UST: New Paradigm or Ticking Time Bomb? | Terra Bear vs. Bull

Terra is exploding. Do Kwon and the Terra ecosystem are turning Bitcoin into their collateral asset of choice to backstop LUNA and the UST stablecoin. Over the last several weeks, the Luna Foundation Guard (LFG) have bought over 30,000 BTC... and they don't plan to stop there. As the LFG climbs the ranks of bitcoin holders, Do Kwon has started playing empire games—claiming victory over the Curve Wars with the 4pool (which contains UST, Frax, USDC, and USDT), calling for the end of DAI, and attempting to build out the Terra ecosystem as the ultimate power in the universe. Is Terra (UST) the future of crypto money? Or is it a ticking time bomb waiting to explode? Perhaps the truth is somewhere in the middle, so we're going to debate it. From the bull side is Delphi Digital's José Maria Macedo, and representing the skeptics is Selini Capital's Jordi Alexander. ------ CONSENSYS | M·A·C: NFT Collection for a Good Cause https://bankless.cc/MAC ------ SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ ️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ️ ARBITRUM | SCALED ETHEREUM https://bankless.cc/Arbitrum ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across ALTO IRA | TAX-FREE CRYPTO https://bankless.cc/AltoIRA AAVE V3 | LEND & BORROW CRYPTO https://bankless.cc/aave ️ MAKER DAO | THE DAI STABLECOIN https://bankless.cc/MakerDAO BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave ------ Timestamps: 0:00 Intro 7:30 LUNA/UST Fundamental Properties 15:15 The Balance Between LUNA/ETH 20:00 Why Bullish/Bearish? 25:28 Why is UST a Successful Stable? 30:19 Are Algo-Stablecoins Unstable? 42:25 Anchor's Utility 48:02 Do Kwon $10B Purchase of LUNA 52:02 Is UST Becoming a Bank? 57:00 Risks of De-pegging 1:06:30 Has LUNA/UST Been Tested? 1:15:00 Do Kwon & Decentralization 1:27:50 Do Kwon's 4pool 1:39:05 Potential Nightmare Scenarios 1:48:04 Closing Arguments ------ Resources: Jordi Alexander CIO of Selini Capital https://twitter.com/gametheorizing Jose Macedo Founding Partner, Delphi Digital https://twitter.com/zemariamacedo ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:14Ryan Sean Adams?

  Hey Bankless Nation, we are super excited to host this live debate. This is a debate on Terra, Luna, U S T, the stablecoin, the bull versus bear case. I asked this question on Twitter, David, and I think this is the question for our debaters today. Is Terra, the U S T, the future of crypto money? Or is it a ticking time bomb waiting to explode? Got a lot of responses on crypto Twitter as a result of that question. And then two debaters stepped up to the plate and were also nominated by the community to take one of two respective sides. One is the bull case for U S T and the Luna ecosystem, the Terra ecosystem. The other is the bear case.

• 0:57Ryan Sean Adams?

  And so we have two representatives taking that side. And we're going to try to get to, I guess, the truth, or at least hear the arguments from both sides in this conversation. David, who do we have on the show today? And do you have anything to add to that?

• 1:10David Hoffman?

  Yeah, of course. Coming in, in the left side of the ring, on the bull case, we have Jose Macedo from Delphi Digital. And then in the right side of the ring, we have Jordi Alexander, Chief Investment Officer of Selini Capital, for the bear case for Terra U S D. And I think really, this conversation hinges on the question of, do algorithmic stablecoins, can they work at all? And if they can work, has Terra U S D, has U S T, cracked that nut? We've seen many algo stablecoins come and go, lots of algorithmic stablecoin experiments on Ethereum, EmptySetDollar, DynamicSetDollar. But we have not tried the experiment as a layer one until Terra came along.

• 1:54David Hoffman?

  And so far, that's been going pretty well with Terra. But there's still a fundamental question as, can an algorithmic stablecoin work in the long term? And I think that's going to be the main topic of what we are going to talk about today, along with all these other... Periphery topics as well, such as how is Anchor involved with this? The 10 billion of Bitcoin treasury that's being accumulated by the Luna Guard Foundation? And a few other things as well. So Ryan, these are the focus, the focus of today's show.

• 2:25Ryan Sean Adams?

  And here's why this is important, guys. Like Luna is valued at something like $30 billion. You know, plus or minus, I'm not sure at the time of recording, UST is now $16 billion. It's definitely making its way into all corners of DeFi. And so this is a, this is a substantial market cap for these assets. So we want to poke and see what's the viability look like for these assets? What do the growth prospects look like? Guys, before we get in, a quick announcement for you. Want to tell you a little bit about a fantastic NFT drop opportunity. And I think this is an opportunity for maybe first time NFT buyers or early buyers who want to support a good cause. So it is National Youth HIV and AIDS Awareness Day on April 10.

• 3:10Ryan Sean Adams?

  And the consensus NFT team and also MAC, that's M A C, the makeup company, have partnered together to launch a, a set of NFTs from the iconic Keith Haring. Okay, art by Keith Haring. There are three different levels you can get in on this NFT. The first starts at $25. So all of the proceeds from this, here's the cool part, all of the proceeds 100% go to HIV AIDS issues involving youth to support youth who are affected by HIV and AIDS. So really cool cause. And not only 100% of the sales, but also all of the resale values. So remember, the cool thing about NFTs, every time you sell an NFT royalty can be collected. In this case, it's 2.5%.

• 3:55Ryan Sean Adams?

  That also on an ongoing basis forever goes to the same cause. So super cool opportunity. We will include a link in the show notes, but if you want to memorize this, it's banklist.cc/mac. That's all capital M A C. And you can check this out. The, the next step is really just sign up, get on their list so that when these NFTs come out, you will be first to know. David, with that, man, I- I'm really excited about this panel because I feel like I haven't fully explored the Terra and Luna and UST ecosystem in the way I've wanted to, and I've been looking for an opportunity to sort of get both sides of the argument. So I'm excited to learn along

• 4:36Ryan Sean Adams?

  with the guests. I probably have some, you know, preconceived notions coming into this, and I want to check those and see if they're true or not. But this is going to be a, this is a very important conversation, probably one of the most important conversations happening in crypto right now. So I'm super excited about this. You have anything else to add?

• 4:53David Hoffman?

  Yeah, it's extremely relevant. It's the talk of the town. The Terra community is full of energy at the moment. And so I think, Ryan, if we can do this show right, it will both be a 0 to 60 in understanding the Luna ecosystem, while also having a good back-and-forth debate as to the merits of the of the system, as well as the risks of the system as well.

• 5:15Ryan Sean Adams?

  Well, there's your hype, guys. We will be right back with our two debaters, our two panelists. But before we do, we want to thank the sponsors that made this episode possible.

• 5:24David Hoffman?

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• 6:06David Hoffman?

  on Ethereum are already on Arbitrum, with many moving over every day. Go to bridge.arbitrum.io now to start bridging over your ETH and other tokens in order to experience DeFi NFTs in the way it was always meant to be: fast, cheap, secure, and friction-free. The Layer 2 era is upon us. Ethereum's Layer 2 ecosystem is growing every day, and we need bridges to be fast and efficient in order to live a Layer 2 life. ACROSS is the fastest, cheapest, and most secure cross-chain bridge. With ACROSS, you don't have to worry about the long wait times or high fees to get your assets to the chain of your choice. Assets are bridged and available for use almost instantaneously. ACROSS bridges are powered by UMA's Optimistic Oracle to securely transfer tokens from Layer 2 back to Ethereum. A token proposal is being deliberated as we speak in the ACROSS forum,

• 6:50David Hoffman?

  where community members will decide on the token distribution. You can have your part of ACROSS's story by joining the Discord and becoming a co-founder and helping to design the fair, fair launch of ACROSS. If you want to bridge your assets quickly and securely, go to across.to to bridge your assets between Ethereum, Optimism, Arbitrum, or Boba Networks.

• 7:11David Hoffman?

  MakerDAO is the OG DeFi protocol. The MakerDAO produces DAI, the industry's most battle-tested and resilient stablecoin. Using Maker, you don't need to sell your collateral if you need liquidity. Instead, you can spin up a Maker Vault and use your collateral to mint DAI directly. With Maker, the power to mint new money is in your hands. The Maker protocol is extremely hardened and operated by one of the most experienced DAOs in existence. They've been here since the beginning. They've seen it all, and so you can mint DAI with the assurance that your collateral is safe. Soon, Maker will be present on all chains and L2s, so minting DAI can take place on oasis.app, Xerion, Zapper, or any other DeFi protocol that you use. Follow Maker on Twitter, @makerDAO, and learn from the oldest and most resilient DAO in existence.

• 7:56David Hoffman?

  All right, ladies and gentlemen of the Bankless Nation, here are our two panelists. Again, in the left side of your screen, we have Jose Macedo coming in from Delphi Digital. He is going to be arguing the bull case for Terra Luna. And then on the right side of the ring, we have Jordi Alexander from Selini Capital arguing for the bear case for the Terra ecosystem and for UST. Jose and Jordi, welcome to Bankless.

• 8:25Speaker 02

  Thanks very much for having me. Big fan of the show.

• 8:28Speaker 03

  Hey guys, happy to be here.

• 8:29David Hoffman?

  Cheers. Thank you guys for volunteering to do this. I think this is gonna be pretty fun. And like I said going into this, I think this will be an opportunity to go to teach a lot of the the Bankless listeners, the Bankless community who haven't completely dove in to the Luna ecosystem, all about Luna, while also providing the pros and cons, the benefits and the costs, the bull and the bear case for Terra. And so I'd actually kind of like to start at that high level of just kind of defining what we're actually talking about. And so, Jose, I'd like to start with you. Can you simply just explain the fundamental properties of Luna and UST? Like, what is the design philosophy and what are its goals? And how does it achieve those goals?

• 9:08Speaker 02

  For sure. Yeah, I know it's an educated audience, probably more steeped in Ethereum projects than Terra, so I'll try and use some metaphors there. So I think the easiest way to understand Terra is actually through its product, which is UST, right? So UST is a decentralized stablecoin. You can think of it as something similar to DAI, but unlike DAI, which is built on top of Ethereum, UST exists on its own Layer 1, which is Terra, which is a Tendermint proof-of-stake app chain. So for the ETH maxies, or for people who understand ETH, you can say, like, it's as if Maker, MKR token didn't exist, right? So it's like ETH, just ETH and DAI, and you have no MKR in the middle,

• 9:52Speaker 02

  so all the value would accrue to ETH, and you'd have like DAI sort of built into the Layer 1 level, into the ETH Layer 1.

• 10:00Speaker 02

  And then, so how does UST itself work? So in terms of mechanism design, it's actually different from Maker, right? So Maker is a debt-based stablecoin. UST is more similar to an algorithmic stablecoin that has existed on Ethereum before. You mentioned some of them, ESD, DSD. Et cetera, where basically the way you mint U S T is by burning Luna and the way you burn U S T is by minting Luna. And so this gives Luna a really interesting role in the Terra ecosystem, right? Where it's both the staking token, like it would be for a proof of stake chain. But it's also the share token and the governance token for this decentralized stablecoin, right?

• 10:41Speaker 02

  And so in a sense, it secures both the systems like technical sort of consensus risk, but also the stablecoin's financial and economic risk. This also gives Luna unrivaled value capture, I would say, at layer one, right? Because unlike most layer ones, which just capture value from transaction fees, Luna actually captures value in the growth of its main stablecoin. And since stablecoins are crypto's killer app on pretty much every chain, Luna basically verticalizes, it's vertically integrated, and it also captures the value from its main and most successful application. So, and then in terms of contextual data that might be useful to users, to your listeners, sorry, U S T is the biggest decentralized stablecoin by market cap.

• 11:26Speaker 02

  It's at roughly sixteen bill right now. It's also probably about to be the most liquid with the four pool. Maybe controversial, but yeah, it's probably about to be the most liquid. I would also argue, and I'll argue later, that it's the most decentralized in a certain sense. And then Luna has its own layer one ecosystem, which itself is thriving in the sense that it has around thirty billion in T V L. It's the second largest L one by T V L. It has core primitives for a lot of the stuff that you'd see on Ethereum, savings, credit, exchange, perps, also an N F T, like a bunch of N F T marketplaces, a bunch of dope N F Ts. So, yeah, that's, I'd say like a high level intro to Terra.

• 12:05Ryan Sean Adams?

  So, Jose, I'm gonna ask Jordy to add to that, but just to kind of summarize, taking from maybe the Ethereum paradigm, right? So, it's as if a layer one like Ethereum, that's what Terra essentially is, had an algorithmic stablecoin almost baked in tightly coupled to its

• 12:26Ryan Sean Adams?

  Core protocol and the value of that algorithmic stablecoin was somewhat sort of linked to in an algorithmic way ETH the asset. So the L1 asset itself.

