Crypto Critics' Corner

,

Episode 71 – Terra, Luna, and Algorithmic Stablecoins

Terra, Luna, and Algorithmic Stablecoins – Crypto Critics' Corner

Today Bennett and Cas talk about Terra, a stablecoin that uses an algorithm to stay pegged to numerous currencies (mainly the US dollar). Recently, Do Kwon, the creator of Terra, and its token that buoys the stablecoins it supports, Luna, decided to spend $10 billion worth of Luna's reserves to buy Bitcoin. What does this even mean? Let's figure it out. Bennett's appearance on the Blockchain Debate Podcast to discuss algo stablecoins: https://podcasts.apple.com/us/podcast/motion-algo-and-fractional-stablecoins-are-flawed/id1493609456?i=1000530171560 The FUD Letter's discussion of Terra: https://bennettftomlin.com/2022/02/06/is-terra-stable-the-fud-letter/ The episode was produced by Asher Hirsch and recorded on Sunday, April 24th, 2022.

In this episode Bennett Tomlin and Cas Piancey discuss the algorithmic stablecoin Terra and the corresponding governance token Luna. Along with some of the antics of chief front man Do Kwon.

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This episode was produced and edited by Asher Hirsch.

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English Transcript

00:00:05:02 - 00:00:13:02
Cas Piancey
Welcome back, everyone. I am Cas Piancey, and I'm joined, as usual, by my partner in crime, Mr. Bennett Tomlin. How are you today?

00:00:13:06 - 00:00:14:18
Bennett Tomlin
I'm doing well. How are you?

00:00:14:19 - 00:00:38:17
Cas Piancey
I'm hanging in there. Honestly, I've been trying to wrap my head around Terra today. We planned on doing this episode a while ago, but I'm going to come forward and say that I. I've never taken algorithmic stablecoins seriously. It's not something I ever thought would gain or garner attention. Clearly, I was wrong about that, so I'm willing to admit that much.

00:00:39:02 - 00:01:08:10
Cas Piancey
What I'm not yet willing to concede is that my belief is that they always fail. That's my belief, I guess, based on the fact that none of them have succeeded as of yet. But I'm sure we'll have some pushback on that comment in and of itself, because if I recall correctly, Matt Levine did his normal newsletter and the gentleman that you had a debate with decided to reach out to Matt Levine to tell him how wrong he was about algorithmic stable coins

00:01:08:10 - 00:01:24:27
Cas Piancey
So first of all, you know, this one is about Terra It's not about FRAX, but we'll include that episode you did on Blockchain Debate podcast in the show notes. But look, I went on their site and what I decided to do before we jumped on was learn as much as I could about Terra based on what their Web site was telling me.

00:01:25:10 - 00:01:37:09
Cas Piancey
I didn't learn very much, but I would love to hear your explanation of how Terra works, because when they try to get into how it works, they make it so simple that it's incredibly vague.

00:01:37:09 - 00:02:10:18
Bennett Tomlin
Yeah. Algorithmic stable coins in general are all a well coordinated game in trying to convince a sufficient mass of people that a thing that has no reason to be valuable is definitely valuable. Right. And so Terra is effectively collateralized by the governance token Luna. So the way this works is through the protocol. You can exchange about a dollar's worth of Luna for a dollar's worth of Tera USD, which operate is called Terra for the rest of this episode, or vice versa.

00:02:10:19 - 00:02:32:04
Bennett Tomlin
You can exchange one Terra for about a dollar's worth of Luna. And this is the main thing that is meant to keep Terra at peg. The fact that you can get Luna for it, and that's that's the whole thing, is that if we all assume Luna is valuable, then we can use it as collateral to make this thing that kind of looks like a currency.

00:02:32:12 - 00:02:43:09
Bennett Tomlin
And as long as Luna is valuable and as long as enough people think the currency like thing is valuable, then it continues working. The issue becomes if people stop believing either of those things.

00:02:43:17 - 00:02:44:21
Cas Piancey
So they're just doing fiat.

00:02:45:09 - 00:03:13:18
Bennett Tomlin
Yeah. No, no, no. They really are. And like, algorithmic, stable coins are one of the purest examples of that, I think. And like, this is the difficulty with a lot of the things. TerraForm Labs are doing are unsustainable. So let's start with the Anchor lending market. TerraForm Labs, the company behind Terra, supports this, provides funds for their year old reserve so that they can pay out a higher interest rate to lenders than the market actually wants to give them.

