders must profit by selling tokens to new entrants.
- Or if they simply hold, they will have theoretical paper value when the tokens appreciate in value.
No block reward and a highly concentrated LUNA supply gave all power to the early holdersThe early distribution of the later valuable tokens was very concentrated, as witnessed by the early distribution of LUNA tokens.
Thinking of how popular the Terra tokens became, a lot of profit must have been taken by the early holders virtually by definition. But as witnessed by the spectacular crash, real value was first gained when converting to other cryptocurrencies outside the Terra ecosystem. And the possibilities for transporting value out of the Terra Ecosystem were either through exchanges or the few existing bridges.
Distribution of Luna tokens on October 3rd, 2020. Exchanges are excluded. Source: Arcane Research. Blockchain data from FlipsideCrypto
Terra blockchain data shows that wallets connected to Terraform Labs and the large early LUNA holders have made tremendous profitsI have analyzed the value flows in the Terra Ecosystem with a particular emphasis on the use of the exit gates via bridges or centralized exchanges. To avoid obscuring the picture, I have only accounted for transactions up to May 5th, some days before the downfall.The analysis reveals that sets of John Doe wallets interacting closely in clusters have massive net outflows from the Terra ecosystem to bridges and centralized exchanges. The common denominator among the clusters is that one or more wallets in the cluster received significant transfers from Terraform Labs wallets or the largest John Doe wallets as of October 3rd, 2020 (referred to as early John Doe wallets hereon).The set of John Doe wallets in the clusters obviously put great trust in one another, sending straight-up transactions of millions of dollars frequently between themselves. In total, there are close to 3,000 wallets in the clusters. And many of the clusters have received funding from more than one of the Terraform Labs wallets and the early John Doe wallets.
Net outflows of $6 billionFrom October 2020 to May 5th, 2022, the clusters have net outflows of $6 billion to exchanges and through bridges (flow value calculated by using market prices at the time of transfer). In contrast, all the other hundreds of thousands of wallets have a net inflow of $6.5 billion.
The net outflows/inflows are evaluated at market prices at the time of transfer. This muddies the picture somewhat. The clusters deposited large amounts of LUNA tokens to exchanges when prices were still ‘low.’ Outflows of LUNA are therefore undervalued relative to inflows of LUNA. The following figure illustrates the point. Early John Doe wallets have a net outflow of 53 million LUNA to exchanges valued at $700 million at the time of transfer. Later, 13 million LUNA valued at $3 billion were likely returned to wallets in the clusters and used to mint UST. The net outflow of LUNA calculates to 40 million, but the dollar value evaluated at the time of the transfers gives a net inflow of $2.3 billion. Therefore, we have reason to believe that the potential for creating outside profits was larger than the $6 billion net flow that's calculated based on the assumption that portions of the early deposits of LUNAto exchanges were not sold.
Net flows in the Terra ecosystem, evaluated at market prices at the time of transfers. Source: Arcane Research. Blockchain data from FlipsideCrypto
Net flows to/from exchanges. Source: Arcane Research. Blockchain data from FlipsideCrypto