Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wasn't and I'm Tracy Allaway, Tracy Luna, Tera
Speaker 1: stable coins, crypto crashing stuff. I'm gonna throw something else
Speaker 1: out there, Roman history. Let's talk about classic history. What's
Speaker 1: the Roman history part? It's Rome sacking Carthage. Have you
Speaker 1: not heard about that? Yeah? Is that what's going on?
Speaker 1: Is a Carthage big sacked right now? Well, that's actually yeah,
Speaker 1: I mean that's kind of what we're going to talk about.
Speaker 1: So we're going to be speaking with someone who has
Speaker 1: framed himself as Rome in the historic parallel going after Carthage,
Speaker 1: which would be Tara and Luna. The algorithmic stable coin,
Speaker 1: slash cryptos This is such a wild story. I mean,
Speaker 1: like I think you know, look, crashes, hacks, pond zis,
Speaker 1: rug polls, they happened all the time in crypto, right
Speaker 1: like it's almost it almost just like boring, And most
Speaker 1: of the time they're not even worth reporting on or
Speaker 1: talking about because they're like a daily occurrent. But the
Speaker 1: Terra ecosystem, the us T stable coin, the Luna token
Speaker 1: had gotten so big, so valuable, and so many major
Speaker 1: backers of crypto um were invested in it or had
Speaker 1: invested in it in some way that this is not
Speaker 1: just like another coin to crash. I think that's absolutely right.
Speaker 1: So two things here. One top ten coin, right, like,
Speaker 1: it's not it's not every day that you see something
Speaker 1: like this happened to a top ten coin. Secondly, the marketing,
Speaker 1: so everyone knew it was an unusual experiment, an algorithmic
Speaker 1: stable coin, and we'll get into exactly how it's supposed
Speaker 1: to work. But even with that said, it was pitched
Speaker 1: as a stable coin, as something that is supposed to
Speaker 1: maintain a peg one to one with the dollar, and
Speaker 1: people are supposed to be able to use it to
Speaker 1: get in and out of more volatile cryptocurrencies. And clearly
Speaker 1: that's not what's been happening because we've seen the peg
Speaker 1: has crashed. I think it got too as low as
Speaker 1: like point three is right, No, I mean that's exactly right.
Speaker 1: So it's a stable coin. The interesting thing is, like
Speaker 1: stable coins, there are many different flavors of stable coins,
Speaker 1: and people have been skeptical about them for a while.
Speaker 1: Most of the discussion about vulnerable stable coins was focused
Speaker 1: on tether, which but this was a so called algorithmic
Speaker 1: stable coin. They had some collateral backing. It's sort of complicated,
Speaker 1: we're gonna get into it, but the point is that, yes,
Speaker 1: it is sort of this classic example of the thing
Speaker 1: that blows up is the thing that has to maintain
Speaker 1: a peg, which is a lesson that in the trad
Speaker 1: fi world is understood for a long time, which is
Speaker 1: often the sorts of big sources of big risk are
Speaker 1: the things that, on the surface appear to have the
Speaker 1: least volatility. Here's the other thing that makes the story
Speaker 1: so in staying it's the people involved. You know, you
Speaker 1: mentioned some of the big funds like Galaxy Slash Novograts
Speaker 1: who were invested in Tara slash Luna. Yeah, which I
Speaker 1: thought was fake when I first saw that photo, but
Speaker 1: it is in fact real. But the other thing is
Speaker 1: there are strong personalities attached on both the pro Luna
Speaker 1: Tara side and the sort of against or warning about
Speaker 1: Tara slash Luna side. And that's where that Rome versus
Speaker 1: Carthage analogy comes in. You had the founder Do Kuan,
Speaker 1: and I don't know if anyone follows him on Twitter,
Speaker 1: but he is incredibly I guess outspoken would be Yeah,
Speaker 1: this is putting it all very very politely. But people
Speaker 1: would come out with criticisms of the entire algorithmic stable
Speaker 1: coin idea, and people would highlight vulnerabilities in the system
Speaker 1: and he would just bat them away, or he would
Speaker 1: just say, you're poor. I don't Yeah, you're poor. I
Speaker 1: don't need to talk to you. So what is going on?
Speaker 1: We are going to be speaking with a perfect guest.
Speaker 1: When everyone was like odd Lots has to do an
Speaker 1: episode on Luna obviously, and everyone my d MS flooded
Speaker 1: with this is the guest you have to have on
Speaker 1: because he's been warning about it for a while. We're
Speaker 1: gonna be speaking with Kevin So. He's the co founder
Speaker 1: of Gail Walk Capital, which is a crypto hedge fund
Speaker 1: that was launched in so that's old by crypto hedge
Speaker 1: fund uh longevity. But actually he's been in the space
Speaker 1: for about a decade, which is truly extraordinary. He knows
Speaker 1: it well. He's been warning. He had been warning about
Speaker 1: Tara and Luna for a while. So, Kevin, thank you
Speaker 1: so much for coming on odd Lots. Yeah, absolutely, thanks
Speaker 1: for having me. Kevin, you started a crypto hedge fund,
Speaker 1: like you know, now everyone has a crypto hedge fund obviously,
Speaker 1: but you that's legit, legit, legit veteran in the space.
Speaker 1: What what's your background? Why did you how did you
Speaker 1: get into it so much earlier than most people? Um, yeah,
Speaker 1: so you know, I think my background, Um, you know,
Speaker 1: I've been in crypto for a while now, really got
Speaker 1: started in I hadn't joined industry at the time. I
Speaker 1: was just mostly trading my own p a uh. And
Speaker 1: then I joined the industry, joined a small um bitcoin startup.
Speaker 1: It was an exchange. It was called butter Coin. It
Speaker 1: was the second y C company that was dealing with crypto,
Speaker 1: the first being coin base. Um, things didn't go so
Speaker 1: well over there and in the in the winter of
Speaker 1: two thousand thirteen, we shut down. Afterwards, I joined Kraken,
Speaker 1: ran their trading desk for two years, and then afterwards
Speaker 1: in uh, you know, in I guess early seen, decided
Speaker 1: to leave and start Galwa Capital and we launched in January. So,
Speaker 1: as we mentioned in the intro, there's been a lot
Speaker 1: of criticism of Terra and Luna and you're I think
Speaker 1: probably the biggest voice in that space. What piqued your
Speaker 1: interest in this particular pin or you know, system, when
Speaker 1: did you first start getting interested and start looking into it?
Speaker 1: And why? You know, when I first started looking into it,
Speaker 1: I'd say it was around mid or late last year.
Speaker 1: And uh, you know, at the time, I didn't think
Speaker 1: too much of it. I thought, oh, you know, this
Speaker 1: is just one of those i'll go stable coins. It
Speaker 1: probably won't work out, you know, it'll just implode pretty soon.
Speaker 1: Turned out not to be the case. It just kept going, uh,
Speaker 1: you know, Luna kept going up, us T kept maintaining stability.
Speaker 1: It grew bigger and bigger. And then I revisited it
Speaker 1: in January of this year, and I at this point,
Speaker 1: you know, I was kind of surprised at just how
Speaker 1: big it got, you know, it all of a sudden,
Speaker 1: you know, it's now like a top ten coin or
Speaker 1: something like that. So now I was starting to get
Speaker 1: worried because I've never seen one of these, you know,
Speaker 1: i'll go stable coins get so big. Usually they just
Speaker 1: collapsed before that. So you know that I thought, well,
Speaker 1: you know, maybe this is first one, maybe a great
Speaker 1: shorting opportunity, and to maybe this poses some systemic risks
Speaker 1: to the entire space, and and maybe it's time intosan
Speaker 1: sound the alarm, you know not. I mean, obviously for
Speaker 1: my own benefit, I would definitely like to make money
Speaker 1: on the short but also I think just as a
Speaker 1: public service to also let everybody else know to So
Speaker 1: can you actually back up for listeners? And we hear
Speaker 1: stable coins and we sort of mentioned it in the intro,
Speaker 1: which is that there are various flavors of stable coins.
