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March 16, 2023

🥛 Lessons from an 8-figure crypto bet 👀

GM. This is Milk Road. We’re the Keanu Reeves of crypto newsletters; action-packed and relatable with a track record of being awesome.

Here’s what we’ve got for you today:

  • TBT: The $22M Luna bet

  • Wtf is MEV?

  • Graph of the Day: BTC 2020 crash

  • Epic Games is launching more crypto games on its marketplace

Today's edition is brought to you by First Batch ID, the future of decentralized identity.

TBT: THE $22M LUNA BET

It’s that time of the week… Throwback Thursday.

The day we reminisce on the simpler times, when our biggest worry was what AIM “away message” to use. (My go-to: Real g’s move in silence like lasagna.)

Today’s TBT… The $22M Luna bet. Here’s the story in three parts:

Part 1: The Call Out. It all began when Sensei Algod (a well-known crypto trader) started talking sh*t about Luna.

Algod called it “the Ponzi of this bull run” and said it was only a matter of time before it collapsed. He was so confident that he challenged anyone that wanted to make a $1M bet on it. #shotsfired

Part 2: The Clap Back. 90 minutes later, Do Kwon (the founder of Luna) responded on Twitter: “Cool. I’m in”. And followed up with his own jab…

If this was a high school cafeteria, this is when everyone would start chanting “FIGHT! FIGHT! FIGHT!”

PART 3: The Bet(s). After some back-and-forth trash talk, Do Kwon and Algod finalized the terms…

If the price of LUNA is over $88 (according to CoinGecko) on March 14, 2023, Do Kwon wins. If it's under, Sensei Algod wins.

Ladies & gents, we have ourselves a bet. But that’s when Gigantic Rebirth (another crypto whale) entered the ring…. *queue WWE music*

Well, that escalated quickly. GCR came in with that BWE – big wallet energy. And it suddenly went from a single $1M bet → multiple bets totaling $20M+.

A few minutes later, Do Kwon agreed to GCRs bet and everyone sent their money to Cobie – the middleman who created an escrow account to keep the funds safe.

Just like that, $22M in the pot. Locked and loaded.

Now here’s the thing: at the time, everyone thought Algod and GCR were crazy. Luna was a multi-billion dollar empire, all the “smart” VCs were backing it and calling it the best thing since sliced bread. Hell, we even thought they were crazy.

Here were our famous last words:

Yeah, we f*cked up. We rode with Do Kwon into a damn tsunami.

Fast forward to today: the $40B+ empire collapsed, 1 LUNA token = $0.0001243, Do Kwon is a wanted fugitive, and the words “terra,” “luna,” and “Do Kwon” are all banned in my household.

But where there are mistakes, there are lessons. Here are our 3 big takeaways from this:

  • Do your own research. There was a lot of hype around Luna, but there were plenty of people calling out the flaws before it collapsed. Always DYOR and think for yourself.

  • Don’t just follow the big names. Using “Well, BigName invested in it so it’s safe” to validate an investment is one of the worst things you can do in crypto.

  • There is no “smart money”. Jump Capital, Galaxy Digital, etc. – they all got burned. Turns out “smart money” is just as dumb as me.

Oh, and f*ck Do Kwon. *mic drop*

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One minute I’m reading a thread about a new blockchain protocol and the next minute I’m watching a TikTok about Warren Buffet.

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I don’t want to read another lame news article or watch a video on interior design.

I want to learn about crypto and investing.

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Want to take a peek? Here’s Gravitate – FirstBatch’s feed curator that utilizes AI to serve you the most relevant content imaginable while still preserving your privacy.

The web just got personal

CRYPTO'S $1B GET-RICH-QUICK TRICK

Ethereum-based MEV rewards just hit a record daily high of 7,691 ETH ($12.6M) after SBV collapsed and USDC depegged.

So… wtf is MEV? Well lucky for you, Professor Milk Man’s got your back.

