Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
Speaker 1: and this is Bloomberg Crypto at Daily Bloomberg I Heart Podcast.
Speaker 1: It's Thursday, June. The Washington Nationals baseball team haven't had
Speaker 1: a great stud to this season, and that's not just
Speaker 1: because of their losing record. They also managed to debut
Speaker 1: a sponsorship deal with the organization behind a not so
Speaker 1: stable stable coin. The name of that organization, Terraform Labs,
Speaker 1: now splashed all over billboards, uniforms, seats, anywhere you might look.
Speaker 1: It might have seemed like a good play when they
Speaker 1: signed the contract, but by the time that stable coin
Speaker 1: crashed and burned in early May, it started to look
Speaker 1: more like a streakout. The Nats aren't the only sports
Speaker 1: team to have accepted crypto sponsorship, even if they're one
Speaker 1: in the spotlight. Today, Bloomberg Senior editor Mike Reagan joins
Speaker 1: the conversation to sort through how this deal happened. Mike,
Speaker 1: thank you so much for joining us. Oh thanks for
Speaker 1: having me, Stacy. Are you a baseball fan? I am
Speaker 1: not so much this season since my Phillies are are
Speaker 1: kind of struggling, But I'll be on the bandwagon if
Speaker 1: they if they turn it around for sure, do they
Speaker 1: have any crypto sponsorships? You know, I'm not sure. I
Speaker 1: don't think they do though, But why do so many
Speaker 1: other teams both in baseball, which we want to talk
Speaker 1: about the Nationals specifically, but kind of elsewhere in sports,
Speaker 1: Like why is crypto and sports such a thing right now? Well?
Speaker 1: I think obviously these crypto firms have a lot of
Speaker 1: money to spend on marketing, so I think they're looking
Speaker 1: for ways to say, Okay, how can we reach this
Speaker 1: big captivated audience. And when you think about buying the
Speaker 1: naming rights for a stadium, we're saying arena. You know,
Speaker 1: one night you get a basketball audience, the next night
Speaker 1: you get a hockey audience. The next night it might
Speaker 1: be a country music concert or a rap concert. And
Speaker 1: you know, instead of being at home on the TV,
Speaker 1: where you might watching TV and be distracted by doom,
Speaker 1: scrolling through your Twitter or you know, falling asleep changing
Speaker 1: the channels, you're kind of a active audience. So it
Speaker 1: really like it gets the eyeballs on your logo and
Speaker 1: on your product. But like I said, a pretty broad
Speaker 1: demographic of potential customers at least in that one city.
Speaker 1: And then the hope is obviously your team mix to
Speaker 1: the playoffs and suddenly your arena is on the national stage. Right.
Speaker 1: So in theory, it's pretty good bang for a book.
Speaker 1: As as far as marketing r I might go, you know,
Speaker 1: if you've got that kind of marketing budget with these firms,
Speaker 1: clearly do. I mean a lot of people saw it
Speaker 1: and immediately, older people like myself immediately thought back to
Speaker 1: the dot com days, you know, where all of a sudden,
Speaker 1: dot Coms, we're sponsoring getting the naming rights for stadiums,
Speaker 1: and we all know how that ended and poorly and
Speaker 1: and Ron Stadium in Houston. So I think it raised
Speaker 1: some eyebrows when a lot of these naming rights were sold. Well,
Speaker 1: here's an example of something that's going poorly. Right. So
Speaker 1: the Washington Nationals, which as a non baseball fan, I
Speaker 1: had research, but but the way that I found out
Speaker 1: about them is because I was like, Okay, what's happening
Speaker 1: with Taro, let's see and then it's like, by the way,
Speaker 1: they have signed this deal with Terraform Labs, which is
Speaker 1: the organization co founded by Do Kwan that issued an
Speaker 1: algorithmic stable coin that has been pretty much dominating news
Speaker 1: headlines for the past I don't know a month at
Speaker 1: this point. Why would they have done that? What what
Speaker 1: is the upside? And now obviously like there's all of
Speaker 1: this reputational risk. Well, why would the Nationals get involved?
Speaker 1: I think because Do Kuan wrote them a big check
Speaker 1: three million dollars. How much was the check? I was
Speaker 1: like thirty eight millions something like that. But I think
Speaker 1: what's fascinating is why Do Kuan chose the Nationals? Right?