Speaker 1: Tethers one model, U S d C is a similar model.
Speaker 1: There's also um maker and die. But what is uh
Speaker 1: an Elgo stable coin, this project that keep trying and
Speaker 1: they do have a long history of continuing to blow up.
Speaker 1: How is an Elgo stable coin different than other stable coiners? Um? Yeah,
Speaker 1: So I think we should first separate out these so
Speaker 1: called um these centralized stable coins with the centralized ones.
Speaker 1: So you know, first on the centralized side, you have
Speaker 1: folks like UH USDT which is tether, and USDC which
Speaker 1: is uh you know, circles dollar and you know, basically
Speaker 1: what's happening here is that there's a dollar in some
Speaker 1: bank account and for every dollar there they issue out
Speaker 1: one coin. Anytime you return a coin to them, you
Speaker 1: can demount of physical dollar, you know, by wire transfer
Speaker 1: or whatnot. It's very much kind of tethered together between
Speaker 1: the real world and the virtual world. Um. You know,
Speaker 1: on the on the sort of decentralized side, you really
Speaker 1: have variations of two models, right, So you have sort
Speaker 1: of like the collateralized model, which is like make or
Speaker 1: die um. What that is is basically you can post
Speaker 1: uh some amount of um some other type of asset,
Speaker 1: and in return you're going to get some stable coin,
Speaker 1: which is maybe you know, like if you if you
Speaker 1: over collateralize it by then you're gonna get a percent.
Speaker 1: So if you put in a dollar worth of value,
Speaker 1: you get back a dollar uh. And then at some
Speaker 1: point the price of the underlying collateral will fluctuate to
Speaker 1: the point at which you reach like a point where
Speaker 1: there's a margin call and then you know, either your
Speaker 1: collateral get seized or you top it up or you
Speaker 1: return the borrow. Right, So it's basically collateralized leading right.
Speaker 1: That's kind of you know, that that sort of model.
Speaker 1: And then finally, and this is where you know we
Speaker 1: we we start talking about Luna and Ust. You know,
Speaker 1: finally there is this pure class of algo stable coins
Speaker 1: which do not have collateral or or severely undercollateralized and
Speaker 1: they have some kind of stabilization mechanism. Long story short,
Speaker 1: it's basically like a perpetual motion machine. And it's not
Speaker 1: the first time that exact phrase has been used on
Speaker 1: this podcast in reference to a Tero slash Luna. Yeah, definitely,
Speaker 1: I would say either perpetual motion machine or giant Rue
Speaker 1: Goldberg machine. Right, So some of these are just really
Speaker 1: elaborate contraptions and you know, you don't know where the
Speaker 1: hand crank is, but someone's turning a hand crank to
Speaker 1: keep the system going. And it's not actually a perpetual
Speaker 1: motion machine, which we know is impossible, but um so,
Speaker 1: so that's the analogy. But basically the idea is that
Speaker 1: you have some kind of mechanism which in some way,
Speaker 1: you know, indirectly or directly expands the supply of that
Speaker 1: stable point when the price is too high in order
Speaker 1: to push it back down, and on the other side,
Speaker 1: contracts the supply of that stable point through some mechanism
Speaker 1: when the price is too low, hence pushing the price
Speaker 1: back up. Right. So these are kind of like these.
Speaker 1: You know, there are these feedback mechanisms regardless of how
Speaker 1: you design it. Within this class of stable coin. They're
Speaker 1: all these feedback mechanisms which eventually caused something like this
Speaker 1: to happen, which is why in the end, I think
Speaker 1: they're all pretty much the same, but you know, just
Speaker 1: through different methods. I mean, they all look different, but
Speaker 1: when you really, like when you start to really break
Speaker 1: it down, it's all just about supply contraction and expansion.
Speaker 1: So two things here. One, could you give us a
Speaker 1: little bit more detail on that arbitrage mechanism between Terra
Speaker 1: and Luna, like walk us through exactly how it works
Speaker 1: if the price of Luna goes up or the price
Speaker 1: of Luna goes down, and you know, vice versa with Tera.
Speaker 1: And then secondly, you mentioned a hand kind of turning
Speaker 1: the rank. And my understanding here is that yields on
Speaker 1: offer from Tera slash Luna were exceptionally high, I think
Speaker 1: something like nineteen or And this is another question that
Speaker 1: we ask a lot in the crypto or DeFi space
Speaker 1: more broadly, but where do those yields actually come from?
Speaker 1: Like how does this entire incentivization mechanism work? M Yeah, definitely,
Speaker 1: And and I completely agree with you that I think
Speaker 1: this component of it, which is the anchor yields on
Speaker 1: deposits for US T this nineteen and a half percent,
Speaker 1: which then eventually dropped down eight. That's exactly the hand
Speaker 1: crank in this perpetual motion machine that that makes it
Speaker 1: not perpetual. That's it's a great question always I think
Speaker 1: to ask where do the yields come from? I think
Speaker 1: a lot of times, you know, it just seems like
Speaker 1: there's free money, but it turns out you're you're just
Speaker 1: subsuming all of this kind of indirect or hidden risk
Speaker 1: that you're not aware of, right, A lot of this
Speaker 1: kind of like tail risk, which only manifests once in
Speaker 1: a blue moon, but when it does, it completely wipes
Speaker 1: you out, right. So it's just it's just really kind
Speaker 1: of like very dangerous kind of invisible risk. What I
Speaker 1: always like to say is that most of the time,
Speaker 1: you know, if you can't find where the yield is
Speaker 1: coming from, then effectively it's coming from future bag holders. Right.
Speaker 1: So it's like this idea that the sort of true
Speaker 1: belief and sort of the cultish behavior of true believers
Speaker 1: will eventually produce some value which gets extracted from them,
Speaker 1: and it is given to you now in the present.
Speaker 1: So it's extracted in the future and given to you
Speaker 1: in the present right now, right, And I think that's
Speaker 1: basically exactly what's going on with this with this lunar model.
Speaker 1: I know that's a little bit abstract, but um, you
Speaker 1: know that's kind of how I how I see it.
Speaker 1: And then maybe just returning to your first question, we
Speaker 1: could do remind me again with the first question, can
Speaker 1: you explain exactly how the arbitrage mechanism between Luna and
Speaker 1: Terra or Ust actually works, Like, walk us through what
Speaker 1: is happening as the prices of either of these things move,
Speaker 1: like how they balance out. Yeah, so, um, how they're
Speaker 1: supposed to balance out, I should say, yeah. So I'll first, um,
Speaker 1: sort of just describe the simple model and then I'll
Speaker 1: add some caveats on some of the intricacies there. So
Speaker 1: the simple model is that at any point you can
Speaker 1: always redeem one UST for one dollars worth of Luna, right, So,
Speaker 1: like if Luna was at a hundred dollars, then one
Speaker 1: us t would get you, uh, one luna penny right
Speaker 1: point zero one Luna, which is equivalent to one dollar.
Speaker 1: And if Luna is one dollar, then you know one
Speaker 1: UST is going to give you one Luna. Right. But
Speaker 1: in any case, you're always able to redeem us T
Speaker 1: UH for the equivalent amount of dollars worth of Luna. Uh.
