Invest: Gains without risks is a myth (looking at you TerraUSD)

Posted by

People talk a lot about “financial literacy,” which mostly means looking very impressed about compound interest. I think sometimes about what real financial literacy education might look like. Here is a simple lesson:

  1. Often, risk and reward are correlated: Something with a low risk probably has a low expected return, while something that could plausibly make you a ton of money could also lose you a ton of money.
  2. Not always! Lots of finance is about finding the exceptions, or at least about finding optimal points on the risk/reward trade-off. If you are taking a financial literacy class you shouldn’t be too optimistic about your chances of being good at this, but you should be alive to the possibility.
  3. That said, any investment that is advertised as having a high return with low risk is very likely to be a scam.

Here’s a Marketplace story about “Stablegains,” and that name tells you absolutely everything you need to know about Stablegains. Absolutely everything! You’d know not to invest in Stablegains after the first 10 minutes of any financial literacy class! It is “stable,” but it is also “gains,” which means that it will incinerate your money with 100% probability. It did.

Since you are reading my blogs you are probably a bit more advanced, so I’ll tell you that the particular method Stablegains chose to incinerate its customers’ money was by putting it in TerraUSD stablecoins. Also it managed to lose its money so efficiently that there’s no one left to sue:

After being contacted by several Stablegains users, Kevin Osborne at the class-action law firm EKO Law explored the possibility of a lawsuit.

But for now, any plans for litigation are on hold. “If a defendant has very little in the way of liquid assets, has no insurance, then you’re not going to be doing anything for the people that you represent,” Osborne said.

And to go after Stablegains’ venture capital backers, plaintiffs have to meet a high legal threshold, he added.

On the other hand, anyone with money who got within a million miles of the TerraUSD implosion will get sued, as they probably should; here’s one:

In a class action lawsuit filed on Monday in North California, cryptocurrency exchange Binance.US has been accused of misleading investors surrounding the Terra blockchain ecosystem. …

The lawsuit also alleges that Binance.US is not registered as a broker-deal or an exchange, which may be in violation of securities law after it listed what might be an unregistered security in UST.

Was TerraUSD an unregistered security that was illegally sold to US investors? I dunno; I think there’s a decent case for that. And it vaporized enough money that there are a lot of lawyers with incentives to make that case.


Comments are closed.