Speaker 1: And this sponsorship included a few things. You know that
Speaker 1: the Nationals are tweeting out crypto videos sponsored by Terra,
Speaker 1: that sort of thing. But also he sponsored the v
Speaker 1: I P club right behind home plate called the Terra Club,
Speaker 1: and I'm now called the Terrat Club right still called
Speaker 1: the Terrat Club. I don't know if it's sort of
Speaker 1: the general population understands these v I P clubs at stadiums,
Speaker 1: they're they're very swank. It's not your you know, hot
Speaker 1: dogs and Budweiser. It's you know, top shelf liquer free buffet.
Speaker 1: And I was at the Brooklyn Nets v I P
Speaker 1: Club once, and you know, your head is kind of
Speaker 1: on a swivel, like cool, Who's that? You know? Is
Speaker 1: that a v I P over there over there? So
Speaker 1: think about that. In d C, you're gonna be looking
Speaker 1: around thinking is that a representative? Is that someone from
Speaker 1: the Treasury? You know, it's it's sort of the clubhouse
Speaker 1: for the movers and shakers in d C. And do
Speaker 1: Quan and Terraform have had some problems with with the SEC.
Speaker 1: I'll give you a warning on a dual self promoting here,
Speaker 1: but I wrote a story about a year ago about
Speaker 1: the synthetic equities trading on terraforms blockchain and fascinating, you
Speaker 1: know that they can basically make a crypto currency token
Speaker 1: that tracks the value of apples et f s. Really
Speaker 1: innovative stuff, but also you know, kind of flying in
Speaker 1: the face of this big stack of regulation around the
Speaker 1: stock market in the US and elsewhere. So that story
Speaker 1: kind of questioned, well, how can they get away with this?
Speaker 1: And I, you know, reached out to the SEC for
Speaker 1: their comment. They didn't comment. A couple of weeks later, though,
Speaker 1: the chairman, Gary Gensler, gave a speech where he said
Speaker 1: basically not naming Terraform, but basically saying this type of
Speaker 1: stuff filing securities laws. You gotta you gotta watch it.
Speaker 1: Shortly after that, unit Swap stopped allowing them to be
Speaker 1: trade and unit Swap is one of the kind of
Speaker 1: peer to peer exchanges that is so popular with crypto folks.
Speaker 1: But I want to go back to what you're saying
Speaker 1: about this not being Terra's first run in with a
Speaker 1: product that various people were like, surely this is not
Speaker 1: a good idea, right, What was the basis of the
Speaker 1: thing that has gotten them in trouble in recent weeks.
Speaker 1: So it's like, Okay, not signed a deal seems fine.
Speaker 1: One month later we're talking about why that's not fine.
Speaker 1: What happened in between? Well, obviously the stable coin terry
Speaker 1: USD just just blew up, you know that. The So basically,
Speaker 1: for those who aren't familiar with an algorithmic statement is
Speaker 1: most of the population. Bear with me here and I'm
Speaker 1: getting a little technical. You know, a typical stable coin
Speaker 1: tries to track say the dollar. Some track maybe track
Speaker 1: the Euro or some other currency, but the big ones
Speaker 1: track the dollar. Uh. And the way say a tether
Speaker 1: stable coin does that is they hold assets, you know,
Speaker 1: some treasury bonds, maybe some commercial paper with sort of,
Speaker 1: you know, a reserve to allow that token to always
Speaker 1: be worth a dollar, right, An algorithmic stable coin tries
Speaker 1: to do it without those reserves. They try to maintain
Speaker 1: that stable one dollar price through a relationship with another
Speaker 1: cryptocurrency that is, let's say not so stable and that
Speaker 1: is Luna, and through an arbitrage mechanism that's probably too
Speaker 1: complicated to get into in this. You know, the relationship
Speaker 1: between Luna and ust the stable coin is is always
Speaker 1: meant to keep that stable coined exactly to a dollar,
Speaker 1: but it did not write. And that's that's why we're here.