00:03:13:19 - 00:03:42:20
Bennett Tomlin
And so by paying out this 20% guaranteed interest rate, they hope to help drive demand for UST and then driving demand for UST. They hope it continues to grow to such a point that it hits some kind of inflection point or tipping point where there's such a belief in it and such an exogenous demand for it that you no longer need to do the unsustainable things and like TerraForm Labs and lunatics and all the people behind Terra will admit that many of these things are unsustainable.

00:03:42:20 - 00:03:59:17
Bennett Tomlin
Right? Like continuing to subsidize everyone who wants to lend this token cannot go on forever. But the counterargument they try to present is that maybe we can do this for long enough, that enough people will think this is valuable, that eventually we will be able to stop it.

00:04:00:16 - 00:04:29:09
Cas Piancey
I'm not sure. I don't think people want to hear me be super cynical and almost pissed off. But if this is like an accurate representation of what's going on, I'm just confused. I'm confused because so many people seem to believe that there is real value here and that they're doing something totally different and new and innovative. Like, even as I watched their own explanation of this, like, they're doing weird stuff that I don't like.

00:04:29:09 - 00:04:33:17
Cas Piancey
Why are they pegging the special drawing rights of the IMF? They're not like, Oh.

00:04:33:17 - 00:04:51:09
Bennett Tomlin
No, no, no. What you're talking about? Terra, which is meant to peg test your arms measure of, like, this commodity group of baskets. And it makes sense. You think that because they talk about it, like, all the time in the white paper and Do Kwon wrote a whole paper about how this multi stable coin system depends on that specific thing.

00:04:51:09 - 00:05:10:16
Bennett Tomlin
In order to provide liquidity across these and provide a unit of account that's global and all this. But they don't use it anymore. I mean, it's nominally used in a couple of places in the code to deal with the math. But like the total circulating supply of that specific token is in like the dozens, like not even the thousands, like the dozens, because it's not actually how the system works.

00:05:10:16 - 00:05:19:29
Bennett Tomlin
And almost the entire system is in TerraUSD is in regular Terra with some of it in Terra Won for the Korean market. And like.

00:05:20:06 - 00:05:21:20
Cas Piancey
What about that Mongolian one?

00:05:22:00 - 00:05:43:24
Bennett Tomlin
Sure, sure. There may be some of that in it too. But like the TerraSDT was almost never used. And the other reason they don't like to talk about TerraSDT is because early on they minted a ton of them, like pre minted that like made a bunch of stable coins out of nothing and then use this to feed into the protocol to help provide liquidity for every other stable coin.

00:05:44:04 - 00:06:04:04
Bennett Tomlin
And so they had effectively preminted a bunch of a stable coin and were using it to create a bunch of other stable coins. And then eventually people in the forum started complaining about this. So in the Columbus Five upgrade, they finally burned all those. But yeah, for a long time they had this Terra SDR, which was the flagship currency for this system.

00:06:04:04 - 00:06:21:15
Bennett Tomlin
Which is now basically never used that they minted a bunch out of thin air and used to provide liquidity for the rest of their peers. And so even when you read the documentation and you go through the website and you try to understand how the system works, there's no guarantee that those are accurate reflections of the current reality.

00:06:21:29 - 00:06:22:10
Bennett Tomlin
Hope.

00:06:22:21 - 00:06:43:08
Cas Piancey
Help me help I know this seems so basic and I'm not well enough informed on Terra and Luna and all of this stuff. But why do so many people believe in like, why do so many people think this is innovative and interesting and helping and benefiting the cryptocurrency industry?

00:06:43:11 - 00:07:05:18
Bennett Tomlin
I think there's a few reasons for that. First, let's start with Anchor the lending market I already mentioned with a guaranteed 20% yield on a stable coin, you can convert any of your other stable coins to Terra pretty easily and then lend it out and get this 20% yield being subsidized by this other group. So even if you don't believe in the long term longevity of this system, that this can go on forever.

00:07:05:18 - 00:07:23:27
Bennett Tomlin
Whatever other things TerraForm Labs is telling you, if you're a trader something, it still might make sense to use it for now so you can basically take the money out of TerraForm Labs pocket and put it into your own because they're subsidizing it. Right. Besides that, if you go back to the original ICO of the initial 1 billion of the supply.

00:07:24:06 - 00:07:54:14
Bennett Tomlin
30% of that went to the founders, and then 26% went to venture capitalists at rates of either $0.18 or $0.80, according to Messari. The price of Luna peaked at over 100. At one point, the VCs who got in to this early had like a hundred X or 500 x return already on their investments. And so for them, they've made this massive amount, but they can't exit 26% of the supply at that price without getting enough other people interested in the system.