Speaker 1: And the amount of Luna you get is based on
Speaker 1: where the current market value for Luna is and the
Speaker 1: vice and you know the opposite is true too. You
Speaker 1: can all is destroy or burn one dollar's worth of
Speaker 1: Luna to create one U s T. Right. So the
Speaker 1: idea behind this feedback mechanism is that if us T
Speaker 1: is trading below one dollar, what you can do is
Speaker 1: you can buy that on the open market, right, and
Speaker 1: then convert that to one dollar's worth of Luna and
Speaker 1: then sell that one dollar of luna. Right. So that's
Speaker 1: kind of how that arbitrage mechanism works in order to
Speaker 1: maintain this peck. So that's that's basically the simple model.
Speaker 1: Now it gets a little bit more complicated because there's
Speaker 1: a lot of dials um and and knobs that you
Speaker 1: can adjust uh and you know, bells and whistles around this.
Speaker 1: So the first thing is that it's not technically true
Speaker 1: that you get exactly one dollar's worth of Luna for
Speaker 1: burning one U s T. There is basically something called
Speaker 1: a automated market maker. This is something that has been
Speaker 1: popularized by you know, uh, you know, unit swap, sushi swap,
Speaker 1: curve balancer, a lot of these you know, m M protocols,
Speaker 1: these uh, these sort of decentralized liquidity pools, and it's
Speaker 1: really this automated market maker bonding curve which governs sort
Speaker 1: of the slippage or the costs of converting between Luna
Speaker 1: and UST. So the first component of this mechanism is
Speaker 1: that the greater the size that you do, the worse
Speaker 1: of a price you're going to get. Right, So this
Speaker 1: is like equivalent to like market slippage. You know, if
Speaker 1: you want to buy, you know, a million dollars worth
Speaker 1: of something, you know you're gonna pay a little above
Speaker 1: market price. If you want to buy a billion dollars
Speaker 1: worth worth of something, you're gonna pay well above market price. Right.
Speaker 1: So it's just you know, it kind of depends on
Speaker 1: liquid in the market, but really it's governed by this
Speaker 1: bonding curve, and you know, the greater the size that
Speaker 1: you do, the more slippage you in curve. The second
Speaker 1: part of it that's a little bit nuanced, is that
Speaker 1: there is some fee that's collected in the middle just
Speaker 1: like all these other bonding curves, all these other A
Speaker 1: M M s. There is a fee for converting. It's
Speaker 1: not very high, but you know, there is still some
Speaker 1: fee which adds on to basically the transactional costs, which
Speaker 1: are the slippage you know, plus the fee itself. And
Speaker 1: then the last part that's really interesting about this mechanism
Speaker 1: is that you know, before the full collapse, you know,
Speaker 1: in the past couple of days, there was basically a
Speaker 1: gating mechanism on which governed exactly how much ust could
Speaker 1: be created or destroyed per day, So being destroyed being
Speaker 1: you know, moving back into Luna, and I think that
Speaker 1: that number was around like two fifty mil uh dollars
Speaker 1: worth per day. Um, So anything beyond that you just
Speaker 1: you're just gonna have to wait until the next day.
Speaker 1: And then you know, there's also all sorts of like um,
Speaker 1: you know, much finer details like pool recovery periods and
Speaker 1: stuff like that, but you know, none of that is
Speaker 1: really that important, I think, to what we're gonna be
Speaker 1: talking about next. So I think just based on that explanation,
Speaker 1: I think we should be able to describe the phenomenon
Speaker 1: that we've we've seen in the past few days. So
Speaker 1: I want to get before we get into sort of
Speaker 1: like what happened over the last few days, because I
Speaker 1: think you've said some important things. The fact that there's
Speaker 1: a limit on how much can be converted in a
Speaker 1: given day is really important to understanding the action. The
Speaker 1: fact that there's a fee obviously for the more you trade,
Speaker 1: which if everyone's trading, fees go up. The one other
Speaker 1: UM element I'm curious about an understanding its role actually too.
Speaker 1: I want to understand a little bit further them. The
Speaker 1: Luna Foundation bought a ton of bitcoin I think earlier
Speaker 1: in the year, and their basic idea was like, Okay,
Speaker 1: you know, just in case I guess this the the
Speaker 1: perpetual motion machine starts to wobble a little bit, we
Speaker 1: can defend the PEG with this big bitcoin reserves, sort
Speaker 1: of like classic e M style. So I found this
Speaker 1: move really weird because either you're sort of a fully
Speaker 1: backed stable coin or its traditional reserves, or you're an
Speaker 1: algorithmic stable coin. Because the whole the whole problem they
Speaker 1: were trying to solve was that they wanted to get
Speaker 1: away from the traditional financial system UM without having to
Speaker 1: build the reserves. It's sort of like being like a
Speaker 1: little bit pregnant or something like we're sort of a
Speaker 1: little bit a little bit uh, a little bit unbacked. Yeah,
Speaker 1: like we're sort of reserved back but not so what
Speaker 1: is what was the role? Well, I I want to
Speaker 1: know what is the role of the Bitcoin Stabilization Fund?
Speaker 1: And then also I know you touched on it, but
Speaker 1: could you just explain a little bit and Tracy as
Speaker 1: but I think it's crucial that percent yield that was
Speaker 1: being given to induce people to hold us t this
Speaker 1: sort of big reason to hold a stable coin and
Speaker 1: actually make money holding a stable Like where was that
Speaker 1: coming from? Like what was the source of funds specifically
Speaker 1: other than just sort of theoretical future bag holders, Like
Speaker 1: how was that paid out? So basically, you know, when
Speaker 1: Luna or the terror Eco system first got started, Uh,
Speaker 1: there was some funds that were set aside for the
Speaker 1: company itself, right, And the main company is Terraform Labs TfL,
Speaker 1: and they have this huge stash of Luna which unlocks
Speaker 1: over a certain investing schedule. Right, so even for them,
Speaker 1: you know, slowly unlocks over time. So what they would
Speaker 1: do in order to finance their operations and to also
Speaker 1: finance the anchor yield reserve. Is they would sell large
Speaker 1: clips of this too, you know, willing investors at some
Speaker 1: kind of discount that also has a one year clip
Speaker 1: for some kind of vesting schedule, uh something like that,
Speaker 1: and then they would use that for operations, and they
Speaker 1: would also use that to keep basically topping up the
Speaker 1: anchor protocol on their year reserve because they were paying
Speaker 1: more interests to depositors than they were collecting from borrowers.
Speaker 1: And you know, I think in the end stages of Luna,
Speaker 1: in its final days, um, you could see that the
Speaker 1: uh you know, the the deposit amount was way way
Speaker 1: higher than the borrowed amount. So you know, they're they
Speaker 1: were bleeding. I mean, I think at some point so
Speaker 1: everyone so everyone buys UFT in order to collect that.
Speaker 1: But that basically has the effect, if you think it through,
Speaker 1: of sapping those reserves fund faster. They're sort of like
Speaker 1: set aside to sort of bootstrap the whole thing and
Speaker 1: incentivize the whole thing. But essentially, if everyone is chasing
Speaker 1: for it at once, that starts to get depleted or
Speaker 1: you start to like strain your ability to pay that up. Uh. Yeah,
Speaker 1: that's exactly right. I think at the at the peak,
Speaker 1: they were burning maybe about seven million a day, uh
Speaker 1: dollars worth a day of their their their yield reserve,
Speaker 1: and uh, you know, originally I think it was something
Speaker 1: like fifty mil or eighty mil or something like that.
Speaker 1: And then they had to do a top up of
Speaker 1: four fifty mill and then, you know, very quickly soon
Speaker 1: after that, soon was almost depleted, and they were thinking
Speaker 1: about how much to do another top above. Whether you know,
Speaker 1: they were thinking about whether to do it or not.