• 12:38Speaker 02

  It's like the senior, if the seniorage accrued to eat, right? Like the growth and imagine if the growth in die all accrued to eat or in the centralized tables all accrued to eat.

• 12:46Ryan Sean Adams?

  Right. And that is not the only, uh, USC, of course, is not the only application on Terra. Terra also has, you know, general purpose smart contract, uh, layer where it has other sort of DeFi applications as, as well. But it, it does have this special status, almost like, um, protocol, almost protocol native. I don't know if that's too strong a term. Would I say, would you say protocol native? Or do you still consider USC a separate app that is distinct from the protocol?

• 13:13Speaker 02

  No, it's, it's a native, it's, it's protocol native for sure. So it's minted and burnt at the protocol level and Luna and USC are the, are both the two, uh, protocol native tokens.

• 13:22Ryan Sean Adams?

  So that, that is helpful because, um, we can't really talk about USC without talking about Luna. So I think for, um, listeners listening to this, when we say Luna and USC, you know, sometimes we'll use them somewhat interchangeably, but of course, USC is, is sort of the, the stablecoin pegged aspect, but it is almost a product of, of Luna. And these two things might be used somewhat interchangeably, uh, in this episode. Jordy, um, what would you add to this? Is there anything you would add to, uh, Jose's description or anything you might disagree with?

• 13:55Speaker 03

  I mean, in terms of the analogy to Maker and some of the, you know, stablecoins that people might be familiar with, like DAI, for example, that are over collateralized. Um, the difference is that in a way, USC is collateralized by the value of the underlying chain itself by the L1. But instead of a model where you are necessarily changing your USC for Luna, instead it is adding inflation to the system. So imagine if somebody wanted to get rid of their die, um, instead of getting Ethereum from somebody, the system would literally just print new Ethereum's and just kind of bestow those Ethereum's onto the

• 14:36Speaker 03

  Person has die. So in a way like the die is an extension of Ethereum where you could just get more Ethereum created from that system. Of course, the problem we know with inflation is that it reduces the price. And that's kind of why historically these things have always failed because as you create inflation, you reduce the price. You get into a death spiral where, you know, the underlying price is going down and then, you know, people want to redeem more. And then there's like a rush for the exit. And if you find that there is not enough exit for everybody, some people are kind of left holding the bag. And usually things go to zero in that case. That's kind of what we've seen historically at least.

• 15:16David Hoffman?

  So I think to bolster this conversation and Jordi, you just touched on it a little bit and Jose also touched on it. But I want to make this a little bit more formal. There's a relationship between the value capture of the Terra ecosystem and then the Luna token and then also the U S T token. And I want to kind of go back through this again. Jose, when the Terra ecosystem captures value, how does it manifest in the supply of U S T? Versus the unit price of Luna, as in like the market cap of Luna versus the total supply of outstanding U S T. When the Terra ecosystem grows and captures value, how does, how does it get balanced between these two tokens? How does that happen?

• 15:57Speaker 02

  Yeah, so when there's demand for, like excess demand for U S T, U S T will trade above a dollar, right? And at that point, there's an incentive for someone to go and burn some Luna in order to mint U S T. And then sell it on the market and collect the arbitrage, right? With Luna providing kind of that layer one oracle price that sets how you can mint and burn U S T. And so as the supply of U S T grows, there's more demand for Luna to burn it, to mint, to capture these arbitrage opportunities. And then obviously Luna also captures a staking yield, which comes from, from the fees generated on the network. The swap fees and the, the actual just transaction fees on the, on the, on the network.

• 16:39Speaker 02

  There's actually Luna's staking yield, which is pretty high. It's, it's not inflation based at all. It all comes from, from, from network fees.

• 16:46David Hoffman?

  And then Jordi, with this mechanism, what are like the strengths and weaknesses in this particular mechanism that stand out to you? Or just any comment on that mechanism and its sustainability?

• 16:57Speaker 03

  The problem with, so you don't really see there's a problem until there's like a huge problem. That's, that's one big issue where there's going to be a straw that's going to break the camel's back at some point. Where, you know, you can keep backing, you keep backing, keep backing. And then there's a point where he's just like suddenly like nose dives. So it's not like, you know, you get to slowly notice that something's wrong and you get to adjust and fix it. So that's, that's one of the issues that these things certainly have. Like it looks everything's okay and then suddenly it goes bad. And the problem is if you have a lot of retail users and you have a few big whales, we could, we'll get into this later.

• 17:34Speaker 03

  But if there's a rush, yeah, like if there's a rush for the exit and you have a few very sophisticated players that own most of the coins. And they get out first, then it's kind of bad luck for the people holding.

• 17:49David Hoffman?

  Well, we're, so we're going to get into you.

• 17:52Speaker 02

  The only thing I would add to that, just on the historical metaphor that I think is important to note is, while I do think historical is important.

• 18:00Speaker 02

  The comparison and like the idea that it's all, it was all okay at a certain point with like ESD or DSD or whatever is, is just like, it's not true, right? But for anyone that was in those games, that thing traded at every price except the dollar. Like it was, it was at $10 ESD at some point or like $5 and then it was, and then obviously it went straight down. All the way to whatever it is now, like fractions of a, fractions of a cent. So I don't think there's been any really algorithmic stablecoin that has anywhere near the, the track record of success of what UST has had. Right? And like it's, it's the, the comparison in a sense is a little bit disingenuous because like Titan, ESD, DSD. They really never maintained stability for more than, for more than even a few weeks. And, and so whereas UST has maintained stability for, for, for over like a year.

• 18:46Speaker 02

  And faced some pretty, some pretty serious and testing market conditions. So I think the metaphor is while they're important and the design is similar, like the magnitude of success is just on a completely different scale. Where it's almost like incomparable.

• 18:58Ryan Sean Adams?

  I feel like we're already like diving into some of the debate topics that we definitely want to want to reach, but while we're talking still about the intro and the summary, to make sure the audience understands U S T and Luna is the last important piece. If you're coming from an Ethereum world that's different, I understand things, Jordi and Jose, that Luna does not have a fixed supply, the same way it does not have a monetary schedule in the way that Bitcoin is 21 million and Ethereum is sort of, you know, basically based on parameter controls and validating and those sort of things. Luna will actually inflate its supply in order to like stabilize or respond

• 19:38Ryan Sean Adams?

  to U S T as a stablecoin, the demand for U S T as a stablecoin. So that is one big distinction from the Ethereum ecosystem, the Luna ecosystem, the Terra ecosystem. So I see you nodding your head. Yes. So I think that's the case. Okay, so let's just high level before we get into some of these individual topics. I want to hear your high level summary from each of you on Jose, why you are bullish and then Jordi, why you are bearish. And I think you've both hinted at some of these things, but like just put it into kind of the elevator pitch for us. We'll start with you, Jose. Why are you bullish on this design?

• 20:21Speaker 02

  Yep. So I actually think Jordi and I probably are closer in views on this than than most other, than I would be with most, most other bears. But I want to do just a few disclaimers before, before doing the on the bullishness. So I'm very bullish Luna in that most of my net worth is in Luna and Luna alts, right? So that should tell you something about sort of my bullishness on Luna. However, that doesn't mean I think it's riskless. I've consistently sort of outlined what I think, what I think are the risks with it and also the mitigants to those risks. It also doesn't mean I'm a maxi, right? I'm really like as Delphi Ventures, we've invested like most of our investments and most of our NAV is held in non Luna, non Luna ecosystems.

• 21:06Speaker 02

  Stuff, we've invested in other layer ones. We're interested in other stable coins like, like Frax and FaZe specifically are a design that I'm interested in. So by no means a maxi.

• 21:17Speaker 02

  And then, okay, so in terms of the, the high level thesis for, for Luna. So maybe I'll do the high level and just go through step by step afterwards as well, if that's cool. I mean, maybe cut me off if, if not. So high level, stable coins are crypto's killer app. I think this is, this is hard to deny. Centralized stable coins are in my mind, a temporary stopgap that will be regulated away into irrelevance. The end game is necessarily decentralized stable coins, which I think is, is arguably the biggest market in crypto. I think it's a multi-trillion dollar opportunity. U S T is the largest decentralized stablecoin by market cap, and it's also growing the fastest. Like the, the, the second die is actually not growing. It's, it's declining.

• 22:01Speaker 02

  And, and so, and it's although decentralization is hard to quantify, as I said, I'll also argue that it's the most decentralized because it's the only one that doesn't rely on centralized, censorable collateral like U S D C and, and Tether. So that's sort of the, the, the high level, the high level thesis. I can go in like in on step by step into like each of those points and add a bit more color to them if you want now, or I, I can let Jordy do his elevator thesis.

• 22:27Ryan Sean Adams?

  Yeah, yeah. I think that's perfect for now. That's the perfect level of, uh, level of expression of the bull case that we need for now. Jordy, what's, what's your bear case?

• 22:36Speaker 03

  Yeah, I, I'll do like a very quick disclaimer as well. I, I don't want Luna to fail. I'm not like betting against Luna. I'm not short Luna, but I do see a lot of, you know, potential issues on the road and, you know, compared to the current euphoria around the Luna price that we've seen. I think there's a lot of things that people may need to understand and make.

• 22:57Ryan Sean Adams?

  Jordy, are you a Luna holder?

• 23:00Speaker 03

  I'm not a Luna holder. Oh, sorry. I'm, I'm, I have no Luna, um, long or short. So.

• 23:05Ryan Sean Adams?

  Got it. Thank you.

• 23:07Speaker 03

  I, I am an anchor right now. I think. It's a, we'll get into Anchor later. You know, presenting the bear case while being in Anchor are not two distinct things. I'll explain that I think Anchor is like a huge marketing spend right now that is a is a safe thing for investors potentially to to just say thank you and and and take some 20% yield while there is a lot of reserves and and we'll get into that later. But in terms of the bear case, there are huge amount of assumptions between here and the endgame that Jose talks about and I understand the endgame and I'm sympathetic to the endgame. The endgame is basically, you know, we want something decentralized as opposed to USDC,

• 23:51Speaker 03

  USDT, where the government can intervene. The problem with something over collateralized is that it is very capital inefficient and cannot grow very fast while UST, as we have been talking about, has been growing extremely rapidly. That also presents risks with it because you can get over your skis, grow too fast and and get in an imbalance situation. But the the main bear case is how far we are from here into execution are many, many steps removed than than people realize. There's a lot of things that have to go right and there's a lot of assumptions that we don't know and there's two main ones. One is, will this peg hold in the meantime through volatility? And volatility can come either through a bear market or it can come through a reduction

• 24:34Speaker 03

  in demand once, you know, the yield on Anchor, which I believe is extremely crucial to the growth of Terra right now, reduces and we're, actually, the reality is, nobody knows what the effect of that is going to be. And another assumption is, even if it doesn't de-peg, that's not the only bear case. It is entirely possible that, as we have seen with you swap, as we have seen with other successful protocols in DeFi like Ave, if something works, people will try to make a better mousetrap and you might see other L1s issue stable coins against them and add some little tweak on it on top and they can offer a higher yield.

• 25:16Speaker 03

  This is kind of what we've seen with Sushi Swap and that will be bearish for Luna price without necessarily de-pegging the coin.

• 25:27David Hoffman?

  Okay, guys, thank you for those initial statements. And I think we're going to be touching on basically every single element that was discussed by each of you. And for this first one, to really start off the detailed side of this of this show, I want to go back to Jose. Jose, you talked a lot about how these other algo-stable coins just have not performed in the same way that UST has. And UST is in a league of its own simply by performance, right? We had Empty Set Dollar come and not really work, Dynamic Set Dollar come and not really work. For what reasons do you ascribe the success of UST in the face of all the other algo-stable coins that haven't worked? Like, what are the properties, what are the features of Terra and UST that has made UST

• 26:11David Hoffman?

  hold its peg and be so successful? And what are those elements? What would you say is the rationale behind that?

• 26:19Speaker 02

  Yeah, I'd say that the main thing is just that most people treated algo-stables as a mechanism problem designed, where actually it's a utility and demand problem, right? So like, everyone sees these things as just you design a mechanism, you design a coupon system, a bonds, whatever it be, then you just alter that over time and hopefully it can maintain the peg. But actually, the main thing that backs a stablecoin is demand for it, right? That's the main backer. Tablecoin, to take this sort of build it and they will come approach, or like peg it and will come approach, right? As long as we keep the system safe and pegged, people will use this. And what we've seen is that that just hasn't really worked, right?

• 27:02Speaker 02

  And the approach that UST took, sorry, it says my connection is stable, can you hear me all right?

• 27:07David Hoffman?

  Yeah, we can kind of hear you, you're breaking up here and there. It actually might be beneficial if we actually just started from the beginning. Can you just start over?