00:07:54:14 - 00:08:18:03
Bennett Tomlin
Right, without increasing the overall liquidity of the system. Besides that, the subsidized anchor rate isn't just benefiting people who use it directly but if you remember, like we discussed this a little bit in our Wonderland episode, Abracadabra, the gen box that was done by like Dani and Sifu would go through the Anchor lending market ten times we hypothecate and each times you're using like ten x leverage on this 20% guaranteed yield.

00:08:18:05 - 00:08:34:08
Bennett Tomlin
So then all the crypto degense see this super easy way to get this absolute absurd yield on what's effectively supposed to be a stable coin that should never change in value. Now, beyond that, we get into the current phase of how Do Kwon is convincing everyone to love him and that is he's literally like buying off communities.

00:08:34:21 - 00:08:56:25
Bennett Tomlin
He announced First Luna Foundation Guard that they were going to purchase $10 billion worth of Bitcoin. This fundamentally changes the math around the stability for Luna and Terra and makes the built in reflexivity that supposed to protect the peg materially worse. Because now instead of going into Luna, when people go to arbitrage they're likely going into BTC as these firms do open market operations to try to defend the peg.

00:08:56:25 - 00:09:11:04
Bennett Tomlin
But but it's still worthwhile for them because now Bitcoiners can't criticize Do Kwon and Terra because he owns or he will own 10 billion bitcoins and then he goes on and he's like, you know what, we should do this same thing with Avalanche.

00:09:11:04 - 00:09:18:07
Cas Piancey
$10 billion worth of Bitcoin. I just want to say that so that people don't say there's only 21 million.

00:09:18:09 - 00:09:34:06
Bennett Tomlin
Bitcoin billion dollars worth of Bitcoin. And now they're doing the same thing with avalanche rate. I'm going to foundation guard announce. The next asset they're going to acquire is avalanche. So now if you're a red triangles supporting avalanche, do you really want to go out and criticize Do Kwon and Terra? When they're purchasing and providing this like buying pressure for your token?

00:09:34:11 - 00:09:49:15
Bennett Tomlin
And so people love Terra because they're either making money on it directly, using the lending market, making money on it indirectly by using other defi products like abracadabra box that depend on that subsidized yield or because Do Kwon is going out and trying to like buy off their communities.

00:09:50:00 - 00:10:14:17
Cas Piancey
I think what I'm so frustrated about, again, if this description is entirely accurate, which obviously you're my co-host and I trust you and I believe you, I think I'm getting frustrated because there is nothing innovative about everyone going, I'll be able to get out of the Ponzi before the next guy that's the oldest scam in finance. It's the oldest scam in finance.

00:10:14:17 - 00:10:36:13
Cas Piancey
It's so boring. And it's not just boring, it's infuriating. Because I understand that people will never learn that lesson. I get it. We're it's like a human psychological trait to be like, I'm smarter than everybody else. I get it. I'm not. Everybody's guilty of that. At some point, that's fine. But I still don't understand why there's so much.

00:10:36:27 - 00:10:52:24
Cas Piancey
This is such innovation. Do Kwon is such a genius. Everybody pay attention to this. And I'm like, I still don't get it. I still don't understand why. Why should I be paying attention to this? Because of 20% yields because it's now I guess it's how big how many billions of dollars.

00:10:53:22 - 00:10:54:27
Bennett Tomlin
18 billion I think.

00:10:55:06 - 00:10:56:16
Cas Piancey
18 Bill OK.

00:10:56:24 - 00:11:20:12
Bennett Tomlin
Yeah. Just about 18 billion which also also pausing for a moment. That's the other crazy thing. They're buying $10 billion worth of Bitcoin to collateralize effectively 18 billion in this floating stable coin that is supposed to be entirely collateralized by their governance token there is so much money floating around here like numbers that like barely makes sense when you think about them and it's that's a lot of money.

00:11:20:12 - 00:11:26:23
Bennett Tomlin
$10 billion that's a lot that's half the fucking market cap of the stable coin.

00:11:27:01 - 00:11:29:25
Cas Piancey
So he's already been subpoenaed by the SEC.

00:11:29:25 - 00:11:36:07
Bennett Tomlin
Yes. Though he claims it doesn't count, which we talk about a little bit in our episode with John Reed Stark Yeah.