Speaker 1: Everybody was you know, you know, lobbying Dough Dough quant
Speaker 1: to to do it. You know, he was, you know,
Speaker 1: running some rumors that oh maybe it's going to be
Speaker 1: over a billion this time, this, this and that. So
Speaker 1: you know, the whole the whole thing was very expensive. Now,
Speaker 1: I think what they were thinking, because I don't want
Speaker 1: to strawman them, you or, I think what they were
Speaker 1: thinking is that, you know, they just want to uh
Speaker 1: you know, they think about this as a marketing expense, right,
Speaker 1: so they just want to get to get everybody talking
Speaker 1: about Luna, everybody using us t um. You know, they're
Speaker 1: just bleeding seven million in a day, but they're getting
Speaker 1: a lot of people you know, talking about anchor using anchor,
Speaker 1: you know, using their ecosystem, putting their money into it, uh,
Speaker 1: into this bar lending protocol. So you know, I personally
Speaker 1: don't think it was worth it. I think they you know,
Speaker 1: probably even even if they were right, which I don't think.
Speaker 1: I think they're absolutely wrong. But even if they were right,
Speaker 1: they probably could have gone away with a little bit
Speaker 1: lower than yields. I mean probably like even like eighteen
Speaker 1: seventeen probably would have been fine. Now, it's not going
Speaker 1: to save them that much more money, but I do
Speaker 1: think they overpaid for that. Uh, if you know, it's
Speaker 1: just the random thought there. And what about what do
Speaker 1: you think was the rationale for the bitcoin reserves, because
Speaker 1: I think before this week happened, I think they ended
Speaker 1: up with something like three billion worth of bitcoin that
Speaker 1: they'd accumulated. I think that's right. Yeah, um, yeah, that's
Speaker 1: about right. So you know, um, I think this, uh,
Speaker 1: this whole purchasing of the bitcoin was, in my opinion,
Speaker 1: a great move, uh in some ways and in some
Speaker 1: ways a really bad move. Right. So it was a
Speaker 1: really good move I think in terms of trying to
Speaker 1: make the system solvent eventually they probably needed about actually
Speaker 1: about ten billion dollars worth of collateral. They got to
Speaker 1: maybe about only only seven billion more, you know, And
Speaker 1: it's uh, I mean easier said than done, definitely, but
Speaker 1: you know, at least it was I think a step
Speaker 1: in the right direction in terms of creating solvency for
Speaker 1: the system. I think the system was way in the past.
Speaker 1: It was already insolvent. You know. It's just that nobody
Speaker 1: realized because they had created such a strong supply sink
Speaker 1: an anchor for this us T. You know, if that
Speaker 1: disappeared overnight or even gradually, the entire system was insolvent.
Speaker 1: I mean even at a price I would say, of
Speaker 1: over a hundred dollars a luna. Uh, this whole thing
Speaker 1: was already insolvent, just nobody realized it. But anyway, returning
Speaker 1: back to the bitcoin, um so, I think in that
Speaker 1: sense it was really good that they bought the bitcoin,
Speaker 1: But in some ways it was ald bit bad because
Speaker 1: it kind of destroyed the narrative a little bit, right. Yeah,
Speaker 1: Now it's just like a kind of half backed, a
Speaker 1: little bit half aspect, you know, kind of Uh. I
Speaker 1: don't know if I could say that something, but uh,
Speaker 1: but you know, but it's you know, now it's sort
Speaker 1: of like it's destroying their own narrative because like they
Speaker 1: basically said that, oh, we we finally constructed this perpetual
Speaker 1: motion machine. You know, behold everybody, We finally did it,
Speaker 1: you know, and it's working and it's amazing. But actually,
Speaker 1: you know, just in case it doesn't work, let's get
Speaker 1: some insurance. You know. So like before they were the
Speaker 1: narrative was very strong. It was just like there was
Speaker 1: just saying, oh, yeah, for sure the state works now,
Speaker 1: and obviously it doesn't. But you know, they were saying
Speaker 1: and a lot of people were believing them. But you know,
Speaker 1: it's almost like they were capitulating a little bit on
Speaker 1: the narrative and making certain concessions by even buying the
Speaker 1: bitcoin in the first place, because now it begets the question.
Speaker 1: Now people were thinking, well, wait a second, this thing
Speaker 1: is just always it was going to work all along.
Speaker 1: Why do we even need that, Like you're telling me that,
Speaker 1: you know that that's not really a vote of confidence there,
Speaker 1: you know that you even feel the need to get
Speaker 1: some insurance there. But you know, all that being said,
Speaker 1: still happy that they did, I mean, it would have
Speaker 1: been even worse if they did. So walk us through
Speaker 1: what you think just happened, Because I've seen some wild
Speaker 1: theories out there. I mean a lot of the lunar bowls,
Speaker 1: I guess they sometimes call themselves lunatics, but a lot
Speaker 1: of them are talking about this idea of a concerted
Speaker 1: attack from people like Citadel and yeah, I mean it
Speaker 1: just sounds crazy to me. But also, but also here's
Speaker 1: the thing, Like, even if it was some sort of
Speaker 1: concerted attack a bunch of people shorting all at once,
Speaker 1: that still seems like a fundamental vulnerability in this machine
Speaker 1: that you've designed to be stable. So I guess, walk
Speaker 1: us through what you think happened and what the exact
Speaker 1: trigger was for the chaos that we've seen this week. Yeah,
Speaker 1: the deep pegging. Yeah, you know, I think we're really
Speaker 1: entering this phase in the market cycle, which I've been
Speaker 1: calling on Twitter the finger pointing phase. You know, now
Speaker 1: that this thing is clearly you know, it's clearly failed,
Speaker 1: who should take the blame for this? Right? Is it
Speaker 1: a some external party in a foreign world, the trad
Speaker 1: fi world? Right? The boomers in the suits that nobody
Speaker 1: likes crypto? Yeah, easy scapegoat? Right? Probably was Citadel or
Speaker 1: black Rock right, turned out to be just a post
Speaker 1: of four chance, you know, like I mean, like they're not.
Speaker 1: I can't believe we're in historic times. The Black Rocket Citadel.
Speaker 1: Now I have to issue rebuttals to a four champ post.
Speaker 1: But that's absolutely ridiculous. I mean, it just goes to
Speaker 1: show how quickly means spread and how quickly narrative spreads,
Speaker 1: whether it's right or wrong. Where we're in the age
Speaker 1: of social media and words spread so fast that literally
Speaker 1: a four chand post can trigger a response from set
Speaker 1: it on black Rock And it's absolutely ridiculous. I mean,
Speaker 1: where people coming up with these conspiracies. Uh so is
Speaker 1: it a them, right, these outsiders, these boomer trade tread
Speaker 1: rad fight guys. Is it be somebody internal to Crypto?
Speaker 1: You know, some big shorters like uh you know, like
Speaker 1: galwah Capital or like some of the other noted uh
Speaker 1: you know six Factors of Luna. Was it Sam, you know,
Speaker 1: was it Winter Mew? Who knows? Maybe it was one
Speaker 1: of our own people, right or is it c Um?
Speaker 1: Is it do Kuans fault? You know, because he built
Speaker 1: this project, the mechanism was clearly unsound. Maybe he's a grifter.