• 27:15Speaker 02

  Yeah, sorry about that. So I think the big difference is that most, so algo-stables and stablecoins generally treat stablecoins as a mechanism design problem, where in reality, it's a demand problem, right? So you can construct the most elegant mechanism you want, but the main thing that backs a stablecoin is demand for it. And so where everyone else kind of focused on their coupon mechanism or

• 27:52Speaker 02

  Be on building an economy and around it. And so it's a lot of, for example, the maker approach, which is sort of build it and they will come or get and they'll come. Where, you know, and we've seen, we've seen, we've seen the struggles of that. Whereas U S T, the approach was let's not just build a stablecoin with a clever mechanism. Let's build an entire economy of use cases around this centered around U S T. Which, which, which allows, which creates that demand around it. And obviously the first one was mirror, which was allowed people to get exposed to synthetic assets. I mean, at a high level, I would split sort of, because U S T is money, right? And money, you want to use it for two main things, either spending or deferred spending, right? Which would, which would be like investment.

• 28:37Speaker 02

  So deferred spending is sort of all of DeFi and TFi, like all these tools. So mirror, which gives you exposure to, to, to traditional assets, synthetic assets. You have anchor, which gives you a savings rate. You have Astroport, where you can exchange it for different assets. You have, um, you know, Mars protocol is a credit protocol. You have prison where you can split your yield, all these primitives that, that make this investment ecosystem really compelling. And that's only going to, going to keep growing. And then you have the spending use case, which is how can I actually spend my U S T in the real world, right? Because I don't want to have this savings account that's separate from my, from my spending account. And, and there you have all these neo banks come, come, come online like Cato, like Cash, like Alice, that are building all over the world and sort of doing the, the work on the, on the front lines, on the regulatory front lines to make U S T spendable everywhere.

• 29:22Speaker 02

  And the, the ultimate vision is to sort of close the loop, right? Where you never have to leave this ecosystem. You have a, like a really well-developed financial system with, with TFi. And then you also have a really well-developed spending ecosystem where you can spend this stuff all over the world and, and sort of make that really seamless. And I think that vision is, is the big difference between U S T and, and all the other stablecoins. And we're seeing some, some of them understand this. So for instance, the, the Faye and Rari merger, I think is an admission of this, right? That it's difficult to have just a stablecoin. You need to build, you need to like verticalize and have your use cases on top of it. And so you've seen Faye like join up with Rari and build these use cases on top. You've seen Frax with Frax lending. And I think the most successful ones are the ones that are able to do that.

• 30:06Speaker 02

  But I don't think like with the lead that. ESD has in terms of the system and just the the the community and everything, I think it's it's it's much better positioned than than most of the others.

• 30:19David Hoffman?

  I want to throw this to Jordi in a second, but one quick follow up, Jose, on this. I I think your argument to summarize it is that the vanilla algorithmic stablecoin model, I think you are in agreement that that like without utility algo stablecoins don't work. You can't just have an algo stablecoin, just have a algo stablecoin. You need to actually imbue it with utility for it actually to be sustainable. But my question to you is, are we just adding like a utility layer around an unstable foundation? Like if we know that algo stablecoins are inherently unstable, can you really solve that by adding just a utility layer around it? Or because in my mind, I think an argument could be made about how you're just obfuscating

• 31:02David Hoffman?

  the instability and the instability will rear its head at one day. You've just obfuscated with utility between now and then. And what would you say to that?

• 31:10Speaker 02

  I would I would say that it's not that algo stables are inherently unstable. It's just that most of them focused on Ponzi incentives, right? Versus utility. And what that does is it is it it's really good at bootstrapping the supply of this algo stable, which so right with ESD and the in the expansions, you were getting like massive growth in in ESD supply. But actually, like, there's no real demand sustaining that. And the that when when the market turns, the outstanding stablecoins are actually a liability of the share token, right? The share token has to honor that and and gets minted in order to satisfy that. And so you have the situation where you've created loads of stablecoins through Ponzi demand and and yield. And when that goes, everyone wants to redeem at the same time, right? Which is why it's really important for an algo stable, you have to build demand at

• 31:55Speaker 02

  the same time as you build this this holder base, because you need it, you need it, you need it to be that when when sort of markets turn and and people aren't, you know, collecting their like 10%, you know, seniorage a day or whatever on ESD, there needs to be people that are actually using ESD. And so they're not redeeming it because they actually see utility in it and they're using it to do all this stuff. And so it's not they're inherently unstable. It's just that they got ahead of their skis because they use Ponzi incentives to grow supply loads without having the utility to actually like back that up in the contraction phase.

• 32:24Ryan Sean Adams?

  Awesome. That's a fantastic illustration. Jordi, what would you say to that? What are the thoughts that have risen to your mind?

• 32:30Speaker 03

  You know, first of all, in terms of like the Ponzi-nomics, I would say that giving an unsustainable yield like Anchor is doing is a little bit like that. I understand why it is and it's sort of

• 32:45Speaker 03

  it's a marketing spend where you say, okay, if it's $15 billion and we're paying 10% above market, we're spending a billion and a half dollars. But if we're creating so much market cap, then then it's sort of okay and it's a worthwhile investment. And there's a lot of assumptions baked into that. I think-

• 33:00Ryan Sean Adams?

  Jordi, can you take a minute just to explain what you're talking about with with Anchor? So this is some way to elicit demand for UST, as I understand it, through yield, which is maybe goes back to like, what is what is a Ponzi incentive? But you're saying it exists in Anchor. Could you explain that for the listeners?

• 33:20Speaker 03

  Yeah, I think like, let's take a quick step back and tell the listeners what is on Terra. Because it's been around a while. It's not it's not like it just got created now, even though the price has been going up recently.

• 33:33Speaker 03

  You know, there are there are some fundamental building blocks that the Terra team built into the system. One was Chai, which was a payment system. The idea was if you integrate the stable coins into real world spending, that will be a link towards long-term sustainability, because there's people actually spending it. It was a great idea. There's been a lot of issues with that. And I think the Chai experiment was fantastic. Regulation and other things in Korea, I don't think that, you know, UST is being spent for purchases. So let's call that kind of like a good idea that didn't necessarily follow through. Then we had Mirror Protocol, which was a synthetics competitor in terms of-

• 34:15Speaker 03

  Synthetic assets, stocks, bonds, creating these like financial instruments on chain to give access to people around the world. Also, not something that's been extremely successful. We at Selini Capital have been in mirror for a very long time and we like the protocol, but the reality is both on the regulatory side, as we saw with the SEC kind of complaints about it, and even on the stability side now. It was doing very well and it's been doing less well and the assets there are not necessarily very stable right now. So another very good idea that has had problems executing. So what is the

• 34:54Speaker 03

  killer app? It is Anchor. Anchor is your savings bank. Instead of getting 0.1% at Wells Fargo, you get 20%. That is something simple enough and desirable enough that it has created this huge, huge surge in UST. And it is especially a case now that we're out of DeFi summer, we're out of the initial DeFi explosion where 20% yield was nothing, right? Like you had very easy 80, 100% yields, like nobody cared about it and nobody was looking at Anchor. But since then, we've had a huge contraction in yields. As you know, the new protocols have figured out that maybe you shouldn't necessarily just give out all your tokens

• 35:37Speaker 03

  in the first week to predatory people who are just going to take them and leave. So that's reduced the risk-free yield in DeFi in general. And if you call it 10% now, the anchor is actually higher now and they haven't reduced it because they realize what's going on. Like, suddenly, like, everybody wants to come to Anchor now because it's 20, so we should not reduce it.

• 35:59Ryan Sean Adams?

  Jordy, what do you mean, what do you mean by like, they haven't reduced it? Who's in charge of reducing it and or increasing it? And also, where does the 20% yield in Anchor actually come from?

• 36:11Speaker 02

  Just, just to, um, yeah, I'm, I'm sorry, Jordy, for your answer that, actually, it's just, I think maybe it would be useful to, uh, I'm, I'm, because I'm happy to talk about Anchor, but I think it, it would be useful to have like the context of kind of the death spiral risk and the, and the, and like all of that and like that argument first because, so I don't know how I want to do it because

• 36:32Ryan Sean Adams?

  We'll get there. I think, I think, Jose, I think we'll get there for sure. What I do want to hear from Jordy, though, is like this You said something, Jose, which is that it's based on utility, like utility value is the big differentiator with USC. And I'm wondering if Jordy is getting to a point where he's saying, well, actually, Anchor is similar to some of the Ponzi game type economics that we've seen in empty set dollar. I don't know if that's the point you're making, Jordy, but I'd like to hear your, kind of your full expression of what you're saying with Anchor. So where's the 20% coming from?

• 37:06Speaker 03

  So the 20%, I can't say what those at Klaus and money, but the 20% is-

• 37:15Speaker 02

  That was a South Park joke, by the way.

• 37:20Speaker 03

  So the 20% is coming from the Luna Foundation Guard. It's coming from ultimately the powers that be that control Terra that have money to spend on marketing. A way to look at it is they're saying, you know, we've made, we have this money in the treasury. We will keep topping up as long as we feel like we're getting a worthwhile return on adoption and we will keep topping up this 20% yield above what, you know, maybe 10% is like a normal value for the yield, given, you know, some of the natural rewards rates where you're getting the yield from the assets that are being staked.

• 38:04Speaker 03

  So it's, it's a very expensive marketing spend. The problem I have with it is twofold. One is the Sybil resistance is always impossible to solve for. So, yeah, if you can actually give 20% to retail, real people, you know, Alice and Joe, and they actually have a savings account with $20,000, they want to get 20%. And you think it's worthwhile to give them this extra $500 a year because you want to bring them into the ecosystem. That makes a lot of sense. But what you end up happening is DGEN Box, for example, which is like a way to wrap MIM and UST together and kind of magnify the yield and kind of keep farming this like

• 38:48Speaker 03

  extra yield. That's kind of more the type of people that have taken advantage of the offer. So I don't think it's necessarily been super effective in terms of bringing in- Retail people, and it's so hard to do like this is the problem with crypto in general and with blockchain in general. It's like, how do you just direct the rewards that you want to direct to real human beings instead of just a huge corporation or, you know, some Degenbox thing taking all of the incentives?

• 39:18Ryan Sean Adams?

  So Jordy, back to kind of David's root question here, which is, I think Jose was saying, hey, this is different than other algo stablecoin experiments in the past. It's not empty set dollar. It's not basis cash. This is fundamentally different and so won't end up with the same fate. I mean, we have like a field of gravestones, as David said at the show, of other algo stablecoins. Do you think that USD is destined to join those? Do you think it will ultimately fall in the same ways? Or do you think this time it is different with USD?

• 39:53Speaker 03

  I think some people I talked to are completely convinced. I'm not convinced. I think it's sort of 50/50. It hangs in the balance. We have a much better team executing on Luna, like DoKwon has an amazing execution spirit to him. You have Jump, you have like some strong players that are backing that are not going to just let this thing die. I think, you know, last May, May 2021, where we had a big drop in the entire market and USD started to de-peg, there were some powerful friends that came in and saved the day and it didn't de-peg. And, you know, one year later, those guys are kind of reaping the

• 40:35Speaker 03

  rewards. So it's much stronger than like some of these prior experiments, and I'm not sure it's going to de-peg. But there are risks. There's two risks. One is, Luna price goes down because the entire market is going down. People start worrying that there is not enough collateral in Luna to absorb all the USD. So if the entire market goes down 50, 60% in a bear market, including Bitcoin, which is kind of the collateral that is now being accumulated, which we'll get it, we haven't touched upon. But, you know, God forbid, the entire crypto market goes into like a really bad bear market. There's going to be a loss of trust in U S T because people are worried that there is not enough collateral to back it in terms of actual dollars.

• 41:18Speaker 03

  The collateralization percentage goes down and there's a rush for the doors. That's the one risk and then the second risk comes from the other side. It comes from the dollar side where if the 20% on Anchor gets reduced to 10% and then people no longer care about it. Then you will see a, like we talked about before, they will burn U S T. That will mint more Luna, it will create inflation in Luna. And that's kind of a potential risk that starts to create the basis of a death spiral where, you know, if Luna market cap is 30 billion and somebody burns 5 billion of U S T. It's not just that Luna is gonna go down by 5 billion to 25 billion. There is a multiplier effect.

• 42:04Speaker 03

  So it'll be like times three to times eight or kind of like the estimates historically on, on like, you know, the fact of market cap. Like, like we've seen now in Bitcoin, Bitcoin has gone up 10% based on, you know, a few billion of buying. It's not proportional to the market cap. So that's kind of like the hammer that falls down and 5 billion of Luna sales just wipes out the entire thing.

• 42:25David Hoffman?

  Right, Jose, I'm about, I'm about to throw this to you, but just I think to recap that is, Jordi, I think what you're saying is that if you compare the outstanding supply of U S T to the market cap of Luna, you're saying that there's no way that the Luna has enough like ammo, right? That doesn't have enough capital to, to fully prevent a, a death spiral. Jose, you were about to kind of illustrate, I think, the, the case for a, a death, a death spiral. And can you also just illustrate how Anchor you think fill, fits into that role? Does the utility that Anchor providing to U S T, is that helping U S T maintain its peg? Or, or do you also see a risk with, with Anchor? And can you just illustrate some of your thoughts here on this?