00:11:36:11 - 00:11:40:13
Cas Piancey
Right. He can claim whatever he wants. That's fine. But they have subpoenaed him, right?

00:11:40:13 - 00:11:40:25
Bennett Tomlin
Yes.

00:11:41:06 - 00:11:43:02
Cas Piancey
OK. And their claims are what?

00:11:43:07 - 00:12:02:19
Bennett Tomlin
I think it's mostly related to the Mirror protocol, which was built on top of the Terra chain and was meant to provide a way to trade synthetic assets. And so they were creating synthetic derivatives of US securities and trading them through their market. So you could buy like a token pegged to Tesla. And the SEC says.

00:12:02:19 - 00:12:03:13
Cas Piancey
That's still happening.

00:12:03:28 - 00:12:11:13
Bennett Tomlin
Not 100%. Sure, I'd have to double check that. But yeah, the SEC said yeah, we don't we don't like that. That goes against our rules because clearly it does.

00:12:11:22 - 00:12:28:27
Cas Piancey
I understand neither of us are lawyers. And I'll preface that before I ask this question. At all, but I guess I'm just wondering, is there anything even illegal about what's going on with Luna and Terra, or is this just kind of like an unworkable business model and when it fails? Well, I hate to say I told you so kind of situation.

00:12:28:27 - 00:12:29:16
Cas Piancey
I mean, I don't know.

00:12:30:03 - 00:12:55:19
Bennett Tomlin
That's always the question, right? And this is and this is really one of my challenges with this protocol. So they did in ICO in February of 2019. Right. That is well after the DAO report that is after several of Jay Clayton speeches which he said every ICO I've seen is a security sale. If they sold any tokens in that ICO, I think there's a good chance they sold unregistered securities to U.S. persons and that would be illegal.

00:12:55:26 - 00:13:18:09
Bennett Tomlin
The SEC is still trying to determine if what they did with Mirror is legal or not. I think there is plenty of reason to be skeptical that it was and then it gets kind of kind of tricky because what's the difference between a coin trying to become the new global unit of account by creating faith using an unsustainable strategy and a Ponzi scheme?

00:13:18:19 - 00:13:40:06
Bennett Tomlin
The difference is pretty narrow, often will be determined and how it plays out, right? Like if there was somehow successful in convincing enough people that this is what they should be using and there was enough exogenous demand in liquidity, maybe they could turn off some of the unsustainable things and it would continue to work. I have my skepticism about pegged assets in general.

00:13:40:06 - 00:13:51:08
Bennett Tomlin
We talked about that a little bit when Frances Coppola was on, but it's not clearly fraud it's not clearly illegal. It's pretty clearly ill conceived. Right.

00:13:51:21 - 00:14:15:23
Cas Piancey
I think that's what I'm trying to express is my frustration is that this is so obviously similar to past schemes. I guess what I'm perceiving is that it's called an algorithmic stable coin, and that's like a pretty hot hip happening idea right now. I don't get that either. I don't understand the obsession with like algorithmically trying to stabilize an asset class.

00:14:15:23 - 00:14:17:12
Cas Piancey
Like, I don't I don't get it.

00:14:17:12 - 00:14:39:18
Bennett Tomlin
So that's that's because you're trying to think through it as a way to, like legitimately create a stable unit of account but that's not really why algorithmic stable coins exist, right? Like there's a reason they pop up every time there's a big defi surge and because they depend on this alchemy of essentially creating something from nothing, it is very easy to play games with them, right?

00:14:39:24 - 00:14:56:25
Bennett Tomlin
Set up a lending game, set up a whatever game that could run for long enough that a lot of people make money from it. And it doesn't matter if it eventually fails because we've we told everyone this was an experiment. We weren't sure this was going to work. We're out here trying new things. We're builders don't just stand on the sidelines and criticize.

00:14:57:05 - 00:14:58:23
Bennett Tomlin
Get out there and help build.

00:14:59:07 - 00:15:04:03
Cas Piancey
That's another one that came up recently as Andre wrote, what was it, a substack post.

00:15:04:12 - 00:15:06:04
Bennett Tomlin
Substack or medium? It was a blog.

00:15:06:07 - 00:15:30:10
Cas Piancey
pretty short one, just kind of saying like we're redoing finance, which is something you and I have said very often. And his critiques seem to be that they're just repeating all the same mistakes of the past and doing it very quickly. Like we've said, it's kind of like speed running the past thousand years of finance, but people got pretty upset about it, I guess, or at least some people did.