Speaker 1: Maybe he was a scammer all along. Maybe it's his
Speaker 1: fault or is it cut d like? Is it? Is
Speaker 1: it like people's own fault in a way? Right? Is
Speaker 1: it that they themselves got a bit greedy? Um? They
Speaker 1: wanted so badly to believe that there was free money
Speaker 1: raining from this sky that they turned off all their
Speaker 1: reason and logic because they you know, they had some
Speaker 1: hope of changing the circumstances of their life. You know,
Speaker 1: it's a bit sad to say, but I think you
Speaker 1: know there is some bit of that too, you know,
Speaker 1: So what I would say is really hard to say
Speaker 1: what you know exactly triggered it, but I think it
Speaker 1: would you know, if this is any lesson for us,
Speaker 1: and I think you know, the crypto space, we've we've
Speaker 1: always been um kind of like we want to be
Speaker 1: a self regulatory, regulating industry. We do. We don't really
Speaker 1: need regulators to step in, you know, protect the little guy,
Speaker 1: protect the retail from themselves. Right, we can handle things
Speaker 1: on our own. And if that is the case, then
Speaker 1: every time something like this happens, we have to take
Speaker 1: some very good lessons about them. We have to, you know,
Speaker 1: take a hard look at ourselves and why this happened?
Speaker 1: You know, why how did people get so greedy and
Speaker 1: not just not just retail themselves to write I think
Speaker 1: it is good for them to reflect on themselves too.
Speaker 1: But also, you know, how did the vcs? How did
Speaker 1: the investors get so greedy about this stuff? How did
Speaker 1: the founders get so greedy about this stuff? You know,
Speaker 1: the exchanges, I mean to some extent. I mean, they
Speaker 1: definitely benefit from all the trading volume, right, so you know,
Speaker 1: maybe it's not that you know, they're particularly greedy, but
Speaker 1: maybe they look the other way because they don't really care.
Speaker 1: As long as you could trade a coin back and forth, uh,
Speaker 1: and you know, collect the fees, maybe it was still
Speaker 1: good for them, right. So you know, I think I
Speaker 1: think it is important for us to reflect on ourselves
Speaker 1: before we just start pointing fingers. Now that being said,
Speaker 1: if we want to talk about how how you know,
Speaker 1: it actually went down, there's been you know, a lot
Speaker 1: of speculation and you know, some people have woven these
Speaker 1: very intricate narratives about Okay, on this time, this thing happened,
Speaker 1: this time, that thing happened. Um, what I would say
Speaker 1: is that most mostly its speculation. There are some things
Speaker 1: that are I think factual. So maybe we can just
Speaker 1: start with that, which is that when Luna first um
Speaker 1: started to unwind. This was during a period, you know,
Speaker 1: when the first deep pegging happened. There's a couple of
Speaker 1: days ago. Just before you keep moving. We're recording this Thursday,
Speaker 1: May twelve, and so it was really I feel like
Speaker 1: last Saturday morning. I guess that was maybe the seventh
Speaker 1: or something. I just wanted to sort of like set
Speaker 1: that when people like people have been talking about for
Speaker 1: a while, but that was sort of when it suddenly
Speaker 1: started to deviate. I think it was about roughly five
Speaker 1: or six days ago. But anyway, sorry, keep going. I
Speaker 1: just want to make sure listeners start to understand the
Speaker 1: time frame here. Yeah, exactly. So, so it was around
Speaker 1: that time, and it was during a time when there
Speaker 1: was a migration of assets from the three pool on
Speaker 1: Curve to the new four pool, right, So maybe I
Speaker 1: just I'll explain that a So I guess starting with curve.
Speaker 1: Curve is basically it's a little bit like unit swap.
Speaker 1: It's a it's a bonding curve. M M. It's a
Speaker 1: bit flatter in terms of the bonding curve meaning that
Speaker 1: you can trade greater size near quote unquote the peg,
Speaker 1: you know, and this is like this is mostly for
Speaker 1: stable points, right see. You know, for three pool, it's like,
Speaker 1: you know, you have USDC USDT Die, and those are
Speaker 1: three three coins in three pool, and they're all stable coins.
Speaker 1: They should all be pegged roughly to a dollar. Uh
Speaker 1: so you know, around a dollar you can trade huge
Speaker 1: amounts of size, which is not quite doable in you know,
Speaker 1: rounder bonding curve like you know, most things on NITA,
Speaker 1: at least un swab. So it's an a MM, it's
Speaker 1: a it's a it's a defy MM. But it's particularly
Speaker 1: well optimized for trading stables between each other. Yes, I
Speaker 1: mean there's some caveats there, but you know, I think
Speaker 1: the details don't don't matter too much. So, um, it
Speaker 1: is particularly optimized for trading stables for the most part.
Speaker 1: So that's three pool. Three pool is you know, circles Dollar, Tether,
Speaker 1: and Die which is makers coin, and then four pool
Speaker 1: would have been would have been two of the coins
Speaker 1: from three pool being tether and Circle dollar. But instead
Speaker 1: of having Die, they we're gonna have ust and they
Speaker 1: were gonna have fracts as dollar. So you know, the
Speaker 1: whole idea there is that they kind of it to
Speaker 1: kill die, and they wanted to have more of their
Speaker 1: own native liquidity. They didn't want to just have a
Speaker 1: meta pool, which is you know, for example, ust against
Speaker 1: three curve, right, so it's it's a pool between two assets,
Speaker 1: but one of the assets is a pool itself, right.
Speaker 1: So they don't want to just be attached as like
Speaker 1: a sidecar, you know, to three pool. They wanted to
Speaker 1: be you know, have their own native pool. So these
Speaker 1: great plans for you know, four pool and whatnot. So
Speaker 1: you know, during this time in the DP pegging, returning
Speaker 1: to that point of the story, um, you know, they
Speaker 1: were basically the lunar guys TfL they were doing a
Speaker 1: migration from three pool of the four pool. So they're
Speaker 1: pulling all the liquity from three pool putting into four pool.
Speaker 1: And this is basically when somebody just took up all
Speaker 1: the liquidity left on us T by basically just in
Speaker 1: the U S T pools, just by dumping all their
Speaker 1: us T and taking out all the other assets. And
Speaker 1: this basically was what caused the first panic. Now was
Speaker 1: that one person was that multiple people I think really
Speaker 1: hard to say. I think you'd have to take a
Speaker 1: look at the chain. Right now, the narrative is that
Speaker 1: it was just one attacker, But I mean, I think
Speaker 1: this is kind of like a like a boogeyman. I
Speaker 1: think we should we should actually take a look at
Speaker 1: the actual transactions that had happened on Curve at that
Speaker 1: time and see if it came from multiple addresses or
Speaker 1: came from a single address. I mean, to be fair,
Speaker 1: I mean, even if it comes from ultiple addresses, it
Speaker 1: could still be you know, the same party. Maybe they
Speaker 1: just split up their wallets, you know, But at least
Speaker 1: we shouldn't We should verify right before making these kinds
Speaker 1: of speculations. But in any case, basically all the us
Speaker 1: T was dumped, all the other assets were drained from
Speaker 1: these pools, and then that that basically caused a little
Speaker 1: bit of a panic. Other people pulled money out of anchor,
Speaker 1: people try to find ways of getting rid of their
Speaker 1: us T. Luna started tanking. The entire markets were already tanking.