Speaker 1: And so, you know, one of the things I was
Speaker 1: really interested in understanding is if I'm a sports team,
Speaker 1: one of my first questions would be if I we
Speaker 1: without sports teams lawyers, like, did we get this money
Speaker 1: up front? In fact? And they did at the National
Speaker 1: State I think, you know, in that old set of president,
Speaker 1: I'm sure everyone's going to catch that check before renaming
Speaker 1: the name of their clubhouse after them. I think it's
Speaker 1: important to focus in on why he did focus on Washington.
Speaker 1: You know, he wanted to be in front of the regulators,
Speaker 1: in front of the politicians. He wanted to give them
Speaker 1: a good impression. You know, this was a multi year deal.
Speaker 1: His ambition was really to make that stable coin be
Speaker 1: useful in real life. He the goal was that eventually
Speaker 1: the Nationals would be selling tickets in exchange for the
Speaker 1: UST stable coin. So a person who was saying that
Speaker 1: season ticket hold buy that ticket using their stable coin, Right,
Speaker 1: that was the goal. That's kind of been blown up.
Speaker 1: I don't think it's been officially announced that that's plan
Speaker 1: is one, right, yeah, with with the price of you know,
Speaker 1: Ust and the penny is at any given moment, as
Speaker 1: I pointed out, a lust of the the Nationals really start
Speaker 1: playing as badly as they started the season, and that
Speaker 1: maybe but but otherwise that plan is unlikely. But it's
Speaker 1: sort of gives you some perspective on Do Kuan's ambitions.
Speaker 1: You know, obviously there's a lot of scammers and crypto,
Speaker 1: there's a lot of quote unquote rug poll but this guy,
Speaker 1: you know, I think of it. You remember the book
Speaker 1: when Genius failed long Term Capital Management. I feel like
Speaker 1: this is an instance of not a scam, of of
Speaker 1: not fraud, but of when that genius innovation failed because
Speaker 1: he he was trying to get in front of the
Speaker 1: regulators and say, look, we're we're literally in front of them.
Speaker 1: And partly because he ended up being subpoena at about
Speaker 1: those synthetic equities last year and he's been sort of
Speaker 1: fighting the SEC over this, so I think he wanted
Speaker 1: to put a good face in front of the regulators
Speaker 1: and say, look with you know, we're adults here. This
Speaker 1: is a mature or hopefully soon to be mature business.
Speaker 1: We're trying to do something real here the collapse of
Speaker 1: the stable coin, so tune on the heels of this.
Speaker 1: This sponsorship is just I popping, because you know, he
Speaker 1: really was trying to move this industry forward a little bit.
Speaker 1: Thank you, Mike, we'll be right back. Well, it's interesting
Speaker 1: that you raised the analogy of long term capital managements
Speaker 1: and because they were, you know, supposed to be the
Speaker 1: original smartest guys in the room, that they really knew
Speaker 1: what they were doing, and they utterly miss priced risk,
Speaker 1: got all of the correlations wrong, and you know, and
Speaker 1: and in that particular case, like utterly misread the macro
Speaker 1: economic environment and where risks were embedded. And frankly, that's
Speaker 1: very similar to what happened over the past few weeks
Speaker 1: where you've had this unexpected inflationary environment, the Fed's response
Speaker 1: to that inflationary environment, various other concerns about macro economic indicators,
Speaker 1: resurgence of the pandemic, like things that generally make people
Speaker 1: a little bit shaky and us prone to buy into
Speaker 1: risk asset, right right, And I think that played into
Speaker 1: it completely. You know, at one point, do Kuan pivoted
Speaker 1: from and terraform Labs. Obviously it's a d A oh,
Speaker 1: so they vote on everything. A D A O or
Speaker 1: DOW is a decentralized those tonomous organizations, which is like
Speaker 1: crypto's version of trying to make a company or an
Speaker 1: LLC right right, a co op kind of basically where
Speaker 1: everyone gets to vote and anyone who's holding the token
Speaker 1: gets to vote on the governance and what happens. So,
Speaker 1: you know, do Quan and Terraform Labs were trying to
Speaker 1: sort of pivot away from the algorithmic stable coin model
Speaker 1: because you know, the project got so big and the
Speaker 1: risks became greater and greater that they know clearly got
Speaker 1: worried that something could go wrong. So they started buying bitcoin,
Speaker 1: you know, and the plan was to buy up to
Speaker 1: ten billion dollars in bitcoin to help back us t
Speaker 1: the stable coin. So then you would have kind of
Speaker 1: a hybrid algo traditional there's both in you know, the
Speaker 1: model of other stable coins, there's some kinds of assets
Speaker 1: backing it's but they would also maintained that peg using
Speaker 1: Luna described right. And you know, make no mistake, this
Speaker 1: is a bit of improv on their part right here,
Speaker 1: you know, I mean this was and how they what
Speaker 1: they set out to do. Uh. You know, Uh, Terror
Speaker 1: was named after a video game called StarCraft and the
Speaker 1: humans in that game there it's there's a bunch of aliens,
Speaker 1: you know, space battle video game. The humans are known
Speaker 1: for adapting on the fly very quickly, uh to any situation,
Speaker 1: and and clearly that's what he was doing in this situation. Um.