00:15:30:10 - 00:15:48:15
Cas Piancey
Some people were like very into it, but some people were upset about it because they were like, Oh, Mr. Test in production, who's like essentially put out a bunch of garbage. Although, I mean, isn't, isn't Yearn doing fine? Why? Urn, I don't know what they call it, whatever.

00:15:48:24 - 00:16:20:07
Bennett Tomlin
I mean, I think it's still running other past Andre projects are no longer running and I think that's I read the piece in question and I think that Andre has some really good points. He talks at one point about how the crypto culture, essentially the degeneracy, the aping into these things, the number go up type community around it has kind of smothered the crypto ethos of like censorship, resistance, mutability resiliency and trying to build these like powerful anti state systems.

00:16:20:19 - 00:16:22:10
Bennett Tomlin
And I think that he's right.

00:16:22:22 - 00:16:34:14
Cas Piancey
I mean obviously though I don't like that's not even that's not yeah, that's I guess I'm like, that's not that clever of an aside like yeah, all of us know all of us know that already. It's fucking obvious. It's been obvious since 2018.

00:16:35:06 - 00:16:56:20
Bennett Tomlin
I think the issue is he's the worst messenger for that message, right? Because the entire time you're reading it, you're just like, God, you're such a fucking hypocrite. Oh, yeah, we need regulated entities. Mr. Fantom Wallet, OK? Yeah, sure. We hear. Yeah. And it's like, it's not that he's wrong. You know, I mean, necessarily think a lot of the people criticizing him aren't necessarily saying he's wrong.

00:16:56:27 - 00:17:17:03
Bennett Tomlin
It's, he's made a lot of money from this. Like eight, nine figure type money. And now he's like, we need regulators to protect the investors. My dude, you're the one with the money from all the investors. And so it's really disingenuous that way. It was kind of my feeling reading it.

00:17:17:18 - 00:17:39:19
Cas Piancey
I'm kind of stupefied by all of this. Like, I'm kind of like, I don't really know how to react to any of this where I don't I don't see the utility in Terra, even though that's like what it talks about on when you go to the website. I mean, they talk about how easy and simple this is going to be and how great it's going to be for everyone to be able to like move in and out of every currency in the world with such ease.

00:17:40:05 - 00:18:03:09
Cas Piancey
I guess that's like really hard to do without Terra. Not that I've ever traveled outside of America and had to exchange. You know what? Honestly, I'll tell you something. One of the brokerages that I've used, I had a savings account with them as well, and all ATM fees were paid for. And if I took money out from an international ATM, whatever international fees were also totally paid for.

00:18:03:19 - 00:18:27:15
Cas Piancey
So I guess I don't get it. I guess at the end of the day, I just don't get it. It's genuinely not that hard to move money around. We don't need 200 different stable coins. We certainly don't need 200 different algorithmic stable coins and we certainly don't need the algorithmic stable coins to like grow bigger than like $8 billion is so much money, man.

00:18:27:16 - 00:18:45:00
Cas Piancey
And like the idea that it's essentially catching up to tether, which is like tether is already bad, why are we making things even murkier, more complex and worse, which I didn't even think was possible? Like tether is as opaque as it gets about their reserve.

00:18:45:09 - 00:18:46:06
Bennett Tomlin
So you thought?

00:18:46:13 - 00:19:08:16
Cas Piancey
Yeah, never say never, man. So Do Kwon appears in 2019 after going to Stanford forms TerraForm labs is injected with like billions of dollars from investors. I don't I don't get it. I want to get it. I want to understand it. I want to think that there's something here. I don't want to be this cynical asshole who's saying like, Dude, this seems like a scam.

00:19:08:16 - 00:19:12:00
Cas Piancey
Again, but why does it feel that way?

00:19:12:01 - 00:19:31:17
Bennett Tomlin
Because there's a guaranteed 20% interest rate. Because there's a guaranteed 20% interest rate. Because you hear people telling you that they can guarantee a 20% interest rate. That's why it feels like a scam. Yeah, because if I told you tomorrow, invest today, and I can guarantee you a 20% return, you would go fuck off. I'm not signing up for your Ponzi scheme.

00:19:32:03 - 00:19:47:09
Bennett Tomlin
Yeah. Because that's, that's the pitch of a fucking Ponzi scheme. Bernie Madoff did what, like 12% per annum over the years and, and they're guaranteeing 20%. We're just supposed to go are the future of decentralized finance delicious

00:19:47:09 - 00:19:52:11
Cas Piancey
This isn't even the worst. This isn't that we've seen 150% guarantees, we've seen crazy.