Speaker 1: Um you know, it's kind of like an alignment of
Speaker 1: the stars. The equity markets were tanking, and cryptos really
Speaker 1: correlated with the equity markets these days, so everything was dropping,
Speaker 1: and on top of that, the migration was happening. So
Speaker 1: it was, you know, a cacophony of the perfect sequence
Speaker 1: of events and um, you know, coincidences there. So this
Speaker 1: system was already very unstable, and this was something that
Speaker 1: you know, you recognized and other people, but you recognized
Speaker 1: going back to last year, it was inherently flawed. But
Speaker 1: then we get this sort of perfect storm because we
Speaker 1: have this big risk asset sell off. You know, stock
Speaker 1: market has obviously been tanking Bitcoin, which on some level
Speaker 1: had of course been a contributor to ust stability. Bitcoin
Speaker 1: has obviously been tanking, so did the extent that that's
Speaker 1: a backstop that's dissolved or diminishing by the day. And
Speaker 1: then you have this migration and it was about to
Speaker 1: be a switch and someone dumps a lot and drains
Speaker 1: the liquidity from the existing pool you mentioned and I
Speaker 1: saw I've seen a lot of people talk about this
Speaker 1: move from the three pool to the four pool. Was
Speaker 1: there something inherent about that migration that made it vulnerable?
Speaker 1: Was that inherently going to be a less liquid moment
Speaker 1: for us? T Yeah, I mean it would definitely be
Speaker 1: a less liquid moment, But I don't want to just
Speaker 1: say that definitively someone was trying to attack the probo
Speaker 1: at that time, you know, because what it really could
Speaker 1: be is that somebody was just looking at the liquidity
Speaker 1: and didn't even know that the migration was happening that day, right,
Speaker 1: and then just saw all the liquidity evaporate, panicked themselves, right,
Speaker 1: and then just dumped all their us t training the
Speaker 1: rest of liquidity, right. Or or it might not have
Speaker 1: been one person, it could have been multiple people who
Speaker 1: all you know, we're sitting at their computers one day
Speaker 1: and not having read that they were doing the migration,
Speaker 1: everybody feeling the same panic, everybody dumping, right. So, speaking
Speaker 1: of opportunistic moments, I guess or triggers for these type
Speaker 1: of types of moves. You mentioned that you were short,
Speaker 1: and I know you probably can't necessarily go into detail
Speaker 1: of exactly what that position looked like. But I imagine,
Speaker 1: given the degree of criticism against Terra slash Luna, that
Speaker 1: there were a number of people who would have liked
Speaker 1: to or maybe have better against this over time. And
Speaker 1: I'm wondering, you know what, what, how did those trades
Speaker 1: theoretically work? And then is it possible that there were
Speaker 1: frictions within the Luna Terra ecosystem that made shorting it
Speaker 1: kind of difficult, because this is a classic thing in markets, right,
Speaker 1: you know, you can identify the bubble or you can
Speaker 1: identify the ponzi and then get killed. So I guess
Speaker 1: I'm wondering how painful it would have been to short
Speaker 1: this for a substantial amount of time. Yeah, I definitely
Speaker 1: would be very painful. And this is why we didn't
Speaker 1: start shorting this thing until actually pretty recently. I want
Speaker 1: to say, I don't want to say exactly when, but
Speaker 1: it was sometime this month, and it wasn't actually earlier
Speaker 1: than that that we were shut um. And you know,
Speaker 1: I think that with something like this, being early is
Speaker 1: almost as bad as being wrong, right uh. And you know,
Speaker 1: partly one of the reasons that this thing was so
Speaker 1: difficult to short was because the funding on putting on
Speaker 1: shorts uh was extremely high. And that's because the opportunity
Speaker 1: cost was getting yield on anchor. Right, So basically you're
Speaker 1: paying maybe about but it's about that, it'll be about that, right,
Speaker 1: Like that yield was higher, maybe even harder to shore
Speaker 1: that yield was lower. It would be easier to shore, right.
Speaker 1: But basically that's the opportunity cost of not shorting, right.
Speaker 1: So that's why, you know, that's why this this trade
Speaker 1: I think was particularly difficult to put on just from mechanically,
Speaker 1: from that standpoint, but also I think on top of that,
Speaker 1: this whole system and this whole design is so reflexive
Speaker 1: on both the up and the downstading, right, So like
Speaker 1: we saw this thing go negative down right, right, just
Speaker 1: in a couple of days, right. But you know, on
Speaker 1: the up side, it's also very violent, right, So you know,
Speaker 1: you could be right, but you know, the market could
Speaker 1: still liquidate, you you know, for some reason. You know,
Speaker 1: the equity markets rally, everything rally, Bitcoin rallies, the you know,
Speaker 1: Luna having beta to bitcoin it also rallies. Uh. And
Speaker 1: then on top of that they make some kind of
Speaker 1: crazy announcement whether it's true or not, you know, and
Speaker 1: then and then you know, you could completely get blown out.
Speaker 1: So you know, I think that that's why, you know,
Speaker 1: this thing was just particularly difficult to short. You know,
Speaker 1: just structurally, it's just very difficult. But we did get
Speaker 1: it in. Uh, And I think it was just roughly
Speaker 1: about the right timing, so very happy about that. Yeah,
Speaker 1: I bet um. I mean it feels to me like
Speaker 1: one of the difficulties or one of the reasons this
Speaker 1: week has been so extreme, is because there's no natural
Speaker 1: circuit breaker on while either on the upside and this
Speaker 1: is why you saw you know, some phenomenal valuations, but
Speaker 1: also on the downside. Yeah, you know, I think my
Speaker 1: opinion there is a little bit you know, different than yours, Tracy,
Speaker 1: because you know, I think that the circuit breakers could
Speaker 1: have slowed things down, but couldn't have stopped them. And
Speaker 1: in some ways by doing the circuit breakers, uh you know,
Speaker 1: like let's say the exchange is just you know, limit
Speaker 1: up or down. They just hit the circuit breakers. Well,
Speaker 1: there's still the defied markets, right, and then there's still
Speaker 1: like all these other sources of true price discovery, and
Speaker 1: as long as there's some kind of outlet for it,
Speaker 1: you're basically just building up pressure on the Sea FI
Speaker 1: exchange once the circuit breaker is released, right, So now
Speaker 1: like instead of it just like you know, exponentially crashing down,
Speaker 1: now it might just be straight up vertical line. You
Speaker 1: hit the limit and then the moment the market reopens,
Speaker 1: another straight vertical line down to the next limit and
Speaker 1: then just like staggered lines down right instead of like
Speaker 1: more more a curve line, almost vertical down. So you know,
Speaker 1: I think at the end of the day, Um, you
Speaker 1: can't really go against the market. If it wants to
Speaker 1: go down, it's just gonna go down. I mean, you know,
Speaker 1: any kind and especially for something so reflexive. Um, most
Speaker 1: people are not trading, you know, people are trading emotionally.
Speaker 1: But there's like there's what I'm saying is that there's
Speaker 1: there's more that's coming, right, It's not that oh you know,
Speaker 1: after a while, people just want to go buy the dip. Right,
Speaker 1: This asset is the complete opposite of a dip buying asset. Right,
Speaker 1: some assets they're more mean reverting when it goes down
Speaker 1: and you buy something looks cheap when it's when it
Speaker 1: pops up, you know, when you sell down a little
Speaker 1: bit because it looks expensive. This is the complete opposite.
Speaker 1: The further it goes down, the easier it is to shore, right,
Speaker 1: because then first of all, like everybody else is unwinding,
Speaker 1: you know that's happening. And then uh, second of all,
Speaker 1: the entire value of everything back in us T which
Speaker 1: is circularly, Luna It's itself and Bitcoin are both losing value. Right,
Speaker 1: So then at some point, you know, if you if
Speaker 1: you think collateralization ratio was bad yesterday, then today it's
Speaker 1: even worse, and the next day it's going to be
Speaker 1: even worse, and you can see that trend deterministically playing out,
Speaker 1: than at that point you might as well just dump
Speaker 1: it today, right. So this thing is a purely reflective asset.