• 43:08Speaker 02

  Yeah, so the first thing is like Anchor, the 20% rate right now is unsustainable, right? The yield reserve is depleting. But simulations that have been done, and we can link to a few in the show notes, show that a sustainable rate would be anywhere from 7% to 12%, right? Which is still much higher than anything else available in DeFi. So the question is, like, how much do you need to pay for people to accept the perceived peg risk of UST? Right? And the number that the ecosystem landed on to start with was this 20%, which is a really strong meme. It's, and it's like, the number where people are like, even Jordi, right? Who's a bear, is sort of, the yield is high enough to compensate for him having some UST in there.

• 43:53Speaker 02

  So the question is, at what point? And now, a proposal is passed to make the rate more dynamic. So it's gonna, it's gonna adjust every month, and so the yield's gonna lower. And so the question is, like, what is the rate at which this, people start saying, you know, this isn't, this isn't worth the risk anymore? And for me, that would be like below 10%. That's my sort of estimate there. Because I think Anchor's still gonna be the highest rate in DeFi for the foreseeable future. And I think with its model, probably forever, in terms of the combination of stability and high yield, I think Anchor will continue to be that. And then the other thing to say is, it's unsustainable. Just like PayPal giving away 20 bucks to everyone that used PayPal initially was unsustainable, right? It's like Jordi said, it's marketing spend.

• 44:37Speaker 02

  And I totally disagree with the idea that it's been not that successful, that the goal was to attract retail. In my mind, it's been massively successful. Because it's grown UST supply to 16 billion, it's increased UST liquidity. And I don't, I don't necessarily buy this thing that we need to attract retail, or like, this is a sort of a separate argument. I think like...

• 44:59Speaker 02

  Jordy is the user. Now Jordy is using U S T and so are a bunch of other big funds in this space. They have exposure to U S T and you have this magic thing that happens where when the capital went into Anchor, that's when people saw U S T as most risky because it was completely uncollateralized and so they needed that 20%. But now there's a Bitcoin reserve, right? And what if by the time, and though can fund this yield reserve for a long time. And so what if by the time the yield reserve is, the yield comes down, the U S T is like 80% backed by reserves, right? Then suddenly you have this magic trick where people came in because they wanted the high yield, the really high yield, and they needed that high yield to compensate them for the risk. But now there's a magic trick that happens and you're like, well, I kind of trust this thing now. You know, it's been around for a while. The four pool is the most liquid pool in DeFi. This thing has all the trading pairs. There's exchanges on layer

• 45:44Speaker 02

  two like Zigzag that are using this. Actually, I want to, I want to keep my U S T. And so it's achieved exactly what it set out to do, right? And for me, it's the most no-brainer marketing spend ever. Like if you can spend 500 million to top up a reserve and get 16, you know, or like 10 billion in additional U S T and get everyone using it and talking about it, and then you can collateralize it in the meanwhile and increase the trust in it. I just think it's like, just a genius move in my mind. And so that, those are sort of my thoughts on the, on the Anchor sustainability piece.

• 46:15David Hoffman?

  On the, you indicated something like a 10% real rate, real yield coming from people that are actually paying into, into Anchor and then it goes up to 20% when you add in like the, the rewards, right? It's basically like a yield farming incentive program.

• 46:31Speaker 02

  Not, not exactly like that, but yeah, it's just that, basically the, the rate that could be sustained because the, the Anchor rate is sort of a liability for the Anchor platform, right? Because they have to generate enough borrowing in order to be able to pay that rate to depositors because the depositors, right? So, and so the simulations that have been done is given current borrowing activity, how much, how much yield could actually Anchor actually pay out? And so Anchor is maintaining the 20% rate, not through any, it's not like a yield farm. It's just, it's just literally, you know, L F G sending, sending some money to the yield reserve, which, which allows it to keep depleting and paying out that, that liability of the platform.

• 47:07David Hoffman?

  Right. But, and you said that if, if the fund stopped paying, stopped incentivizing the yields, it would come down to something like 7 to 12%, I, I think you said?

• 47:17Speaker 02

  Yeah.

• 47:17David Hoffman?

  That is so high above the, the rest of the industry. I think like U S E C is 2 to 3%. Where does so much demand to borrow out of Anchor come from?

• 47:28Speaker 02

  Yeah, I mean, it is the best place to borrow most proof of stake layer one assets, right? The model is that you you give up your your proof of stake yield on on your layer one asset and in exchange you you borrow very cheaply and you have the anchor incentives on top. So there is some like this model is like like any model of of stuff like this has its flaws. For instance, it obviously has to assume an anchor price and the incentives that are being paid out to borrowers and stuff like that. And there's some reflexivity all the way through. But yeah, that's that's how it does it.

• 48:02Ryan Sean Adams?

  I think we're going to talk about maybe the probability of deep egg risk in just a minute, because I think, Jose, you sort of underweight that a little bit. You think it's overstated, maybe. And I'm guessing, Jordy, you probably believe the opposite. But I do want to just zone in on this question, because you brought it up, Jose, is the fact that LFG, which is a fund associated with with Luna in kind of that ecosystem and helping to like prop up the the value of that economy and specifically U S T. There's been recently in crypto news,

• 48:37Ryan Sean Adams?

  Doquan purchasing, you know, up to $10 billion worth of Luna. And just before this call, I saw LFG fund purchase, which is kind of an acting org for for Doquan and the Terra ecosystem, purchasing about 200 million or something Bitcoin, like they're doing this. This is one thing I don't understand personally, which is, is the fact that they're having to buy a foreign asset. This is kind of to me like a bank reserve or a central bank reserve, maybe going and buying a foreign asset, an off chain asset to Luna. The fact that they're buying Bitcoin, is that not an admission that the model isn't sustainable and doesn't work? Tell me about that, Jose. How would you respond?

• 49:23Speaker 02

  Yeah, I just don't, I don't really get that argument like, for instance, like Ethereum is, is where, is the fact that Ethereum is moving to ETH 2.0 proof of stake sharding, an admission that Ethereum as it currently stands doesn't work? No, Ethereum as it currently stands works, it's just ETH 2.0 is way better, right? It's a better design. And so like Luna, as it existed for its history as a pure algorithmic stable, worked. There's, it's hard to deny that it worked. It survived contractions, it grew like exponentially, it created a lot of use cases around it. But as it gets into this next stage of adoption and trust, that Bitcoin reserve backing is super important in order to bootstrap that trust and increase that trust and allow it to scale further.

• 50:08Ryan Sean Adams?

  Jordy, do you want to comment on this before we move to systemic risks and the de-peg risks specifically?

• 50:15Speaker 03

  I think it was universally agreed even by the bears that using Bitcoin as collateral and not only Luna is the right decision. It was a very smart move. It makes, even if you say it's really highly correlated to Luna, it's not going to be one to one correlated. So it is adding potentially some diversification and stability to the system versus having just Luna.

• 50:44Speaker 03

  It just adds Bitcoin risk and people will always be looking at, you know, what the Bitcoin, like if Bitcoin goes down, they'll be saying, well, you know, Luna took a $1 billion loss today because they have 8 billion in Bitcoin and it went down 10%. And that could create some FUD that you're kind of opening up to. But I think that move in itself was not a bad move.

• 51:08Ryan Sean Adams?

  And Jordy, that Bitcoin itself, that's custody, is it not? Like, where does that Bitcoin live?

• 51:13Speaker 03

  So this is like when I talked at the very beginning that we are so far from like the vision, which I like the vision, but we are so far from the vision. There are so many things to figure out, even for these like super smart people that are trying to figure it out, that are extremely complex. Like you have Bitcoin, Bitcoins on the Bitcoin network. You want to have Bitcoin on the Luna network so that it automatically in a decentralized fashion will be able to be redeemed at 98% of a UST. And we can explain why it's 98% and not one to one. But you know, there's, we've seen all the hacks with bridges. We're gonna see what solution ends up being found and if it's ren BTC or what, what version of wrapped Bitcoin they end up using.

• 51:56Speaker 03

  But this is an execution risk that in my mind is far from being solved and is not without risks.

• 52:02Ryan Sean Adams?

  We've always like on bankless.

• 52:04Speaker 02

  I would agree with that.

• 52:05Ryan Sean Adams?

  Yeah. I'm curious your thoughts. It's like always on bankless. We've, we've always been, I mean, the show is called Bankless, right? But we've, we've always been in the mindset that the moment the asset starts to have trust assumptions and get custodied is the moment you start to turn into a bank. And I'm wondering, maybe, maybe Jose, like your take on this is what Terra is creating with UST. Now it's bringing in foreign asset reserves, basically. How's this different than a bank?

• 52:33Speaker 02

  Yeah, so I'm, by the way, I'm a, I'm a director of LFG. So one of, one of, one of seven directors of LFG, this is a kind of disclosure. And yeah, I agree, it's, it's an unsolved problem to Jordi's point. How to, how to bring Bitcoin to Terra in the most trustless way possible. There are solutions out there. There's Axilar, I think is, is an interesting solution. It's pretty trustless. There's obviously Thor Chain, but none of them are ready for multiple billion dollars of Bitcoin. And so at this stage, the Bitcoin is custodied by, by the foundation itself, which is, which is not ideal. And then in terms of whether bringing in an asset like adds.

• 53:14Speaker 02

  Makes it a bank? No, I don't, I don't think so because like the, the, there's already an asset there. There's Luna, right? Um, and, and that asset is, is, is like the native asset of the network. The only thing that it adds is, is, is trust assumptions for sure in terms of bringing Bitcoin over to the network. Uh, but I don't think, uh, trust assumptions make it a bank, right? A bank is, is literally, uh, the bank controls it. It's a centralized legal entity, uh, that, that controls these assets that, that this like what depending what solution is chosen is going to be much more of a decentralized process. And obviously with its own, with its own set of additional trust assumptions, that, that's, that, that much is like inevitable, I'd say.

• 53:51David Hoffman?

  I want to, I want to ask this a similar question, just from the, the perspective of the protocol though. Ryan said that, um, when you use Bitcoin to, uh, help backstop U S T, you're kind of, uh, admitting that you need external help to make the protocol sustainable. And I think this really goes into one of the design philosophy differences between Ethereum and Terra, where Terra seems to, uh, be totally okay with like tapping into the power and the market cap of Bitcoin to help bolster its ecosystem. But, uh, in my mind, that is one protocol, the Terra, the Luna protocol, saying that, uh, we need security from external, we need external help for security for the protocol. As in the protocol can't sustain itself, we need to tap into the power of Bitcoin in order

• 54:36David Hoffman?

  to make this thing long-term sustainable. And I don't think in my mind, you don't really, as a layer one protocol, it's, uh, it's a risk. It's a risk to tap into something that you don't have control over in order to help maintain the functioning of your ecosystem. Like Bitcoin can do things that are outside of the control of Terra because it's outside of the protocol. Jose, uh, do you see these concerns?

• 55:01Speaker 02

  Um, not really because like maker, you know, DAI is backed by Bitcoin and actually a very weak form of Bitcoin, right? With, with, with very weak trust assumptions, which is WBTC, which is basically a BitGo multi-sig. Uh, it's also backed by USDC, right? Which is, which is literally like centralized stablecoins or, or an IOU for dollars in a bank account, right? Like if, if the US government calls Call circle and and and obviously it's not I'm not saying it's gonna be a phone call, but like there there's processes in which those funds could be frozen. USDC has blacklisted addresses before like it's it's very vulnerable and I I would argue a much bigger vulnerability than than than the Bitcoin one. And I I still don't agree with this admission article, uh, argument, sorry, because it

• 55:46Speaker 02

  it it's not an admission, it's it's sort of a a growth of the model. And I I don't think Bitcoin's gonna be the only asset that backs uh, U S T either in the future. I think there's gonna be additional layer one assets as they prove themselves that that the community might think would make for good reserve assets. So, yeah, I I don't see it as an admission. I see it as an evolution of the model in the same way that Ethereum 2.0 isn't an admission that Ethereum doesn't work because clearly Ethereum works. It's the most successful network in crypto. Um, it's just that it it this is a better model.

• 56:14David Hoffman?

  Does it, does this require, uh, is it in for this to really work? Does this kind of require, um, like a trustless bridge ecosystem to be sufficiently built out? Like, we don't really want the long term just, uh, um, Luna system to really just be dependent on like trust, right? Well, like, we want to have these things baked into smart contracts using trustless bridges. Is that kind of the model for how we would get all these layer one assets also backing U S T?

• 56:40Speaker 02

  Yes, uh, yeah, we need, we need good trustless bridges, but there there are other design opportunities, right? Like, you you could create synthetic assets, um, so sort of at the layer one level with with with an oracle at the layer one level. There there's a design space here, which has different trust assumptions and and different trade offs. But I I don't think that that's the only possible so solution.

• 57:01Ryan Sean Adams?