00:19:53:03 - 00:20:15:18
Bennett Tomlin
And now we've got Justin creating his own algorithmic stable coin promising to back it. With $10 billion worth of crypto assets he's going to go and buy and guaranteeing a 30% interest rate. He decided let's go 50% above 20 and see what we can do. And his logic is we see so many people using tether on Tron that we figured they need their own stable coin collateralized by Tron.

00:20:15:23 - 00:20:40:06
Cas Piancey
You know what I am really happy for Justin about? I am glad he is getting use out of that ambassador appointment because without that shit he would go absolutely to prison. So bravo Justin. What is it? His Excellency, I'm so glad that you are making proper use of that ambassadorship. You know, enjoy your little prison in Switzerland where you can't leave now.

00:20:40:11 - 00:20:41:09
Bennett Tomlin
Do I know the worst part?

00:20:41:13 - 00:20:42:02
Cas Piancey
Sure.

00:20:42:10 - 00:21:07:01
Bennett Tomlin
It's broken at a more basic level than we've even discussed here, right? Like we're discussing how the economics make no sense, but, like, the actual protocol design for the cryptocurrency makes no sense. And Do Kwon and TerraForm Labs can effectively kick other nodes out of consensus for, like, the blockchain itself. So in order to be a validator on Terra on the Cosmos chain, that's actually running all this.

00:21:07:09 - 00:21:28:17
Bennett Tomlin
You are expected to participate in the Oracle voting process to help make this easy. TerraForm Labs has provided their own Oracle price feeder that you can configure in your validator that will automatically post the numbers. TerraForm Labs gives you to the chain and vote on them for you, making the entire process vastly more simple. So the vast majority of oracles have adopted this.

00:21:28:25 - 00:21:52:03
Bennett Tomlin
What this effectively means is that no one else can run a different price feeder now, because if they vote out of band like different from what TerraForm Labs Oracle Price Feeder is suggesting, they will get kicked out of consensus even if their number is right. And TerraForm Labs number is wrong. And this exact thing has already resulted in erroneous liquidations on Anchor the lending platform.

00:21:52:03 - 00:22:09:19
Bennett Tomlin
And wait, I'm not done yet. Almost all of those liquidations were bought up by TerraForm Labs who was front running it because they didn't need to wait for the Oracle price to hit the chain because it's coming from their own feed. So they knew to immediately start bidding as these were liquidated before the values were actually posted on chain.

00:22:09:27 - 00:22:21:08
Bennett Tomlin
So when there was this massive multimillion dollar liquidation, TerraForm Labs is the one buying up all those collateral from the people they wrongly liquidated. It's fucking Arthur Hayes running a prop desk right?

00:22:21:08 - 00:22:35:02
Cas Piancey
So it's centralized. It's trading against its own users. Who knows what the privacy dynamics are of any of this. And the innovation is 20% per annum interest. Forgive me

00:22:35:02 - 00:22:35:29
Bennett Tomlin
Ooh do you want more bads things they were doing?

00:22:35:29 - 00:22:36:13
Cas Piancey
Sorry go.

00:22:36:13 - 00:22:56:18
Bennett Tomlin
On. Like a year ago they announced Project Dawn in which they were going to start unlocking about $300 million worth of Luna every single month. And promised a monthly transparency report on each of these unlocks that would describe what they were using the funds for it. Guess what? There was zero of those. Yeah, it's amazing. You knew there wouldn't be transparency reports.

00:22:56:21 - 00:22:57:28
Bennett Tomlin
It's like you've done this before.

00:22:59:23 - 00:23:18:12
Cas Piancey
This is one of these times where I genuinely feel completely deflated about the industry. There's things that bother me that excite me, right? Like I think tether did that for me where it's like actually exciting and interesting while I was bothered by it, while it pissed me off I think what's going on in El Salvador is equal parts, fascinating and horrifying.

00:23:19:04 - 00:23:41:27
Cas Piancey
I think the Ukraine and Russian response in regard to the cryptocurrency industry, totally interesting. Like there's there's a lot to unravel and unfold and talk about there. When this kind of thing happens, I, I feel bad because I understand that it's going to sound like a broken record, but I just feel so bad. I feel like there's nothing anyone can do for this industry.

00:23:41:27 - 00:23:55:23
Cas Piancey
If this is the kind of people and projects that everyone wants to support. I mean, like, I don't think anyone has explained how the fuck the North Koreans stole $600 million worth of Axie Infinity bullshit. You know, they're theory. Like.

