Betting on LUNA, $1.8 billion in a risky bet involving Do Kwon’s sentence

As of the evening of December 10th, a rather unusual “craze” was quietly brewing in the market. There were no technological upgrades, no advancements in the ecosystem, and not even any major news releases. Yet, the trading volume of LUNA tokens (including LUNA and LUNA2) soared to nearly 1.8 billion US dollars within 24 hours—as if it had been suddenly ignited. What’s even more strange is that LUNA’s value has increased by 150% over the past week. Against the backdrop of cautious macroeconomic conditions and generally weak trading volumes, such “fundamentalless mania” not only alerts seasoned investors but also prompts many others to wonder: Is this a result of smart money betting on a rebound from a low point, or is there another round of intense speculation and manipulation underway?

In comparison, the combined trading volume of LUNA and LUNA2 now ranks among the top ten in terms of overall contract trading volume in the market, just behind HYPE’s 1.88 billion US dollars.

The funding rates for both are -0.0595% and -0.0789%, respectively.

These high negative rates indicate that the market is not only highly concentrated but also in a state of extreme disagreement: a large amount of capital is shorting, while another even larger group is taking advantage of this congestion to push prices higher.

We all know that LUNA no longer has any real fundamentals. This 1.8 billion US dollars in liquidity is essentially betting on something that will happen soon.

Tomorrow, at 24:00 on December 11th, Do Kwon, once known as the “King of Stablecoins,” will face his final sentencing hearing in Court No. 1305 of the Southern District of New York Federal Court.

The market is actually betting with real money on the sentence imposed on this former figurehead in the cryptocurrency world.

The length of the sentence can be either long or short. Speculators never rest.

To understand the 1.8 billion dollars in contract transactions, it’s necessary to look at the actual progress of this case.

For most people, the name Do Kwon has faded from public view after the epic collapse in 2022.

But in reality, this former crypto magnate was already transferred to New York, USA by the end of 2024. In August this year, he pleaded guilty in a federal court in Manhattan, admitting several charges including securities fraud.

Tomorrow’s hearing isn’t about whether he is guilty or not, but rather about the length of the sentence. According to the latest court documents, there is a significant gap between the prosecution’s and defense’s suggestions regarding the sentence.

The prosecution wants a sentence of 12 years in prison.

The U.S. Attorney’s Office is firm in its stance, citing the billions of dollars lost due to Terra’s collapse, as well as Do Kwon’s fraudulent actions involving the Chai payment app by “falsely listing” it on the blockchain before the collapse.

In the market’s view, 12 years represents a complete end to his activities. According to the 4-year cycle of cryptocurrencies, three cycles later, Do Kwon will no longer be involved.

The defense team requested a sentence of 5 years in prison.

The defense team used the “compassion card,” emphasizing that Do Kwon had been imprisoned in Montenegro for a long time, and that he had cooperated well with the SEC’s fines.

A difference of 7 years is enough to create opportunities for intraday speculation and capital games around LUNA tokens.

It’s logical that the founder was sentenced to a heavier punishment, which certainly further reduced the value of LUNA tokens. As a result, the market is filled with short-selling activities, and we’re seeing negative capital rates.

However, those who actually control the market don’t need to believe that Do Kwon will be sentenced in just five years. They simply use this uncertainty to manipulate prices, targeting those who are overly aggressive in selling.

This might also explain why LUNA’s value soared on the eve of Do Kwon’s trial. The market isn’t celebrating justice at all; instead, it’s trying to profit from the outcome of the trial.

The crypto market already has few hot topics, and overall, it’s in a weak state. Tomorrow’s hearing will only create some localized volatility.

From victims to predators…

You’ve woken up. It’s 2022 now.

If we were to look at the distribution of LUNA holdings in May 2022, we would see a much more tragic scene:

There, people who have lost their entire savings, crypto funds that suffered heavy losses, and speculators who tried to buy low but ended up losing everything. Those transactions were filled with anger, despair, and irrational attempts at self-preservation.

Three years later, the microstructure of the market has completely changed.

Those who were victims back then have already left the market. Now, sitting across from me are probably completely different types of participants. For example, high-frequency trading teams, event-driven hedge funds, and speculators who specialize in hunting “junk assets”.

对于这群新玩家来说，Do Kwon是否无辜、Terra生态是否有未来，这些问题不仅不重要，甚至是一种噪音。他们关心的唯一指标是事件贝塔(Event Beta)，即资产价格对特定法律新闻的敏感度。

在这种情况下，LUNA的资产属性其实已经异化成了一张围绕法律的衍生品票据，就像某些Meme币的起伏其实围绕着某个公众人物的一举一动展开。

这是加密市场一种极其残酷的成熟，死亡或者坐牢，本身也可以被「货币化」。

目前的LUNA甚至是很多只有壳子的代币交易，本质上就是一场灾难定价。主力资金非常清楚，基本面已经归零。但只要分歧存在，只要有多空博弈的空间，这个「空壳」就是完美的交易标的。

甚至可以说，正是因为没有了基本面的锚定，代币价格的波动才不再被约束，完全取决于情绪的宣泄。

也应了那句话，加密市场的大多数代币其实都是meme。

为一切定价

明天宣判后，无论Do Kwon听到的是「5年」还是「12年」，对于LUNA这个交易标的来说，结果可能都是殊途同归。

事件结束后，代币大概率又会变得毫无波动;不仅仅是坏消息会杀死行情，确定的好消息也会。

If there is a harsher judgment, then the fundamentals of logistic regression suggest that prices will drop to zero. If the judgment is more lenient, then any positive developments could be realized as profits. In that case, it would be better to “sell the news” – the positions held by investors could simply be “drained away” like a tide.

Logically speaking, LUNA is actually a great tool for observing various phenomena.

It reveals the technical aspects of algorithm-based stablecoins, as well as the extremely mature and cold-blooded nature of this market.

In today’s crypto market, even a dead coin or a founder who has already been convicted can still be re-packaged into chips on the gambling tables, as long as there’s still some news value associated with them.

The liquidity in the crypto market has evolved to an extreme level. It can price anything: emotions, bugs, memes… Of course, it can also price someone’s freedom and a fair trial.

In such an extreme efficiency environment, moral judgments seem somewhat unnecessary.

Do Kwon may spend his remaining time in prison feeling sad, but the crypto market doesn’t have sadness at all. What exists there are only unpriced uncertainties.