How the Luna Crash Affected Us

May 17, 2022

👋 Dear Request enthusiasts,

The global crypto community has been seething with rage and despair at the recent fallout from the depegging of the stablecoin, UST, the precipitous collapse of the price of Luna, and the brouhaha around the Terra blockchain. The former has collapsed to nearly zero from just over $116 at the start of April, while the latter is currently trading below a fifth of the US dollar’s value.

We are deeply saddened by the human cost that has been suffered by many, particularly in South Korea. High adoption rates in the project’s home turf, and a lack of robust risk management caused many retail investors’ life savings to be overly exposed to the sharp declines in both Luna and UST.  

In light of these calamitous events, we want to provide an update to our community about the extent to which Request Finance has been impacted, directly or indirectly.

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Direct Impact: Zero

We are pleased to announce that Request Finance’s financial viability is unaffected by the cratering of the price of Luna, or the depegging of the UST stablecoin. This is thanks to two factors.

Firstly, our monthly usage statistics for April 2022 show that UST or Luna are not used on Request Finance, as we have yet to provide technical support for payment detections on the Terra blockchain. Other stablecoins like USDC (25%), USDT (14%), DAI (14%), and cUSD (3%) are the preferred stablecoins of choice for enterprises using Request Finance. 

We will continue to grow and diversify our user base across 12+ different blockchains and token ecosystems. This makes Request Finance a great product for our users who needn’t worry about not being able accept payments in any token or on any chain. But it also limits our exposure to risks inherent to any one ecosystem like Terra.

Secondly, we did not ape into yield farming on Anchor Protocol (ANC), the savings, lending and borrowing platform built on the Terra Blockchain, offering up to 19.5% APY.  Risk management is a cornerstone of how we manage our own treasury, and every other aspect of our business like marketing or product development. We take measured risks, experiment constantly, and never commit ourselves irreversibly to any one course of action, especially if it involves significant resources. 

Cashflow is to companies what oxygen is to our bodies. Starved of oxygen, irreparable brain damage occurs within just four minutes. After 10 minutes without oxygen, brain death occurs. Similarly, the financial health of Request Finance directly impacts our ability to continue shipping products our users love. It also impacts our ability to attract the best talent to build the best products with us. 

These crashes are not new, nor even unique to the crypto capital markets. The iron laws of economics and finance cannot be suspended by wishful thinking or technological wizardry. We hope that the Terra saga will drive home the importance of risk management to all of us. It isn’t the first, and certainly won’t be the last of its kind.

Indirect Impact: It’s Complicated

As an enterprise crypto payments platform, we serve businesses using crypto for purposes largely unrelated to speculation. We have covered these in considerable detail in a previous blog article in response to some of our users’ questions regarding our project’s growth drivers. Thus, insofar as companies continue to hire talent, pay service providers, and spend in crypto, Request Finance will continue to grow. 

While we are unscathed from any direct exposure to the Terra ecosystem, it is important to note that the highly interoperable nature of open-source code, and the general interconnectedness of crypto-native assets is both its best feature and worst bug. Like with pandemics, financial crises also hold risks related to contagion from the immediate fallout. Economists refer to this as systematic, or market risk that cannot be diversified away.

Interoperability is a double-edged sword in all systems. The more interconnected our systems are, the less friction exists and more innovations can build on top of each other like legos. But at the same time, those very same channels become transmission vectors - from fires, to diseases, or financial risks. As with the Great Financial Crisis in 2008, in crypto, this can happen when underlying assets being held as collateral across protocols fall in value.

The Terra collapse, combined with existing macroeconomic headwinds such as general inflationary fears and rising interest rates - have led to sharp corrections in asset prices in both the crypto and equities markets.

These threats to global macroeconomic growth are covered in greater detail in the International Monetary Fund’s (IMF) latest global financial stability report. We disagree with many of the policies imposed, and conclusions presented by the IMF - particularly with respect to crypto and DeFi. But the analyses are informative and robust.  

In Conclusion

Request Finance serves many large players across different blockchains and token ecosystems, as well as different crypto verticals like DeFi, DAOs, and the Metaverse. We are also prudent in our approach to treasury management and take measures to cut our losses quickly in everything we do.

These have shielded Request Finance from the lunacy surrounding the precipitous decline of the Terra ecosystem assets of late. However, there remain broader macroeconomic risks which cannot be ignored. Our growth depends on businesses spending in crypto.

Despite these broader market risks, we have yet to observe a decline in our usage statistics, and will continue to monitor the situation in our monthly Request In Numbers report. 

We strongly believe that there is, and will continue to be long-term, fundamental value in the use of blockchain technologies in various use cases like finance, art, and entertainment. This is not only related to faster, cheaper cross border payments, but also the efficiency gains that come with smart contracts, and other DeFi innovations. 

Wagmi, frens! Stay safe out there.

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Want to see what's going on with Request on a daily basis? Visit the Request Activity Dashboard for more exhaustive data on the Request Network.  

Ivan
Content Lead
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