Speaker 1: But of course then bitcoin starts crashing with every other
Speaker 1: risky asset in the world, so that's sort of undermines um,
Speaker 1: you know, the notion of using bitcoin as a reserve
Speaker 1: to to back up the stable coin. Everything just became
Speaker 1: increasingly expensive at the same time, right right, And um,
Speaker 1: you know there was there was sort of a run
Speaker 1: on the bank of liquidity, uh in certain pools that
Speaker 1: trade stable coins, and that happened over a weekend and
Speaker 1: just helped to really just pull the bottom card out
Speaker 1: of what turned out to be a house of cards
Speaker 1: with this stable coin. So I'm a lawyer for a
Speaker 1: sports team, my GM or somebody in marketing comes to
Speaker 1: me and says, hey, should we do a deal with
Speaker 1: this crypto company that's going to pay us thirty something
Speaker 1: million dollars up front? What would you tell them? First?
Speaker 1: I'd consult my own lawyer, But like you said, get
Speaker 1: to get catch the check up front, uh, right into
Speaker 1: into the contract that you can. You know, if this
Speaker 1: thing blows up, you can erase the logo off of
Speaker 1: the arena at anytime. They do you think there's a
Speaker 1: reputational risk there. I mean, I think part of what
Speaker 1: I'm struggling with is most people in the world don't
Speaker 1: know who these crypto companies are, right, just like as
Speaker 1: a broad proportion of billions, lots of people do shortly.
Speaker 1: I'm not saying that there isn't anybody out there who's
Speaker 1: never heard of a coin base or on f t x.
Speaker 1: But if things go pear shaped, the people who really
Speaker 1: care are like media, Twitter, crypto Twitter, anybody who's lost money, certainly,
Speaker 1: and that sort of fintech ecosystem. But if you have
Speaker 1: a situation like Tara, where the goal was to introduce
Speaker 1: this company to people, you know, is there really a
Speaker 1: net negative for the team. It is mostly that people
Speaker 1: are just like, I don't know what that company does shruggy. Yeah,
Speaker 1: it doesn't seem like it was much of a net
Speaker 1: negative for the Nationals at this point. Certainly, if you
Speaker 1: lost money in Tara, you're furious. You're you're furious if
Speaker 1: you're a Nationals fan. I don't know. Sports sports fandom
Speaker 1: kind of trumps everything, so you know, you'll you'll be
Speaker 1: willing to look past it and maybe still follow the team.
Speaker 1: I don't know. It would be tough for my team,
Speaker 1: like the seventy six ers, to do anything in the
Speaker 1: sponsorship realm enough to turn me off against watching them.
Speaker 1: But I think it's something they're gonna think long and
Speaker 1: hard about going forward after after this situation for sure.
Speaker 1: And do you still think on this basis that things
Speaker 1: like naming rights which aren't cheap make sort of econom
Speaker 1: makes sense from that marketing r o I perspective, given
Speaker 1: that a lot of the wealth of these crypto companies
Speaker 1: is in crypto, and as those prices go down, it
Speaker 1: becomes more expensive for them to you know, convert it
Speaker 1: into the dollars that they need to pay for these sponsorships,
Speaker 1: right right, Yeah, I doubt highly that any big checks
Speaker 1: like that will be written, say for the rest of
Speaker 1: the year, given given the slumping crypto that we've seen.