00:23:56:11 - 00:24:02:26
Bennett Tomlin
I mean, they kind of did because it was all controlled by one entity, right? And all they had to do was compromise one entity and steal the key.

00:24:02:28 - 00:24:22:03
Cas Piancey
There you fucking go. This is what I'm saying, dude. This is what I'm trying to say is that, like, the basic inherent issues that we're trying to be solved for at the beginning of crypto currency through to like 2016, 2017 that people, like, seem to care about was like, OK, it shouldn't be centralized. We should be concerned about privacy.

00:24:22:06 - 00:24:47:17
Cas Piancey
There's going to be volatility. We're going to need to speculate. Like it was like some level of admittance and suggestions as to what was positive about this space and when I see stuff like this get popular, I feel like, oh wow, most people involved in this space don't actually give a fuck about any of the interesting stuff. Like this stable coin isn't interesting, it's not interesting, and this story isn't interesting to me.

00:24:47:21 - 00:25:06:00
Cas Piancey
You're just telling me a bunch of bad shit that some asshole did that is going to cost people a lot of money one day and that maybe he'll never go to prison for. And you know, it was an experiment. OK, I guess this just proves how dumb people are or that we're repetitive in our habits, or that psychologically we are just prone to get scammed.

00:25:06:06 - 00:25:15:16
Cas Piancey
I don't know, man, but it doesn't fill me with any sort of hope or interest or like drive to fix things. It has the utterly opposite effect.

00:25:15:19 - 00:25:19:17
Bennett Tomlin
Crypto culture has strangled crypto ethos sounds, as Andre said.

00:25:19:17 - 00:25:33:26
Cas Piancey
Yeah, but he he talked about it like it was some optimistic thing. By the end, he was saying like, I'm, look, I'm still looking forward to what this industry brings and blah blah blah. And I'm like, when I hear these stories, if anything, it makes me go like, Man, maybe this is the wrong industry. For me. I'm like, I'll stick around.

00:25:33:26 - 00:25:45:09
Cas Piancey
There's enough interesting stories for sure. But like, when I hear these stories, I am far less inclined. Like, there's no way I'm going to ever talk about Terra again. There's no way. I just don't care. I just do not care. Yeah.

00:25:45:26 - 00:26:06:07
Bennett Tomlin
It was fascinating to me because I write about these stable, clean protocols pretty often, right? But like as I'm reading it, I'm like, this is just bitUSD. Dan Larimer tried this years ago and that's fucking Dan Larimer. like, why are we retreading the ground that Dan already did. There has to be more exciting things to try.

00:26:06:17 - 00:26:07:09
Cas Piancey
Apparently not.

00:26:07:18 - 00:26:09:25
Bennett Tomlin
Yeah, and apparently not.

00:26:09:27 - 00:26:19:28
Cas Piancey
That's my point. That's the point that I'm making, I think right now is that, like, this is who people are pointing to. This is the project that people are pointing to and saying, like, this is changing everything.

00:26:20:08 - 00:26:27:27
Bennett Tomlin
We're going to publish this. And the lunatics, the Terra community are bad. They're really fucking bad on Twitter.

00:26:28:01 - 00:26:32:20
Cas Piancey
But they are there. Every community is XRP is fucking atrocious and poisonous, you know? Yeah.

00:26:33:11 - 00:26:37:14
Bennett Tomlin
But they're like the old XRP army before.

00:26:37:14 - 00:27:01:06
Cas Piancey
the safe moon people were fucking horrifying. Everybody who has their community is strictly bags. That's when we were talking to Colin, and I'm just like, Dude, building a community around. Like, we need the number of this thing to go up. It doesn't breed a healthy community at all, at all. It just makes a bunch of assholes who spend a bunch of time online attacking anybody who's being critical or like genuinely trying to look into something for people.

00:27:01:06 - 00:27:17:26
Cas Piancey
And again, where's the innovation? Where is the substance to any of this? I was hoping that when we talked about this, there would be some fucking saving grace, something that you could point to that would be like, Well, actually, here's the interesting part of Terra, or actually here's the interesting part of Luna. Or they're doing this really interesting algorithmic.

00:27:18:01 - 00:27:28:07
Cas Piancey
like whatever. But no, you're just like, Well, they're hoping to get too big to fail and you know, probably not going to happen, but I guess it might maybe, who knows? And I'm like, This story sucks. This story fucking sucks.