  Okay. Jordy, uh, let's move on to like, um, the de-peg risk here because that's, um, that's something we've seen with other Elgo stablecoins, you know, Death Spiral, de-pegging and, um, eventual kind of like, uh, tombstone at the end of it. What are the risks of a de-peg event in the U S T Terra ecosystem?

• 57:24Speaker 03

  Yeah, Ryan, I think it's the two that I touched upon. So one is there is a reduction in UST demand. And you know, I think even Jose said how important that that demand is. And the the role that the Luna team has is to sustain that demand. Because if the demand goes down, that really kind of creates a problem.

• 57:47Speaker 03

  So a reduction in demand because of Anchor having to reduce its yields. And then people finding higher yields somewhere else. Like I said, it's entirely possible that another Layer One designs the same mechanism and gives a slightly higher yield. And that can create a relative. I mean, I agree with Jose, like it can't just be like a totally like new Layer One that exists out of thin air because people won't trust it. And we've seen something similar recently with Waves, which is not new, but is is kind of had some issues with a similar model. But an existing Layer One can try to start seeing how successful this design is, can just start doing it themselves and increase yield a little bit.

• 58:32Speaker 03

  So there's a lot of ways that the demand for UST can go down. Now, what they're trying to do in the meantime, I don't think it's exactly marketing spend. I think what what in effect they're doing is buying time. They are buying time on the Luna side to say, we will do this for a year. And in that year, we will go like all out and integrate as many places as we can in the DeFi ecosystem. We will get on Curve, we will get on the pools. We will try to have UST perpetuals trading instead of USDT tether perpetuals for trading venues. We will put UST everywhere to the point where we try to like it's sort of a bet

• 59:12Speaker 03

  that you can create enough use cases where people will just like, like, you know, we've been living with tether risk for years, right? Because we need, we need it, we need it to exist. Trading venues need it, Binance needs it. And it's been, it's kind of been supported by the whole community. And in a way, I think the plan is make it similar to that, make it similar to tether. And not in the centralized sense, but in the sense of the community accepts that. Yeah, maybe it's not, we don't know if it's 100% back, but we're just gonna go with it. And it's a gamble and you know, I'm not saying it's a bad gamble. It's a gamble. I don't know if any of you guys have Korean friends.

• 59:57Speaker 03

  I have Korean friends and they love to gamble and they're, you know, it's, it's fine. But that's, we should, we should say what's going on.

• 1:00:04Ryan Sean Adams?

  It's funny, one, one person's fake it till you make it is another person's like, let's just bootstrapping. And so I'm curious, Jose, what your response would be to the de pegging and I guess death spiral risk in U S T. Do you think it's overrated or underrated?

• 1:00:22Speaker 02

  Well, the first thing I'd say is it's important to concede that there is a risk, right? And people need to be aware of that risk when they both use U S T and when they use Luna. Because there is that risk. It's a design where that's happened in the past and obviously that's, that's there. But, but what I would say is that like, first of all, even, even before the Bitcoin reserves. Actually, maybe if we go from, from a little bit higher level. When you have a design like DAI, well, even higher level, actually. So all these things have risks, right? DAI, as, as safe as the over collateralized design is, nearly blew up on, on, in, you know, Black, Black Friday or whatever, Black Thursday, whatever it was because of congestion on the, at the chain level.

• 1:01:06Speaker 02

  Like all these things have risks, even things that you don't think have risks and have smart contract bugs and things. And so, and, and then also decentralized stables that use centralized collateral have a complete other set of risks, right? Which is that actually the collateral they're using could be censored. And if, and if, if we go PvP with governments, which is the real PvP, rather than the PvP against each other. That, that, that's like a very real risk. So there's, there's like a spectrum of risks and it's not, it's not that U S T is the only risky stablecoin. It's that stablecoins have different sets of risks and trade offs that they make. Right? And so the trade off for me between DAI and U S T, which are the only, like the two biggest decentralized stablecoins is that DAI prioritizes safety and like protection from tail, from tail risk over growth.

• 1:01:52Speaker 02

  And U S T prioritizes growth and capital efficiency over downside risk, right? And so what we've seen with with DAI is um it it's really hard to grow it. Because demand for for for DAI actually doesn't grow the supply of DAI. It's it's the demand for leverage that does. And so maker ends up competing with other lending platforms for this, which is why they've had to add centralized collateral like like like U S D C. Right? Um, and so that that's that's a problem in in in itself, right? And then U U S T, obviously, as we've seen, can grow much quicker. But the trade off is this this downside risk that we're that we're talking about this tail risk that can happen with the with the reflexivity that spiral. And just like Jordy explained it really well, but there's kind of two scenarios, right? With with a death spiral.

• 1:02:36Speaker 02

  One is like Luna bear market or like or like um crypto bear market. Luna crashes, people are like, oh shit, I don't know if Luna can can I swear on this? And it's not just for maybe you can bleep it out later. Uh, uh, uh, the, yeah. Luna crashes, everyone's like, I don't know if if Luna can can can like uh honor all its liabilities in U S T. They start redeeming their U S T. More Luna gets minted, the price crashes further, more people want to redeem U S T, et cetera. And then the second one is it starts with U S T instead, right? There's a a large contraction of demand for for U S T, which means a lot of Luna, price goes down. Um, and then and then the death spiral can starts that that way.

• 1:03:14Speaker 02

  Um, and so the first thing I I would say is that like Luna is backed by by an every stablecoin, but Luna specifically is backed by by three things, right? The first and most important one is is the man for itself. Uh, non speculative demand is is really the holy grail of of of backing for for a stablecoin. And that's what backed Luna for most of its history. Um, uh, other than in certain contractions where Luna had to come in. So and so the second thing that backs Luna is is Luna itself, right? In that it absorbs um shifts in demand for U S T. When when when demand goes down, Luna gets minted to absorb that. And now we have this this this third layer as well, which is this Bitcoin reserve, which effectively acts as an escape hatch and breaks that reflexivity spiral, right?

• 1:03:57Speaker 02

  Because now, when people want to redeem U S T and there's there's a there's a large contraction, sharp contraction. And demand, instead of having to mint Luna, they have this ability to, this escape hatch, this escape valve, which is Bitcoin, where they can, they can redeem it for Bitcoin, right, which reduces the pressure on Luna and breaks that like, reflexive death spiral, which is, which is really the problem. Now, uh, uh, so, so that's all, that's all clear. Um, the, the valid question to ask about this is, um, whether three billion is enough, right? Like, gi- given that U S T is now at sixteen billion, is three billion actually enough reserves to, to, to, um, to, to protect it? And I think the, the honest answer is that no one knows.

• 1:04:38Speaker 02

  It's, it's, it's, it's impossible to, to model these things, like, re- reflexivity is really hard to model, right? All the, all these things, you have variables that, that aren't independent, they all actually like are recursive and, and depend on each other, so it's, it's really hard to model. Um, what I would say is, the system survived up till now with, with no reserves. And so I think the psychological impact of this is going to be huge. And then I would also say that, um, what the L F G raise really shows is that people understand, uh, like investors understand the, the upside of, of, of U S T, which is the other side of the trade off, right? Which you can, which is that you can grow faster. Stablecoins are a network effects business. Um, there's going to be one or a few big winners on this, there's, there's a bunch of network effects, liquidity, um, Lindy.

• 1:05:20Speaker 02

  And so it's, it's really difficult to, to, um, to unseat a, a stablecoin. And what we've seen is that when you start with collateralization, you don't necessarily get demand. But when you start with demand, you can get collateralization, that's what the L F G raise proves, right? And what we're seeing right now, I have good reason to believe, uh, there's enough demand on secondary markets to bring Luna above, sort of fifty to seventy-five percent in Bitcoin reserves just right now, right? Through, through, through transactions on the secondary market. And so my, my view is that basically, three billion, um, I don't know if it's enough, but if it isn't, uh, I think Luna can, can collateralize itself over time, both through these, these secondary sales, and collateralize is the wrong word, um, reserves is really the right word.

• 1:06:02Speaker 02

  But i- it can grow those reserves over time, both on the secondary market and through these, through these, um, through, through seniorage, so changing the mechanism so that instead of all the Luna being burnt, part of it's actually used to acquire Bitcoin over time so that the reserves can grow organically over time. That's my view on it, yeah.

• 1:06:20Ryan Sean Adams?

  I have uh, one quick question, then we're gonna have to pause for a break. And I, look, guys, uh, if you're okay with it, we, we want to go overtime, because this has been such an insightful, like, conversation. We still have a few more topics to cover, is that cool?

• 1:06:32Speaker 02

  Absolutely.

• 1:06:32Ryan Sean Adams?

  More time after the break. Okay. Just one quick follow up on this, Jose. I mean, you mentioned Lindy effect, right? And you also mentioned Neil Maker being tested in 2020. Part of me wonders about this. Has UST actually been tested? Because the real test of, I think, any stablecoin design, algorithmic or otherwise, is how does it sustain? Not during the good times, but during like the bad times. As Jordi was saying earlier, the tail risk events. And when Maker had that like ETH price drop with exorbitant gas fees and everything in the COVID drop of Black Thursday

• 1:07:14Ryan Sean Adams?

  in March of 2020, that was a huge testing event for Maker. And like, people didn't know how it would fare because it never had felt something like that before. But it made it out, sustained it on the other side. I'm curious whether Luna has actually been tested in your mind. Like, it's one thing for an algo-stablecoin to work during the bull run, and Luna has had an absolutely massive secular bull run for the last year or more. That's one thing, but that's easy mode. That's not what a stablecoin is meant to be built for. It's meant to be built when there's earthquakes and tornadoes and hurricanes and the entire world is shaking, you know, around you. Has it been tested in that way? And do you think that is an important piece in terms of

• 1:07:59Ryan Sean Adams?

  building the credibility of this system?

• 1:08:02Speaker 02

  100%. I think so our equivalent, or the Terra community's equivalent of the Maker Black Thursday was May 2021. So, May 2021 last year, where Luna dropped from, there was a contraction in UST supply at the same time as there was sort of some coordinated FUD around Luna. Not to say coordinated in the sense of like, that there was anything malicious, just that there was, it all happened at the same time, right? It was very adverse market conditions. Luna dropped from $20 plus to $3 in that time. There was a contraction in UST supply. But then, you know, buyers came in for Luna and the system, the system survived, right? And there was a lot of lessons learned from that, both in terms of on the mechanism side, increasing on-chain liquidity,

• 1:08:45Speaker 02

  changing some of the parameters for fermenting and burning, and also other lessons that have been, that have been learned there. Now, The U S T was much smaller when that happened. So I I do think there will be there will be other tests. Um. I don't think like the U S T or or Luna Journey is going to be up only. So I I think I think there are going to be other tests for it. But certainly, it's been it's been battle tested. Like, think about how, uh, you know, think about using, uh, oh, yeah. The other thing that was really actually promising during the May, that May, um, drop was that, um, while Luna was dropping and like, uh, and and and sort of the the death spiral was underway effectively.

• 1:09:23Speaker 02

  You actually saw, uh, deposits on Anchor increase, which means that there there were some people that were actually selling Luna for U S T fleeing to safety, right? And so the what that shows, and it's like a really positive thing, I think psychologically, is that some people already see U S T as their safe haven. You know, when when shit hits the fan on chain, they're actually fleeing to U S T and going into Anchor and saying, I need a break, you know, I'm I'm I'm gonna, I need to go into stables. And so like, imagine anyone doing that with like E S D or or D S D, right? Like, no one is fleeing to the safety of E S D or D S D.

• 1:09:54Speaker 03

  I don't know. I don't know if I, I don't know. I mean, just interrupt. Like, I don't know if you can say that, like, it's, that's proof that, like, smart people are, like, you know, the smart money is doing it. It's within the Terra ecosystem, within people who are lunatics. It makes sense. You know, they're like, should I have the variable one or the stable one? And I I'm gonna stay within the ecosystem. I'm not gonna bridge out. I'm not gonna like, find a way out. I'm just gonna move between the two. I'm not, I'm not, I mean, I agree with a lot of what you said, but I'm not sure that that necessarily proves, um, something that, like, you know, smart people are are doing that. Um.

• 1:10:27Speaker 02

  No comment on the on the smart people thing, but but it does prove Lindy, right? It it proves that for some people, it's it's it's a stable coin. It's it's safety. It proves that there's like a psychological sort of belief in it that that that some people have. And and it's hard to, hard to deny whether you would do it or and whether you think it was it was smart for them to do it.

• 1:10:44Speaker 03

  Fair enough. Fair enough. I I'm trying to say every community, like a Cardano, you know, if Cardano community, well, there was a market crash. They they would do the same, every community that. That is a community, that is a layer one, there will be people within that community, within that layer one that that seek to do that.