Speaker 1: But one interesting thing was coin Desk sent some reporters
Speaker 1: out to the National Stadium. I wish I had thought
Speaker 1: of the stacy that you would have loved to see
Speaker 1: my expense account after this trip, like I have got
Speaker 1: to go on and not any trip, you know, the
Speaker 1: V I P Club at National Stadiums. And they did that,
Speaker 1: and they talked to people. No one really knew what
Speaker 1: Terra was, none of the fountains, yeah, you know. And
Speaker 1: they even as to bartender in the club, the Terra
Speaker 1: club named after this coin, like hey, did he hear
Speaker 1: about what happened with this thing? And and the bartenders
Speaker 1: like it's some kind of bitcoin, right, I love that,
Speaker 1: some kind of bix, which is not wrong, you know,
Speaker 1: it's it's uh in the thanks gime of things, I
Speaker 1: guess it's right. But you know, it was very early
Speaker 1: days in the in the sponsorship. UM. So it's hard
Speaker 1: to say, you know, whether the terra got its money's
Speaker 1: worth out of the exposure. UM, but I would say probably.
Speaker 1: You know, the regulators and and some of the lawmakers
Speaker 1: congregating in that V I P Club are quite familiar
Speaker 1: with it now, let's say, so they'll be reminded every
Speaker 1: time they go back. Every time. Well, thank you, Um
Speaker 1: I learned about baseball today. It doesn't happen to me often.
Speaker 1: And I think it's just as a final question, do
Speaker 1: you think in terms of those regulators. One of the
Speaker 1: things that has come up, and you know we're going
Speaker 1: to talk a lot about on this podcast is consumer protection.
Speaker 1: And one of the things you rightly identified with the
Speaker 1: sponsorship is they're trying to get in front of not
Speaker 1: just the movers and shakos, but the country music fans,
Speaker 1: right like anybody who is in that stadium at any time,
Speaker 1: and various other types of advertising asset classes. You don't
Speaker 1: get to just say buy my stuff with no fine prints,
Speaker 1: like big Pharma, can it be splashing logos anywhere or
Speaker 1: you know, saying on TV, by these drugs and without
Speaker 1: somebody speaking really fast with a list of things that
Speaker 1: will kill you. There isn't really that approach in crypto.
Speaker 1: Do you think situations like this me you know, accelerate
Speaker 1: that conversation about the appropriateness of this sort of marketing.
Speaker 1: I think it will absolutely. I mean we've already heard
Speaker 1: Janet Yellen, you know, talking about stable coins. The Treasury
Speaker 1: and the Fed. We're already looking into them pretty closely,
Speaker 1: viewing them as sort of if a coin is meant
Speaker 1: to track the dollar, once one, you're kind of sort
Speaker 1: of elbowing into the Federal Reserve, and the Treasury is
Speaker 1: turf there and and that's where you know, that's going
Speaker 1: to be a magnet for them, especially to to really
Speaker 1: keep an eye on. So I do think you know,
Speaker 1: what was it, sixties seventy billion in value just vaporized
Speaker 1: in this situation. I think it's going to be a
Speaker 1: big catalyst, I would guess for bringing forward some of
Speaker 1: these crypto regulations that you know have been bounced around
Speaker 1: and talked about for years but but not really put
Speaker 1: into practice. Well, we'll keep an eye on it. Thank
Speaker 1: you for joining us. Thank you say. You can find
Speaker 1: more of Mike Regan's reporting on the Bloomberg terminal on
Speaker 1: Bloomberg dot com and on Twitter, he's at reag Anonymous.
Speaker 1: On the next episode, Bloomberg reporter Alista Mash shares his
Speaker 1: reporting on how Ukraine has been using crypto during the
Speaker 1: war to support its armies and its population. Ukraine is
Speaker 1: even selling its own non fungible token, and it's a
Speaker 1: timeline of the Russian invasion. I'm Stacy Marie Ishmael and
Speaker 1: this is Bloomberg Crypto, a daily podcast from Bloomberg and
Speaker 1: I Heart Radio. For more shows from my Heart Radio,
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Speaker 1: for the show to Crypto at Bloomberg dot net. You'll
Speaker 1: find us on Twitter at Crypto. The supervising producer of
Speaker 1: this episode is Vicky Vergalina. Associate producer is Ty Butler,
Speaker 1: Associate producer is zan Ab Sidiki Desta wonder At is
Speaker 1: our engineer. Original music by Leo Sidron. Bloomberg's head of
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