Speaker 1: It's the purest of momentum assets. So what you say
Speaker 1: makes total sense. But you know, I'm trying to understand
Speaker 1: actually how different fundamentally Luna Terra is from a lot
Speaker 1: of other crypto defy assets. And of course, we recently
Speaker 1: did an episode with Sam Bankman for and he was
Speaker 1: asked to describe yield farming and he's like, oh, it's
Speaker 1: a box and you put money in and then you know,
Speaker 1: you get some governance tokens to incentivize more money in
Speaker 1: the box, and then more money goes into the box,
Speaker 1: and then you make a lot of money if you're
Speaker 1: earlier in the box. You talk about the reflexivity of
Speaker 1: the Luna Tarot box and when it's going down, there's
Speaker 1: literally no reason there's no cash flow, there's no book
Speaker 1: value or anything that inherently stabilizes the price. There's this
Speaker 1: is what I meant by a natural by the way,
Speaker 1: So then how different is it from a lot of
Speaker 1: other crypto things in terms of this reflexivity? And is
Speaker 1: this and I mean, is it really different from the
Speaker 1: rest of the space, because I don't see, like it
Speaker 1: feels like a lot of crypto assets have the same reflexivity. Yeah,
Speaker 1: so I want to separate out the reflexivity from the
Speaker 1: garbageness of it. Right, So, like I think on the
Speaker 1: reflexivity part, this is uniquely bad, like or Luna is
Speaker 1: uniquely bad in its reflexivity. It's extremely extremely high reflectivity.
Speaker 1: I think that's not the case for a lot of
Speaker 1: these other yield farming boxes. Um. Now that being said, uh,
Speaker 1: on the other side, there are some similarities in the
Speaker 1: sense that there was a box also for Luna, and
Speaker 1: it was called Anchor, and you put money in that
Speaker 1: box and seemingly you've got money out of it. Now
Speaker 1: what it turned out to be is that, uh, you know,
Speaker 1: And I want to maybe just go off of Sam's
Speaker 1: metaphor here, which I found hilarious, which is that you know,
Speaker 1: in a lot of these cases, right, you put money
Speaker 1: in the box and then money comes out of it,
Speaker 1: especially you know, if you're early, I would say that
Speaker 1: in this case, you put money in the box, seemingly
Speaker 1: money comes out of it, but really, really the true
Speaker 1: transfer value here is that you put your money in
Speaker 1: the box, that money, somehow, through many different pipes, goes
Speaker 1: to investors and founders of the project, and then your
Speaker 1: money disappears and you have nothing. So it's it's more
Speaker 1: like that, I would say, so instead of how is
Speaker 1: that different? Sorry, yeah, because I would say that certain
Speaker 1: boxes are a little bit more honest in the sense
Speaker 1: that you know, it's kind of like a like a
Speaker 1: chicken game, right, So it's like users competing with users,
Speaker 1: and the earlier you are, the better that you do. Right.
Speaker 1: I know it sounds really bad. It is really bad,
Speaker 1: But what I'm saying is that this is even worse
Speaker 1: than that, because it's not even it's not really just
Speaker 1: users competing against users. It's more like users thinking they're
Speaker 1: competing against other users, but really getting all their funds
Speaker 1: siphoned out by you know, investors and the inside team.
Speaker 1: So one of the other things that's been happening this
Speaker 1: week is now Tether has depegged. And initially at the
Speaker 1: start of this week, when Tara was going down, when
Speaker 1: ust hit point three or whatever it was, everyone was
Speaker 1: talking about, Oh, it's it's a problem with the algorithmic
Speaker 1: stable coins, only this thing is worse than a lot
Speaker 1: of other stuff. But now we've seen strains on Tether,
Speaker 1: which is supposed to be reserved backed, but of course
Speaker 1: there have always been questions swirling around what those reserves
Speaker 1: actually are, what they look like. We've also seen some
Speaker 1: stable coins um I can't remember exactly what it was,
Speaker 1: but like stuff like USDC and b USD and things
Speaker 1: like that, UM that seemed to have done relatively better.
Speaker 1: So those are holding up. So I guess my question is,
Speaker 1: is this now a shakeout in the stable coin space
Speaker 1: or what happens now? Do people go to stuff that
Speaker 1: they perceived to be safe or does the safe stuff
Speaker 1: get liquidated because a bunch of hedge funds have Luna
Speaker 1: Tera exposure and need to raise money. Like what exactly happens? Yeah,
Speaker 1: you know, I think a lot of those things. So
Speaker 1: let's first talk about the general sort of financial contagion, right, So,
Speaker 1: like a lot of these guys who are just like
Speaker 1: these funds uh and and other types of investors who
Speaker 1: are just really long but let's say Luna or Ustu
Speaker 1: or sometimes even doubling down on the position. Uh. You know,
Speaker 1: they basically, you know, as as the price moves against them,
Speaker 1: they're facing margin calls. So I think what a lot
Speaker 1: of them did is that they sold their other hard assets, right,
Speaker 1: so other coins, bitcoin, ethereum, whatever, they had to meet
Speaker 1: these margin calls, uh, and then eventually, like some of
Speaker 1: them even got wiped out on on the entire fund.
Speaker 1: So I think that's probably why you're seeing all of
Speaker 1: this contagion. I mean, some some of it is just
Speaker 1: correlated to equities, but I think for the most part,
Speaker 1: there's also some psychological contagion. And you know, people just
Speaker 1: all of a sudden, you know, they see this huge
Speaker 1: you know, top ten coin implode, they start to feel
Speaker 1: a little bit less safe about all their other investments
Speaker 1: in general. And then some of it is this like
Speaker 1: to meet margin calls and to find ants themselves. You know,
Speaker 1: some people have just sold off actually much better assets
Speaker 1: than than Luna and ust to defend their position, and
Speaker 1: Lunar and U s t so I think that that
Speaker 1: that definitely happened. So I forget what the first part
Speaker 1: of that. I guess, how does the stable coin market
Speaker 1: shake out now? Does more money flow into things that
Speaker 1: are perceived to be higher quality, or how do people
Speaker 1: start to differentiate? Yeah, definitely. Uh, you know, I think,
Speaker 1: you know, these days, you're starting to see like some
Speaker 1: of these coins trade above parody that are not, you know,
Speaker 1: the non tether stable coins. At least for a little bit,
Speaker 1: I think a lot of stuff was trading like a
Speaker 1: dollar and two cents dollar in three cents, that sort
Speaker 1: of thing. I think generally the consensus right now in
Speaker 1: the market is that us d C is the safest
Speaker 1: and there's a little bit of worry about Tether. I
Speaker 1: think that's fair. But I do think the worries about
Speaker 1: Tether or a little bit overblown. And I want to
Speaker 1: qualify that statement by saying that although Tether as a
Speaker 1: company has done some really shady stuff in the past,
Speaker 1: actually happened to believe that they're actually more than just
Speaker 1: fully collateralized. I think they're actually overcollateralized. Um. So you know,
Speaker 1: if you think, if you think about some of the
Speaker 1: weird and wacky stuff they did that they shouldn't have done. Um,
Speaker 1: they actually backed some of the tether with crypto righte
Speaker 1: with with bitcoin itself, and this is like during a
Speaker 1: bull run. So first of all, they really shouldn't do
Speaker 1: that because that's not the point of what their business.
Speaker 1: Yeah yeah, I mean they really should just be keeping
Speaker 1: like really dollar like instruments or actual dollars that would
Speaker 1: be the absolute safist in the bank account and they
Speaker 1: shouldn't be speculating with client funds like that. But given
Speaker 1: that they actually did do that something that they shouldn't,
Speaker 1: they actually worked out for them. So they kind of
Speaker 1: got lucky and with you know, I don't know if
Speaker 1: they kept a lot of the profits themselves are whatnot,
Speaker 1: But if at least some of that profits still was
Speaker 1: held on the vaults, then they should actually be overcollateralized.