• 1:11:02Speaker 02

  Ah, but I'd say it's, I'd say it's slightly different. I agree, but I'd say it's slightly different because that one thing is buying Cardano when it drops and you're like, Cardano to the, I'm happy the price dropped, you know, I get to buy more, whatever the the cope stuff that people people say at those points. Another thing is is buying the actual stablecoin, right? Because that that shows that you you trust the system. It's not even that you want, it doesn't, you're not buying it for profit or you're buying the dip. You're actually just like using the system as it's meant to be designed. So like, I think it's it's slightly like different point. I agree with your.

• 1:11:31Speaker 03

  It's like different. Um, and I do want to ask you, um, would would you not say that in terms of lindiness? The upcoming, like you said, the yield reduction in in Anchor is going to be a whole new, different type of test that we we don't know yet what's going to happen with that.

• 1:11:48Speaker 02

  Yeah, I would, I would, I would say so. Um, I'm pretty positive on that. I don't, I don't think it'll matter that much for the reasons I said before, but I agree, it's it's going to be a big, big test. And the test space now will be much bigger than than the ones faced, uh, previously for sure.

• 1:12:01David Hoffman?

  Awesome, guys. That, uh, thank you for for going on that back and forth. That was immensely interesting. There are a couple of subjects which we haven't touched on yet, which we definitely need to before we wrap up this show. The pool four is definitely clamoring, uh, being talked about, uh, throughout the ecosystem, both on the maker side and on the on the Terra side. Uh, it seems to be that the word maker just creates a bunch of, uh, just very strong emotions, according to the YouTube chat that I've been watching. Uh, they do not like that word. Uh, so we're going to have to talk about the four pool. Uh, there's also, we want to talk about Do Kwan himself. Uh, the level of key man risk that is associated with, uh, U S T and and Do Kwan.

• 1:12:41David Hoffman?

  Uh, the guy has, uh, a ton of confidence lately, uh, and I want to get your guys' perceptions as to the level of risk. And there's also the conversation of just simply being too big to fail. Uh, and is this an actual intent, uh, intentful strategy by the Terra ecosystem just to become so large that, uh, it it becomes too big to fail? And what does that even mean? So these are the the remaining topics that we want to get your guys' opinions on. And we'll get there right after we talk about some of these fantastic sponsors that make the show possible. If you're trying to grow and preserve your crypto wealth, optimizing your taxes is just as lucrative as trying to find the next hidden gem. Alto IRA can help you invest in crypto in tax-advantaged ways to help you preserve your hard-earned money.

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• 1:15:45Ryan Sean Adams?

  Hey, guys. We are back with Jose and Jordi. This is the best debate I've ever heard on this topic. You know, just fantastic. So we appreciate these two for going overtime with us, but we just wanted to make sure we covered all of the topics to best inform you. Here's another topic. Some, I think the bears of the critics of Luna and UST would say that there's a lot of key man risk. Some might even say like, is this like banker type risk? Do Quan is appearing more and more as kind of an Elon Musk type of figure, I would say, in the community. And take that for the kind of the good and the bad side of things. But definitely, somebody who makes statements like, by mine own hands, die will die, when like talking about the competition

• 1:16:30Ryan Sean Adams?

  between Maker and the DAO ecosystem and UST. Some have talked about how maybe Do Quan is flying a bit close to the sun with some of these statements and maybe some of the regulatory risk that's going on as well. Of course, the SEC is in play. But like, when you have a centralized, you would say decentralized, I think, Jose, but when you have a stablecoin of this type, you might attract some unwanted attention from regulators as well. And all of this kind of comes down to Do Quan and sort of a smaller operating team would be the criticism. I'm curious, first of all, maybe the bear case for all of this. From your perspective, Jordi,

• 1:17:14Ryan Sean Adams?

  do you think that there's some key man risk that the UST Terra ecosystem is dealing with? You think there are some centralization vectors? How would you talk about this piece of it?

• 1:17:26Speaker 03

  Yeah, I'm glad you said centralization vectors, because I think that's the bigger issue. In terms of Do Quan, I think. He's phenomenally intelligent. He's been making very good decisions and he's the reason why this has gone as far as it's gone compared to like, you know, the things that are not even gotten out of the gate. Obviously, there's key man risk. If he gets hit by a bus here in Singapore tomorrow, well, everyone's gonna sell. Like, that's a problem. I don't have a huge problem with that because we are early stages and he's building something that eventually is supposed to kind of run itself. I don't think it's a question that right now there is a key man risk. I don't want to personally focus on that because anything like, you could say that about Elon and Tesla, like, does that mean like Tesla should not exist because, you know, Elon, there's key

• 1:18:09Speaker 03

  man risk. I don't think it's a big deal in itself. I do want to touch on the second point about centralization. I don't know if Jose wants to answer about Doquan first, though. He's obviously worked with him when I haven't. Maybe he can answer about that.

• 1:18:25Speaker 02

  No, go ahead. I probably agree with your take on it pretty closely. So yeah, go ahead on the centralization point and then I can answer. I can answer both.

• 1:18:33Speaker 03

  Yeah, I mean, the bigger issue I have is, we're talking about decentralization, this decentralized stablecoin. I don't know that there is enough diversity in the ecosystem and the people who are building and supporting the ecosystem yet. And I'm not talking about Do. I'm talking more kind of like the Jump, Jump Capital, Jump Crypto, whatever they call themselves now. They are such a huge backer and supporter that I think overshadows, obviously Delphi as well, but I'm sure you're behind the scenes, you kind of know what I'm talking about. It's a bit less organic than some

• 1:19:15Speaker 03

  of the other layer ones, and that's gonna take a while to change. And I don't know exactly how we get from point A to point B, where it is a community, fully decentralized, kind of run thing as opposed to, you know, you have one brilliant founder and like a very powerful kind of company that's really, how do you get from point A to point B?

• 1:19:42Speaker 02

  Yep. Do you want me to comment on that now?

• 1:19:45Ryan Sean Adams?

  Yeah, go ahead, respond, Jose.

• 1:19:48Speaker 02

  Cool. Yeah, so the first thing to say is I obviously really believe in decentralization. Like, I wouldn't be in this space if I didn't think that was super important. However, I do think, I believe in like progressive decentralization, right? And I do think projects need to decentralize over time and in the right way. And I think the way, like, especially for a stablecoin, because a stablecoin requires a lot of like, like, get shit done energy, you know, you need to, you need to push integrations, you need to build products around it, you need to do all the stuff that, that kind of DoKwon has been, has been so good at doing. And I think what we see with, like, when you decentralize too early is sort of what you're seeing in my mind, by the way,

• 1:20:32Speaker 02

  this is just my opinion, on the Maker Governance forums. And I'm a huge fan of Maker, it was my first altcoin that I bought after Ethereum. I learned loads on those Maker forums back in the day, so like, big, big fan of Maker. But to me, to see their governance at work now is, is, is a huge disappointment, right? It's a, it's a massive bureaucratic mess. There's committees for everything, people aren't well-paid, like, community is weighing in and commenting on things. They're very focused on risk assessment versus growth. You know, Rune, the founder of Maker, kind of admitted he doesn't understand the curve wars, which, which are sort of like the lifeblood of liquidity for, for, for stablecoins in a decentralized world. They seem to have that, like, sort of an arrogant attitude towards DeFi generally, that it's all PonZs and the only thing that matters is these real-world assets and, and green bonds and all this.

• 1:21:16Speaker 02

  So, like, I do think that, that decentralizing too early is, is a problem. And for me, the, the, the right way to decentralize is actually to do what, what Terra is doing and onboard, like, these big organizations with skin in the game that act as like a separate participant and stakeholder in the ecosystem, right? And there's a bunch of those now. Obviously, Jump, as Jordi pointed out, is, is a big one. I would say Delphi Labs, so the, the, the part of Delphi that I head up is another big one, sort of contributing to projects in the Terra ecosystem. In, in the recent round, we had some really good additions with, with Three Arrows and others. There, there's someone behind the scenes that are, that are, that are doing a lot of work in the Terra ecosystem. And I do think that's the right way to decentralize, right? With these big organizations that are, that are focused, that have skin in the game.

• 1:21:59Speaker 02

  And then, and the other thing to remember is like, We're literally descent like decentralizing now would be so early because U S T market cap is 16 billion. And this is a multi trillion dollar market, right? And the, the, the, the time to, to like, it's much easier to grow fast when you're more, more centralized than it is decentralized. And so for me, the plan should be to progressively decentralize over time, grow supply loads. And then, uh, once, once, once you have that Lindy effect and once you, once you've grown, uh, decentralize and, and, and focus on robustness. And obviously there's a balance, but that, that's sort of my, my take. And I, I do think decentralization in crypto, uh, unfortunately often gets used as, as sort of, um, a way for, for, for founders that have made it to kind of like semi-retire, right?

• 1:22:43Speaker 02

  And, and, and, and become contributors and like pass it off to the community when really the project isn't ready for that. And it needs the founder, it needs that founder energy, um, to, to kind of push things forward. Not, not that they should be a centralized point of control and dough isn't right? The system would work without him, but they need that energy of contribution and that inspiration, uh, inspirational leadership to, to push it forward. Um, and then in terms of key man risk, clearly there's key man risk around dough. Uh, he, he's a machine like, uh, I worked with a lot of founders in the space. I'd say dough is, is, is the best one, maybe along with like Stanny. Um, he's, he's like a really good mix of sort of a, a great engineer and like a very, very sharp engineering brain with hustle vision. And then he's obviously like made it several times over, but it's still incredibly motivated, works harder than me. You know, it takes, takes less holidays than I do.

• 1:23:28Speaker 02

  Um, so it's clearly key man risk around that, um, hard, hard to avoid in an, in an early stage project.

• 1:23:35Ryan Sean Adams?

  Jose, with, uh, the, the spectrum of, uh, centralization and decentralization, uh, I'm wondering if you agree with this take, right? So like you've, you've got like a Bitcoin and Ethereum, which are maybe on the, the, the far left side of the decentralization spectrum, like veering towards most decentralized, right? And then you have like the traditional TradFi system that's called that, call that kind of the right side of the spectrum, right? And then you have like crypto banks, you have the, uh, F T Xs of the world and you have the coin bases of the world that, you know, are a bit left of the, of the traditional finance because they're using decentralized crypto networks to settle things, that sort of thing. People have compared the Terra ecosystem to almost like this hybrid mix.

• 1:24:17Ryan Sean Adams?

  It's sort of like fintech-ish meets blockchain and placed it kind of somewhere in the middle. It's this hybrid sort of blend. Do you think that's where you'd place it in the decentralization spectrum? Do you think it's like, or do you think it's more kind of toward the left? More decentralized over time and maybe competing with layer ones like Ethereum and Bitcoin?

• 1:24:41Speaker 02

  Yeah, I think even putting decentralization on like a linear spectrum is really tough because there are ways in which Ethereum is extremely decentralized. But then also its main stablecoin is entirely centralized. And actually, the biggest stablecoins in Ethereum are completely centralized. They're just IOUs for dollars in a bank account. And those are the undercurrent of all of Ethereum DeFi. And so if those go down, Ethereum is, it really has like a big centralized attack vector in these centralized stablecoins. So like technically, and in terms of node count and all of that, Ethereum is extremely decentralized. But then it has this very, you know, centralized attack vector. And I think that's why it's hard to put it on like a spectrum. In terms of Terra, I would say the system itself, you know, from a technical perspective, is fairly decentralized, you know?

• 1:25:27Speaker 02

  Nowhere near as decentralized as Ethereum in terms of node count and all of that. But it's a, it's a tendermint chain, right? So it's, it's a proof of stake tendermint chain. What I would say is centralized is just like there are organizations in the ecosystem who, who have like a, can make a big impact on the success or failure of this. Like Jump, like, you know, TFL, like Though, if you, if you, if you'd agree with that, like LFG. But now increasing, there's an increasing number of those to the point where that is becoming a decentralizing force in itself. So that's kind of my take on it. Like, I think the system is decentralized, but there are some, there are some, you know, centralized entities that are, that are a big sort of part of its success.

• 1:26:12Speaker 02

  Does that make sense?

• 1:26:15Ryan Sean Adams?

  Yeah, it's a good take. David's on mute.

• 1:26:17David Hoffman?

  Thank you. Yeah, thank you for that, Jose. Jordi, what thoughts have come to mind before we go on and move on to any other subjects? Anything that's come up to your brain?

• 1:26:26Speaker 03

  I mean, in terms of like, you know, you start centralizing, you make incremental steps. I fully believe in that. In terms of the ecosystem, the fact that like two main big groups are building a lot of the primitives.

• 1:26:39Speaker 03

  I have mixed feelings about it. Like, I know one team that's been working hard to try to get like one of the options protocols out on Terra, and they just realized that, oh, there is a, they just launched one that's backed by the founding team. How are we going to compete with them when they're backed by Do and these guys and we, you know, we wanted to launch the same thing? So you're going to have a lot of the ecosystem be kind of, you have that a little bit with Solana, but not as much. I think, you know, Solana has quite a diverse group of founders that ultimately are not necessarily all, you know, FTX related, et cetera, or Jump related.