00:27:28:07 - 00:27:38:21
Bennett Tomlin
Yeah, the best case for them is that they become the global like way to exchange value, and you and I end up in an institution due to the ramifications of that.

00:27:39:00 - 00:27:57:29
Cas Piancey
Yeah. I get it. They all want to be the fucking world's reserve currency. There's still nothing interesting about that. Fuck, man, this is what I'm saying. Decentralization is interesting. Privacy rights. When it comes to money that interests me, that stuff is actually fucking interesting. This stuff is not fucking interesting, dude. It is not.

00:27:57:29 - 00:28:20:19
Bennett Tomlin
And fuck. Well, and this really gets at kind of the part that really bothers me about Terra is how often that their marketing is where the true, decentralized, stable coins don't make much because it's got USDC backing. Don't look at whatever because of these somewhat probable like points of articulation and points of centralization. And then they take 56% of the original supply and distribute it between themselves and venture capitalists.

00:28:20:29 - 00:28:40:05
Bennett Tomlin
They have a way to kick nodes out of consensus. They are subsidizing the entire demand for this token out of their ICO funds. This this is the gold standard for decentralized stable coin. Then fucking hand it in. Stop trying to make fucking stable coins, then you've lost. If this is the best you can do, you failed. You failed.

00:28:40:11 - 00:29:02:09
Cas Piancey
This is the last point I want to make because there do seem to be all these people like who were into Do Kwon or who think Seste was a genius or think Seafood's is great. I remember reaching out to someone well-known in the space. I'm not going to name names and saying, I don't get why anyone likes Max Keiser or Michael Saylor or whatever.

00:29:02:15 - 00:29:24:11
Cas Piancey
Max Keiser, Michael Saylor, somebody else. It might have been Do Kwon, it might have been some, some, someone else. And I just said like I don't get why the space takes any of these people seriously in any sense. And their response to me was they don't did nobody of substance or anyone who actually cares about the cryptocurrency industry takes those two lunatics.

00:29:24:17 - 00:29:47:19
Cas Piancey
I mean, the actual word takes them seriously. So I don't know what it is. I don't know if there's a disconnect in like some retail people just are super into some of this stuff or if there's too much VC capital and hedge funds. And that's again, just the stuff that makes me feel so sick about this industry because there's nothing you and I can do about it.

00:29:47:24 - 00:30:03:26
Cas Piancey
Truly, there's nothing we could say critically about Terra. It's going to matter because this is this is their this is their game plan. Right? And like, I know that this we're not going to change anyone's mind with this episode. So, like, I just I don't know. I don't know what I don't know how to respond to that as a critic.

00:30:03:26 - 00:30:05:06
Cas Piancey
I guess at the end of all of this.

00:30:05:12 - 00:30:26:29
Bennett Tomlin
I think we got kind of close to talking about this a little bit when Gerard was on. But the cryptocurrency industry is almost like several different layers of industry, each moving in somewhat different directions and pulled by different forces right. Like there's so much turnover in the cryptocurrency industry that at any time, like the bulk of market participants is people who have joined in like the last two years.

00:30:26:29 - 00:30:50:27
Bennett Tomlin
But then like the bulk of market dollars are dictated by these massive market making and venture capital funds like we talked about back in our Cumberland episode. And then like the bulk of development work and like research and thought that goes into these cryptocurrency systems is by people who have been around for years. Right. And so like you'll talk with Bitcoin developers and they still care about a lot of the things Bitcoin is supposed to care about.

00:30:50:27 - 00:31:24:15
Bennett Tomlin
Right? But they're a very tiny percentage of both the market in terms of people in the market in terms of dollars. The venture capitalists want things that they can grow fast and get liquidity from and retail wants projects that they can make a quick buck on. And so the minority of people who are interested in cryptocurrency purely to solve the challenging questions around decentralization, censorship, resistance, privacy and resiliency are not that important because they don't command the massive money that can move things and they don't command the massive armies of people that drive interest in these things.

00:31:24:23 - 00:31:28:24
Bennett Tomlin
And so they continue to get pressed further and further to the sidelines.

00:31:29:12 - 00:31:32:21
Cas Piancey
Yeah. Yeah, I think that's a good point to end on or.

00:31:32:21 - 00:31:34:22
Bennett Tomlin
A really bad point, depending on how you look at it.

00:31:35:11 - 00:31:35:25
Cas Piancey
Either way.

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20 responses to “Episode 71 – Terra, Luna, and Algorithmic Stablecoins”

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