VUSD Arbitrage Review, a puzzle galgame

Original source: MMObserver

On September 26, VUSD was hacked. I bought a position around 0.6 and planned to leave immediately after I finished my trade. However, the VUSD team’s speaking style made me stop. The clues include:

1. The project owner said in the post mortem (my MD also likes to use this term) that it would only redeem the license to the institution, emphasizing that the license does not support retailers.

2. The warehouse wallet is coinbase withdrawal. In extreme cases, you can send a lawyer to cb to include kyc information

3. Privacy agreements are full of weird compliance stuff

4. The white paper paints a lot of pies that are not attractive to web3 users. It doesn’t even use the terms such as algorithms and ecology that conventional stablecoins use to fool people. It just tells you that we want to do payment.

   **Does it look like pyusd? **If this project is not stolen, not shut down, and built for a few months, it will immediately become a pyusd-like project of a traditional financial company after it grows up.

At this point, it is basically certain that this project is not a on-chain meme. At least there are investors who meet compliance requirements, and there are license requirements that prevent direct transactions with retail investors. I don’t know if the license issue is an excuse to this point.

Then on the evening of the 27th, the original institution of vusd redeemed 38M VUSD at a 1:1 ratio. At this time, the remaining VUSD was still overcollateralized. In addition, this time an institution bought 200k in the secondary market and redeemed it together. At this time, the game became a game for retail investors.

1. Only a few institutions that are in a group with vusd are playing this game. They were pulled away by compliance and risk. No one can redeem anymore. It will be back to zero.

   1. This is actually wrong from the beginning, because the post mortem emphasizes that the institution will continue to redeem according to their ToC. If the institution is full of its own people, there is no need to rely on the post mortem to convey that it will continue to perform its contract, fearing that it will be sued by the onboarded institution, so the onboarded institutions are not acting in concert. The onboarded institutions have the ability to legally constrain them, at least the vusd team is afraid.

2. Only a few institutions that have joined forces with VUSD are playing this game. They plan to slowly grind away retail investors and slowly collect and redeem within a year or two.

   1. This situation actually appeared at the beginning. Some institutions placed orders below 0.5 for delivery.

3. There are multiple institutions with independent interests, and they can freely acquire and redeem.

   1. This is the situation that retail investors are most looking forward to, and it is also what should happen if the market operates normally.

This dish scared many people away. Some people were scared away by the fact that the institution redeemed first, some people were scared away by not mentioning the interests of retail investors in the secondary market, and some people were scared away by the fact that there was no familiar project party to provide 24-hour tg psychological massage, and some people were scared away by only a web form and email contact. But if you smell it carefully, all of this smells like compliance. At least at this point, the image of the project party is consistent. A stablecoin project with a collateral placed in a private wallet and no on-chain contract constraints can run away in ten thousand ways, but it will not be this posture.

The most exciting thing is today. First, we announced that we were going to close down, and then it dropped to 0.5. Then, this tweet started to turn things around.

You can also onboard new institutions. Old institutions are not active in arbitrage, so new ones should come soon. **At this time, there are still about 10M in the pool, and the price is 0.5. If there is a 30% arbitrage opportunity, it is 3M$. The project owner is really tied up. This money is not used by a small account, but left to the market to make money. **After this notice, those who are still selling will basically say goodbye to making money. Many retail investors have a small pool of 400k and sell it to institutions for 2,000 dollars. The institutions are laughing. At this time, retail investors have two choices

1. Wait for new institutions to slowly buy above 0.95. The previous burn redeem seems to have no handling fees, and institutional arbitrageurs have the motivation to buy above 0.95.

2. Institution? I am the institution!

Galgame starts, because it is not completely finished, I roughly translate and summarize the contents of several emails:

Me: We are Laxi Capital established in your compliant region . We have VUSD and want to onboard and trade with you.

VUSD: OK, please give me your registration time and address.

Me: Our Laxi Capital was registered yesterday in BVI

VUSD: Sorry, we cannot onboard new institutions because we are closing down, but we can make an exception to do a buyback for you. Please give me more registration documents and passport information (the public announcement that we will continue to onboard is for compliance, and the private announcement that we cannot onboard is because the big investors think this project is troublesome and want to close down, which is also for compliance. Doing a pre-sales KYC for you is compliance, and secretly telling you to do an additional buyback after the KYC is done is to prevent big investors from really suing. This project owner is in trouble)

Me: I took out the company registration document made by Taobao lawyer for 100 RMB

VUSD: OK sir, I will give you redeem xxxxxx$, only once

Me: Thank you boss, I redeem it

--5 minutes later--

Me: (Change email and company) We are Lagan Capital established in your compliant region . We have VUSD and want to onboard and do business with you.

…

Unfortunately, by the time I realized it, the market was almost at 0.9, so I cleared my bottom position and did another round before calling it quits. And according to US time, VUSD was about to close, so I didn’t continue trading because I was afraid there would be too many overnight stories. Smart retail investors who put on the capital hat faster than me shared a total of about 1.5M in profits.

To seize this opportunity, you need to first guess that VUSD is a compliant institution, then take the initiative to send emails to communicate, and finally be familiar with the communication methods of compliant institutions (I have seen retail investors who did not know how to use formal emails to communicate and were directly rejected by VUSD. Even if he knows that you may be a fake capital, he still has to do basic due diligence. This is the key point of this galgame. You can't just give up and refuse to cooperate).

If I were to takeaway, I should quickly set up a BVI and a Hong Kong company, purchase an address, documents, email and website. If I had acted with an institutional mindset and identity from the beginning, I might have been able to make a few hundred thousand in profit.