• 1:27:19Speaker 03

  But look, at the end of the game, like, does it really matter what ecosystem Terra has if the key thing is the stablecoin? Like, for me, it, it might not even matter. It might just matter what, what, what they manage to do in terms of going to other chains and getting U S T on other chains and making it spread everywhere as opposed to necessarily building all the primitives on, on Terra. If they do really good ones, then it could work. It's obviously got the narrative right now. So I don't, I don't have a strong opinion, I guess.

• 1:27:49David Hoffman?

  Well, okay, talking about U S T on other chains, I think it's exactly where we want to go next. Recently, Do Kwan proposed the four pool, a new curve pool between U S T, Frax, U S D C, and U S D T. So that's, of course, Terra, U S D, the Frax stablecoin, U S D C, and then Tether.

• 1:28:10David Hoffman?

  Most importantly, pushing out D I, moving, removing D I from, from the, the curve pool. And he was claiming that the curve wars are over and that all missions are going to the four pool, meaning that all the incentives are going to be. Towards adding liquidity to the four pool rather than the previous pool with dye in it. So I, Jose, I want to get your perspective on this. Do Kwan tweeted out, "Buy my hand, dye will dye," which is a pretty aggro thing to tweet out. Like, what's his deal with Maker? Like, why does he not like Maker so much? And what's the, how does this four pool from Curve kind of fit into the story?

• 1:28:48Speaker 02

  Um, I think though, like, at least this is my interpretation. I'm, I don't, I don't, uh, you know, pretend to speak for Doe. It's just that Maker and, and generally, there's, there's sort of a group of people on Twitter that are constantly making some pretty malformed arguments against U S T. And also just calling it like a Ponzi and referring to it and stuff, stuff like that. And it, I think it must be frustrating as a founder who's put their life's work into this and created something pretty incredible, which is an algorithmic stablecoin that has worked and is now, you know, and doing everything that he's doing. I think it must be pretty annoying to, to keep hearing that. Um, and I think Maker's been pretty arrogant about it and, and sort of dismissive of it. And I think that's, that, my interpretation is that's, that's rubbed him, him the wrong way.

• 1:29:33Speaker 02

  I don't know if that's accurate or not, but, and then in terms of the four pool, it's, it's a huge move, right? Uh, the, the three pool is, is the biggest and like most, most liquid pool on, on Curve. So it ends up being the bridge pool for a lot of, uh, stablecoin swaps. And then the bridge pool for a lot of swaps generally, especially as Curve V2 and the volatile assets becomes bigger. With this, so, and, and Frax had, had its own pool, which it was participating in the Curve wars. So, or like buying a lot of convex in order to, to influence. And then Terra had its own pool that again, it was doing, it was doing the same thing. And they've basically like teamed up, right? They've, they've kind of cartelified. Um, and, and they're along with redacted. And there's also, I think, a few others joining this coalition

• 1:30:14Speaker 02

  in order to put in this four pool, which will be, you know, Frax, U S T, Tether and U S D C. And, and send all incentives towards this pool, which should make it the most liquid pool in, uh, stablecoin pool in DeFi and become the bridge pool so that, so that, uh, Frax and, and U S T become the reference decentralized stablecoins, uh, across chain. So, pretty huge move. Uh, I was really taken aback by it. Uh, I'd be curious to hear what Jordy thinks about it actually, because yeah, it seems, seems like a, a big thing.

• 1:30:47Speaker 03

  Yeah, I mean, we've been talking about the curve wars for a while now, and now we've actually seen somebody make a move and try to get, you know, consortium together and pull something like this off. I think it's interesting, you know, we're very much in experimental phase here and

• 1:31:04Speaker 03

  you know, seeing Olympus join in, you know, you're having these like strange bedfellows here where you're kind of getting the votes and

• 1:31:12Speaker 03

  we're in experimental land.

• 1:31:16Speaker 03

  I'm interested to see how it all plays out. Yeah.

• 1:31:22Ryan Sean Adams?

  Do you think this will fully like?

• 1:31:23Speaker 03

  Eating my popcorn on this one.

• 1:31:24Ryan Sean Adams?

  Geordi, do you think this will like result in the full saturation of Ethereum DeFi with USD?

• 1:31:31Speaker 03

  Uh, no, I don't think it's that straightforward. I mean, we're there's so many assumptions, like first of all, the assumption that centralized stablecoins

• 1:31:41Speaker 03

  are problematic right now. I mean, I agree with Jose, like eventually like we have to create something for when the day comes and we need and we need to have something decentralized, but I don't think that the vast majority of USDC being used on Ethereum is gonna stop being utilized. I'm not sure about DICE's prospects, obviously. That's a different story and I'm not, I'm not an expert on it, so I can't comment on on DICE's prospects, but in terms of like USDC being outstripped by UST. I don't, I don't think we're at that stage right now.

• 1:32:17Speaker 02

  I don't think we're at that stage either, but I do think centralized, like if you just zoom out to the long term, which is like what the way we we work at Delphi is we just try and figure out what's the future of crypto going to be, what should it be? And then we just try and figure it out to invest in it, but also just build towards it, right? And for me, it's pretty clear that centralized stablecoins will not be the long term solution for a bunch of reasons, right? Like their bank accounts can get frozen and suddenly they're insolvent. They can get forced to freeze transactions. They have the power to unilaterally like freeze balances, right? And they can get forced or coerced to do that by governments. But then there's even smaller things like they're facilitating. You know, like hundreds of billions of dollars of transactions for clients that they that they know nothing about.

• 1:33:01Speaker 02

  Right? And that that's gonna be a problem for nation states. Like, at some point, they're gonna be like, hey, who are these people that are transacting? Like, is there any KYC here and stuff? And you you you can't do that for Dyer or for U S T in the same way. And if those products become KYC, they just become way less relevant, right? And it's not the case that it'll get regulated and all go at once. I don't think that's necessarily gonna happen. What's gonna happen is, let's say, suddenly, uh, they start freezing balances from from people who didn't pay their taxes, right? Governments find um some links from centralized exchanges to people who who didn't declare it on their taxes. They find out they have U S D C, they contact uh Circle and get them to to to freeze their balance. Suddenly, um, that doesn't just affect people who don't pay their taxes, right? It first of all, it affects all the crypto people who don't pay their taxes, who I think is a

• 1:33:43Speaker 02

  is a is a big is a big amount of people, but also affects everyone else, because suddenly you're like, damn. When I hold these stables, this isn't actually crypto. It becomes very visceral, right? This isn't crypto. Um, and and so that will cause a slow move. And then if they do something like KYC, that'll again cause more of a move. And and so I think like slowly over time, it'll it'll all move to to decentralized stablecoins. That's kind of how how we're positioning ourselves. Um, and then just one thing I wanted to touch on that Jordy said before about other layer ones uh being able to copy the the design. I agree that they they should do it. Uh, I think it's a really good, I think it's a good idea, because you you literally own your biggest use case, right? You verticalize and and like own one one of your one of your biggest use cases, rather than letting someone else build on top of it.

• 1:34:27Speaker 02

  And rather than letting it become centralized as well, which is another big, big problem. I do think it's gonna be really tough for the reasons uh mentioned before, that it's not a mechanism. Like, it is a mechanism, but it's much more than a mechanism. It's actually the economy and the demand that's built around it. And so the layer one would end up having the same problem, where it has to go through all its applications and ask them to integrate it, right? Um, and so I think you need both uh a layer one that's willing to do it and like a visionary or a group of visionaries that can build all these use cases around it and get people to actually use it. Because otherwise, uh, you risk blowing up your layer one as well, right? Uh, with with with something like this, as E S D and D S D did. So a and and also that you you can fork the mechanism, you can't fork the reserves, you can't fork the Lindy,

• 1:35:11Speaker 02

  you can't fork the experience of of a year and a half of running this. So I do think that's much tougher than than uh than generally copying a mechanism is.

• 1:35:19Ryan Sean Adams?

  But Jose, one question I have for you is about the first point about AML KYC and like having a decentralized, a stablecoin being important to stand up against like the USDCs of the world. Why do you think the same fate won't befall UST? Right? So there are many centralization vectors, the LFG group being one of them. Certainly, the Jump capitals of the world are highly regulated institutions. Some of this is executed via bridges, which also could be a kind of a centralization vector. I think someone who is very into like the consensus layer of chains might

• 1:35:58Ryan Sean Adams?

  even say sort of proof of stake validators that are run by third parties and not by users from their own homes are another centralization vector. Can you give me the case for why this also just happened to UST?

• 1:36:14Speaker 02

  Yeah, it's a good question. There's an important distinction, which is in Luna, no one can seize assets or freeze balances, right? There's no one you can subpoena. You can subpoena Jump and be like, hey, I want you to freeze this wallet. This dude hasn't paid his taxes. They can't do that, right? Neither can DAO, neither can TFL. No one can do that. In USDC, there's a clear entity, Circle, which is actually a US entity. And so like in the US jurisdiction, that can freeze balances. And if they receive a subpoena and an order by the US government, they are able to do it. So it's a case of you trusting whether they will or won't. Whereas with Terra, you can't. So there are centralization vectors you can hit and make things difficult. So you could say, no one can integrate UST

• 1:36:59Speaker 02

  because they're not doing KYC in the US or something like that. But you can actually like destroy it in the same way that you could with something like USDC or Tether.

• 1:37:07Ryan Sean Adams?

  I do want to get back into, and just to wrap up the conversation around the four pool. Jose, can you like measure for us the significance of the adoption of the four pool in lieu of the three pool? Like, how critical of a, how big of a W would that be for UST? And how big of an L would that be for DAI?

• 1:37:31Speaker 02

  Um, like Rune made it. Yeah, it would be a massive win. I don't have like stats off the top of my head, but it would be a massive win, right? Like Curve is the liquidity hub for stablecoins in DeFi. And basically, DAI is through the 3pool is the most liquid decentralized stablecoin on Curve. This would make it not the case, right? It would make UST and Frax the most liquid decentralized stablecoins on Curve. So it's a huge thing because if you want to bridge from stablecoins to other stablecoins, or just if you want access to the UST ecosystem, everything becomes way easier when you have the most liquidity. And liquidity is one of the biggest moats with decentralized stablecoins.

• 1:38:13Speaker 02

  Now Rune, and I also think Maker's response is sort of like classic, which is just, they point out that unlike something like this happening to UST, this isn't a threat to the DAI peg, right? Which is true. Like, DAI's design means that it losing a huge amount of utility and demand isn't a threat to its peg. But it is a threat to its stablecoin, right? To it as a stablecoin. And like, it's not enough to just be pegged. Like, you have to grow to win in this market. Like, stablecoins are going to be huge. And if you're not growing, if you're just pegging, that's not enough. Like, these aren't risk management products, you know? That's one side of it. But there's the other side, which is the adoption of utility and demand, which I feel like is just not being considered.

• 1:38:54Speaker 02

  And the response to me is like, sort of symptomatic of what I see as the problem with them. And obviously, people will disagree. And some people are very bullish on the real-world asset strategy. Yeah, so just my take.

• 1:39:05Ryan Sean Adams?

  Let's talk about maybe the last thing we haven't talked about with all of this, which is what would actually happen during a de-pegging type scenario? I think both of you acknowledge that there is some risk there. And Jose would rate it far lower than Jordi, but I think, of course, we're all in DeFi. As we end every Bankless podcast with, "This is risky. You could lose everything," right? And certainly, algo stablecoins have been risky in the past. And so, we just walk through like a nightmare scenario for you, why people are maybe worried about this, critics are worried about this. Like, if UST fails, like, it could drag the entire industry down with us. But let's say there is some big de-pegging event, massive liquidation,

• 1:39:48Ryan Sean Adams?

  bunch of investors get liquidated all across, you know, chains. Lots of people lose a lot of money. And the next thing you know, Elizabeth Warren is on CNN saying, hey, I told you guys the shadowy super coders were going to take from retail and here they are again, right? And we have to regulate this industry, we have to clamp down on it, we have to outlaw it until we understand what's going on, it can't be the Wild West anymore, and it drags the entire crypto space down with it. That is what some people would say is kind of the the tail event risk of something like USC growing too big and then suddenly collapsing.

• 1:40:32Ryan Sean Adams?

  I'm curious, Jordy, what you think about this? Do you think this is a possible scenario? Is this something that you worry about? Or do you think even like bears and critics who say that are getting a bit over their skis and then we'll get Jose to respond?

• 1:40:43Speaker 03

  As an aside, I like how I used over the skis thing early like in the introduction and since then I've noticed like everyone's used it in different.

• 1:40:51Ryan Sean Adams?

  Language is memetic, my friend.