Welcome to MEV Intro: 101. Class is in session…

MEV = maximal extractable value. It's a trick people (validators/trading firms/retail investors) use to make profits off of pending transactions before they're confirmed on the blockchain.

Think of it like this: robbing a bank is hard. There's lots of security, and you have to break into a vault.

A better way (according to the movies) is attacking when the money is in transit in one of those armored trucks. It's still hard, but there will be a short window when the truck is parked & is wide open. The money is almost in the bank, but not yet.

This is kinda like a pending transaction in crypto. It's during this period of time when someone can execute MEV attacks to make BIG profits. And with the help of bots, they’ve gotten filthy rich doing it…

The MEV market is estimated to have made over $1B in profits over the last 2 years.

There are three main ways people extract MEV:

1/ Arbitrage Trading

They buy a token on one exchange and sell it at a higher price on another. MEV bots can quickly spot and take advantage of the discrepancies between the two markets.

The upside: it gives traders a truer, fairer price. Token prices vary across exchanges like Uniswap & dYdX. This closes the gap amongst them all.

The downside: it makes you vulnerable to getting front-run by the bots.

2/ Front-running

This is when bots steal your chance to have your transaction confirmed. They spot big transactions and duplicate them with a higher gas fee. Those higher fees mean validators are more likely to confirm their transaction first.

It’s like when your mom pays the rollercoaster line guy $20 to let you cut the line.

3/ Sandwich Attacks

These are the sketchiest. Beware.

It’s when a MEV attacker sandwiches a victim’s trade with two others: a buy order for the token with extra gas fees, then a sell order placed right after the victim’s.

This artificially raises the token’s price. The victim ends up paying a higher price, meaning the MEV attacker profits from the price difference.

So let’s say someone buys $500 worth of ETH. A MEV bot sees the placed order in the mempool (list of pending transactions,) and places an order worth the same amount of ETH plus maximum gas fees to front-run them.

Only the victim ends up paying more because the bot’s buy order raised the price. Then when the bot sells right after the victim’s, it pockets that change. Well played, bot

So why are MEV rewards at an ATH? Because everyone and their mother have been withdrawing USDC. They all got spooked when Circle said it had $3.3B in reserves in Silicon Valley Bank, which collapsed.

More people cashing out = more transactions = more opportunities for MEV rewards

At least there’s someone making the most of a bank run. MEV earners out here making lemonade out of dead-bank lemons.

GRAPH OF THE DAY: THE 2020 BITCOIN CRASH

The year was 2020. Shakira & J. Lo had just owned the Super Bowl. Everyone was watching Tiger King.

And then COVID-19 hit. It caused a financial panic that sent Bitcoin crashing down 50% in just ~1 day, from $8,000 to ~$3,700. The Milk Man still has nightmares…*shudder*

So what? BTC fell hard that month. And it did again in May 2021 (~53% drop) and then gradually in 2022 (thanks, inflation + interest rates.) But the OG crypto is still kicking; it’s sitting at ~$25,000 today.

So if we can get through all that, everything’s gonna turn out just fine. #hodl

BITE-SIZED COOKIES

The DOJ was already investigating Signature over poor leadership before it shut down, NY’s regulator said. The government has been fielding criticism for shuttering another crypto bank without good reason.

Euler Finance is giving the hacker that stole ~$200M a choice: return 90% of the stolen funds and keep $20M of it or face prosecution.

Fortnite creator Epic Games said it has 20 crypto-enabled games in the pipeline to add to its online marketplace. It currently has five.

Sesame Street is launching its first NFT collection based on the iconic characters behind the beloved show. There will be 5,555 pieces priced at $60 each dropping on March 19.

MILKY MEME

🤣🤣

That's a wrap for today. Meet us on Twitter to talk all about it. It’s kinda like a family BBQ but better – no screaming kids, awkward photos, or drunk uncles telling weird stories (@MilkRoadDaily)

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.