• 1:40:54Speaker 03

  Look, it's a risk, like we just said, and I don't think that me and Jose are in huge disagreement about the chance of the risk, maybe a little bit, but not to a huge extent. In terms of the Elizabeth Warren thing, she's been bringing up, you know, Wonderland, whatever's been going on that's negative in crypto, she'll bring up. Now, if something happens in the next few months, I don't think it's necessarily a big deal. I mean, it's a big deal, but it's not going to be the end of the world. If it happens in a year where like, you know, everyone is already assuming that UST is money, it's equal to

• 1:41:35Speaker 03

  a dollar, and something for whatever reason happens at that time, yeah, it'll shake the foundation of crypto. A lot of people might get hurt. And the thing that I hate about it the most, you see how these things play out. We've seen them recently. We've had Mim Wonderland, so we've seen like the curve pool there.

• 1:41:57Speaker 03

  There's a certain amount of liquidity that you can get out of and what ends up happening is out of nowhere, you just have like Alameda, one of these like huge whales, just smacks the whole thing for 500 million or whatever, it takes everything out, they'll take a hit, you know, they'll lose, they'll take a $50 million loss because they've, they've accepted the slippage that comes along with such a big order, but they will just unilaterally suck all the liquidity out. And that's the signal for everybody else to panic, but it's kind of too late because the, the money's already gone. There's not much USDC, USDT left in. So in that nightmare scenario, the thing that I hated about the most is that the big players, who are like the big whales, you know, we don't need to like talk who, who they are,

• 1:42:41Speaker 03

  will, will probably like be able to swipe the curve pool first. They'll take out the best price and then the, the system that Luna has for,

• 1:42:54Speaker 03

  you know, until the Bitcoin system comes along, right now they just will, will use Luna as the collateral. There's a cap every day. This is what we saw back in last May. There's 20 million dollar cap. Now, even if that's increased 100 million. The reality is that the retail guys are not going to be able to get any of that 20 million per day. It'll just instantly be taken out every day by whoever's.

• 1:43:18Speaker 03

  20 million Luna or 20 million USD?

• 1:43:21Speaker 02

  We can go check the stats. I don't think the cap, daily cap is 20 million USD, but we can go, we can go check that afterwards.

• 1:43:28Speaker 03

  Okay. I'm pretty sure back in May that it was only 20 million dollars of USD, but back then the price of Luna was so small that you may be right, maybe it was just because it wasn't that far from a dollar at the time that maybe. The point being, there is some cap and I don't think it's 20 million Luna.

• 1:43:46Speaker 02

  No, it's not 20 million, but I, I don't, I don't know. Yeah, but we'll get the exact numbers for listeners maybe for the.

• 1:43:51Speaker 03

  My understanding is that it used to be 10 million and then Jump pushed to 20 million and there's been discussion about getting it to 100 million. And what we see in times of demand like recently is every day it's capped at, at the max every day, but in the, in the other. Direction, people are trying to get into Terra because they want to get on Anchor. So it's capped every day. And someone's making a lot of money on the arbitrage because they can make thirty, forty bips. You can go to Binance, sell it for forty bips above the peg. And somebody is getting like all twenty right away and making like forty bips on it. The reverse is going to happen in the bad scenario where the first, the people who are actually able to get out are going to cap the supply and those are going to be like the sophisticated whales. So you will have the curve pool taken out and then you'll have the max supply every day.

• 1:44:35Speaker 03

  So that's a nightmare scenario. I hope doesn't happen, but unfortunately, if it does happen, it won't be, it won't be very equitable.

• 1:44:43Ryan Sean Adams?

  So, Jose, back to you. Jordi is like manifesting some twenty, two thousand and eight energy where retail is once again left holding the bag for a tail risk event like this. How do you respond to maybe that, that, that moral risk, the moral hazard here of an experiment like U S T getting too big?

• 1:45:04Speaker 02

  Yeah, it would definitely be catastrophic. I think right now it would be mainly catastrophic for Terra itself. So obviously like Luna holders, Luna would, would, you know, death spiral to, you know, some asymptote towards zero, I suppose. U S T would, would, would, would do the same. So it'd be very catastrophic for, for, for Terra itself. There is a lot of U S T on Ethereum and liquidity pools, but I don't think, you know, most of the effect would really be on Terra itself. That actually changes with the four pool, right? Where the effect would be more systemic in that case, because it would be the, the reference currency for DeFi as a whole. But I don't really agree with the, with the idea that, that retail would get screwed because retail is just like smaller sizing, right?

• 1:45:48Speaker 02

  So it'd be much easier for, for them to get out with lower slippage than it would for some of these big funds, where some of these big funds would literally just not be able to, to get out in size because of what you say, where the liquidity would just dry up on the, on the curve pool. So I think they'll be, obviously they'll be faster.

• 1:46:03Speaker 03

  Yeah, exactly. It depends who gets out first. Like if they wait too long and somebody like, I agree, it's a lot easier to go through the door if you're small, but you need to know, you need to know to get through the door. You need to know.

• 1:46:14Speaker 02

  Absolutely. But I think there's also going to be like, right now, most of the liquidity is on curve. I think Astroport is going to be spinning up its own stablecoin pool, so there's going to be liquidity on Terra too, so users will be able to kind of exit that way. So I don't know. I agree that the whales will know first, but they'll also suffer a lot more slippage and they'll also, we've also seen a few times where whales exited, suffered slippage for something that wasn't the death spiral they were looking for. So yeah, I'm sensitive to the moral argument, obviously, but I do think two things. There's a moral argument for U S T as well, right? There's a moral argument for decentralized stablecoins, like actual decentralized stablecoins that can't be stopped by nation states. So that's the first thing. I think that's really important.

• 1:46:58Speaker 02

  And then the second thing is that everything in the space has a failure risk. These are all experiments, you know, including something like that, like I mentioned before, almost blew up in on Blackberry, right? And that would have been at that time catastrophic for the for the space. Obviously, we have the Dow hack from back in the day, which was something that shouldn't have had, shouldn't have even been that risky, but was because it had a smart contract bug in it. So I think like, as you say at the end, right, this is the frontier. We all kind of accept that risk when we when we when we play here. But I do think one thing that is important is that everyone, and especially if you have a platform and you're bullish Luna, you're bullish U S T,

• 1:47:37Speaker 02

  you should be honest about the risks, right? And that's something that we're very careful to do at Delphi, you know, when we present it, we're always careful to disclaim it in products that we that we help incubate or contribute to. It's always present in the disclaimers. And so I think being honest about the risks so that people know them is super important because that's actually what makes me bullish about this. It's not that I think it's riskless. It's that I understand the risks and think, but think the upside is, you know, far, far outweighs it.

• 1:48:05Ryan Sean Adams?

  Bull case, bear case. It's time for closing arguments right now. And since we started with Jose, I'm going to flip to Jordi first. Your closing arguments for why you think it makes sense to be bearish on Luna slash U S T.

• 1:48:21Speaker 03

  Yeah, I mean, we've used them interchangeably, but I'll just recap that I think they are a little bit different. The bear case for Luna first, assuming that U S T is okay, is that the demand gets kind of dwindled down because other chains do something similar because somebody does a better mousetrap. There's ways that Luna price itself suffers without a de-peg. So that's kind of half of the equation. The other half is obviously on U S T. So there's a lot of risks. The BTC bridge risk hasn't been figured out. There's market risk.

• 1:49:02Speaker 03

  Unfortunately BTC might go down and then like a lot of the reserves that have been built up, the narrative will change.

• 1:49:09Speaker 03

  BTC could go up and then, like Jose said, everything just looks completely different. But we have to be aware of the risks. We have to be aware that there is centralization right now. There's big funds that are going to be able to kind of pull strings and have inside information and know things a lot earlier. So I'm very happy that Jose gave like a full disclaimer. I think that's the most important thing.

• 1:49:34Speaker 03

  There is indeed a moral argument for it succeeding and having something like that succeed. My full bear case is that we are very far away from that endpoint. There's a ton of stuff to figure out, even with having such a good team working on it. We have no idea what's going to happen, even in like in a few months when anchor yield goes down. There are so many unknowns. So that's the main bear case. Like we can't just consider it a foregone conclusion that we're going to get to this end state.

• 1:50:03David Hoffman?

  Jose, I'd love to hear your final thoughts, your final closing statements as to the the bull case for Luna. And the chat is also asking, since they are perceiving the show as to be focusing on the bear case. I just want to give you just a few extra minutes, a few extra time to really just with with confidence. Give out, give us the bull case for Luna. Just make us all Luna Maxies.

• 1:50:26Speaker 02

  Yeah, absolutely. Alright, so first of all, I think you guys have been pretty good. Thank you very much for the platform and for opening this up to other opinions. I think as, one thing to note is as lunatics, we need to be like, accepting of other communities and educating them on Luna and on risks, because Luna actually relies on, like, UST relies on being the reference stablecoin for DeFi as a whole, not just for Terra. So it needs to be on Ethereum, it needs to be everywhere. And being antagonistic and like, hating on people and criticizing and stuff is not the lunatic way. I know that Doe sometimes counters that with some of his Twitter spice, which is, I love his Twitter spice, but it's always directed at a person, right?

• 1:51:11Speaker 02

  It's never directed at a community. And that's really important. Like, there's no reason why we should hate Ethereum or hate any of the other chains that are, we're all gonna make it, basically. And then, so, on the Luna bull argument, sorry, so, one of the biggest things that makes me bullish is how misunderstood it still is and controversial, and also how bad and repetitive some of the FUD is. So like, I think the peg FUD and the anchor sustainability FUD, to me, is like, actually pretty weak. I sort of explained my arguments for why I think that's the case. I think there's stronger arguments against UST. I think probably the key man risk and just the technical, which we didn't cover, but just the fact that Terra isn't a particularly scalable Layer 1, and maybe that's not the endgame.

• 1:51:55Speaker 02

  I think there are sort of counter arguments to that as well, but I, yeah. All our best investments have always been controversial, and how controversial this is is one of the things that makes me super bullish. And then, in terms of UST itself, so I think people just over-index and focus on this peg risk and just repeat it over and over again, without focusing on the upside, right? On what happens if it works? And what happens if it works is, you have the UST as the biggest decentralized stablecoin, also in my mind, the most decentralized in the biggest market in crypto, which is money, right? Decentralized stablecoins are literally gonna be a multi-trillion dollar industry. I think most- People that are in crypto can agree with that and U S T currently is the is the fastest horse in the in that race.

• 1:52:41Speaker 02

  And so it in in and if we agree that stable coins are a network effect business, right? Um. You need liquidity, you need Lindy, you need people to trust it. Then you want to bet on the winners and you want to bet on whoever is growing fastest. And U S T's model, while more vulnerable to Taylor risks, as we've as we've spoken about, allows it to grow much faster and that that's that's a big deal, you know, because if you grow fast in a in a network effects business, you win, which is why the anchor um yield reserve subsidy makes so much sense, similar to the PayPal strategy, right of subsidizing its initial users. And why this this whole strategy make makes makes so much sense to me.

• 1:53:17Speaker 02

  And so for me, it's like you have a stable coin that was already working really well, growing really fast. That's becoming even stronger with a Bitcoin reserve, a Bitcoin reserve that that we're is going to be finding ways to grow over time, but through additional sales for which there's uh you know, quite a lot of appetite from from from from investors still. And then also from just growing it through seniorage and continuing to buy Bitcoin. And so I think you have a model that can grow super fast and it's also becoming more and more resilient by the day with the addition of this of this L F G reserve. And so and then when you when you when you combine that with a layer one that's thriving where I continue to see some of the smartest builders that I that I that I've seen anywhere on on on crypto, building on building on Terra,

• 1:54:00Speaker 02

  whether it's and completely new primitives as well that haven't succeeded on Ethereum like Prism, right? Which is a yield splitting primitive, there's A P Wine and Pendle on Ethereum, but they really haven't succeeded, whereas I think Prism is is done a much better job nailing that. Um. There's other things like perps with with with order book, uh you know, Forex perps that are coming with Vertex. Uh. There's perps that are coming with Levana, there's a whole ecosystem around gaming and N F Ts that that does putting a lot of effort into. And so when you when you combine all of this, uh I just think there's there's no uh faster horse in the decentralized stablecoin race than than U S T. And we like to bet on winners.

• 1:54:36Ryan Sean Adams?

  There you go. Bankless listeners, this has been the bull and bear case for Luna UST. Probably the most comprehensive I've ever heard. I want to give a special thanks to both Jose and Jordi for joining us and having such a civil, informative, well argued debate. We appreciate you guys.

• 1:54:55Speaker 02

  Thanks very much, guys. Really appreciate it.

• 1:54:58Speaker 03

  Thank you.

• 1:54:59Ryan Sean Adams?

  Bankless Nation, we will link to some of the things that Jose in particular referenced in the show notes as soon as we have some links. That's links to long-term anchor yield. I think you referenced something there. A few other stats we might link to as well. But as always, gotta end with this. None of this has been financial advice. I think our panelists were very clear that there are risks in crypto. There are risks in DeFi. There's just everywhere, but we want to let you know that you could definitely lose what you put in. We're headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:55:33David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast, and community as a Bankless premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content, and even the Bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings,

• 1:56:16David Hoffman?

  and weekly rollups where we summarize the week in crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless Nation.