Speaker 1: And then you know the other you know, crazy stuff
Speaker 1: that they did, you know, where they loaned money to
Speaker 1: themselves because you know, Tether is also owned by X,
Speaker 1: just the parent company at bit foin X. They basically
Speaker 1: loan money to bitfoin X because of you know, some
Speaker 1: some bad debt that bitfoin X had because they they
Speaker 1: were like short like eight million or something because of
Speaker 1: like crypto capital something I don't I don't remember exactly,
Speaker 1: but it was something like that. Um so they were
Speaker 1: basically like doing all these crazy loans between their own companies.
Speaker 1: And you know that's you know, I think, definitely something
Speaker 1: that they shouldn't have done. But technically they you know,
Speaker 1: they made it out of that too. They issued the
Speaker 1: LEO token, they sold it to investors, raised a billion,
Speaker 1: put that money back in, gave that money back to Tether.
Speaker 1: Uh So you know, technically it should still be a whole.
Speaker 1: I mean, they keep doing things that they shouldn't do,
Speaker 1: but yet they always get lucky and they come out
Speaker 1: of it. So I actually tend to believe that Tether
Speaker 1: is pretty safe. But you know, they really should stop
Speaker 1: doing crazy ship I want to ask about the more
Speaker 1: the terror fall out in a different direction. So clearly
Speaker 1: there's this sort of pure financial contagion. You see the
Speaker 1: top ten coin crash and cetera, or you start to
Speaker 1: wonder about the safety of some of these other yield
Speaker 1: boxes and so forth. But the other thing good striking,
Speaker 1: and I mentioned this in the intro, which is that
Speaker 1: we're used to hacks and crashes in crypto. They happened
Speaker 1: all the time, and most of the time they're too
Speaker 1: boring to even mention. But this one was like backed
Speaker 1: by like legit or people who are respected leaders in
Speaker 1: the industry, people who go on TV and obviously like
Speaker 1: Nova grads who has the dog tattoo mean nothing seriously,
Speaker 1: So you know, but there's others two And if you
Speaker 1: look at you know, I saw the press release of
Speaker 1: the first time, like you know, when Tara got funded,
Speaker 1: and it's all of the like some of the biggest
Speaker 1: names in crypto, and so I'm curious, like how that
Speaker 1: affects the industry that this is not like some like
Speaker 1: big connect weird thing where everyone sort of new was
Speaker 1: really terrible, like a bunch of people really stood by this. Yeah, definitely,
Speaker 1: And you know, I think historically we've seen stuff like
Speaker 1: that happened before. You know, look at like the Dow
Speaker 1: for example, you know when that came out and it
Speaker 1: got act I mean that was also backed by a
Speaker 1: lot of heavy hitters in the industry. And then you know,
Speaker 1: there was at some point there was like the whole
Speaker 1: Bitcoin cash fork. Uh, And I wouldn't I want, I
Speaker 1: don't want to say it was backed by like everybody.
Speaker 1: It was in the majority. It was still a minority
Speaker 1: within the industry, but it was a very healthy minority, right,
Speaker 1: So we've definitely had situations like that in the past.
Speaker 1: What I would say, and I don't want to cast
Speaker 1: any expersions on most of the investors in Luna and Terra,
Speaker 1: what I would say is that I think it's a
Speaker 1: combination of three things. I think the first is that
Speaker 1: people got used to too much easy money in the
Speaker 1: bull cycles. And you know, before the FED started hiking
Speaker 1: up rates, you know, they were used to this kind
Speaker 1: of access arbitrage right as vcs, they're very well connected. Um,
Speaker 1: they can get into these very early seed round deals
Speaker 1: and massive discounts mark that stuff up, you know, crazy amounts,
Speaker 1: you know, ten X in a week, you know ten
Speaker 1: X in a couple of months, hundreds X in a year,
Speaker 1: you know, even thousands possible. So I think they just
Speaker 1: saw that as a continuation of business as usual, right.
Speaker 1: And you know that also like to get some questions
Speaker 1: like why why should the returns be so high in
Speaker 1: the first place, But you know that's I think another
Speaker 1: philosophical discussion. I mean, but I think you know, they
Speaker 1: got kind of used to that, and for them, they
Speaker 1: hadn't really switched their mindsets yet to more of a bearish,
Speaker 1: more of a hawkish kind of fed environment. So I
Speaker 1: think that's one part. I think the second part is
Speaker 1: that generally some of them tended to be true believers.
Speaker 1: And what I mean by that is that they thought that, yeah,
Speaker 1: maybe most likely this thing fails, like nine chance this
Speaker 1: thing fails, but maybe ten percent chance the same thing
Speaker 1: succeeds and it goes up a million x, right, So
Speaker 1: then that still makes the investment positive ev right, positive
Speaker 1: expected value. So I think from that standpoint, they thought
Speaker 1: that this was still maybe a good bet to make,
Speaker 1: and it was an honest bet. Um, you know, they
Speaker 1: thought it was good at the time. Maybe they don't
Speaker 1: think so anymore, but maybe some of them even still
Speaker 1: now made money because they got out in time, right,
Speaker 1: And I think the I think the third thing is
Speaker 1: that probably some of these investors realize that this thing
Speaker 1: would never work, but they figured that they can make
Speaker 1: some money in the short term, and being a bit
Speaker 1: on the more cynical side within that demographic of investors, uh,
Speaker 1: they figured that they could exit out of this thing
Speaker 1: before it blew right so I think it's a combination
Speaker 1: of those things, you know, just you know, true belief
Speaker 1: and plus c v um cynicism and quick flip and
Speaker 1: hopium not being adjusted to a new bear market. So
Speaker 1: before we go, I want to like talk a little
Speaker 1: bit more about sort of what's happened or where we
Speaker 1: are now. And again, one of the things that we've
Speaker 1: seen with Tara and Luna specifically is Tera continues the
Speaker 1: stable cling continues to have these periods where it drives
Speaker 1: up back towards the peg of a dollar. Meanwhile, Luna
Speaker 1: is just absolutely blown out and every day it's going
Speaker 1: down by like in a a and the total issuance
Speaker 1: of I think there is like a hundred million, I
Speaker 1: don't know, and now there's like billions and billions. Can
Speaker 1: you walk us through like this sort of like weird,
Speaker 1: like I guess like put rigor mortis or something, or
Speaker 1: this sort of like afterlife of the court right now.
Speaker 1: The death was like, what is actually this like weird
Speaker 1: phenomenon that we're seeing right now? You know, I totally
Speaker 1: agree with you, it's actually pretty bizarre. But there's a
Speaker 1: there's a couple of theories here. So the first theory
Speaker 1: is that lf G Lunafination Guards still has some reserves left, right,
Speaker 1: and they know the timing of it. They decide, Okay,
Speaker 1: at this point, you know us T is too low,
Speaker 1: We're just going to exhaust the rest of it, and
Speaker 1: we're just going to support the price either for a
Speaker 1: for people on the inside to get out, or for
Speaker 1: be uh you know, altruistically to just get whoever wants
Speaker 1: to get out. Whatever remaining back holders want to get
Speaker 1: out of USC they can with with the remainder of
Speaker 1: these reserves. So that could be the case. Another possibility
Speaker 1: is that uh, it's the arbors that are closing up
Speaker 1: this that that are pushing the us T price up
Speaker 1: because the Luna protocol itself the underlying virtually and M
Speaker 1: will always consider us T is worth one dollar of Luna, right,
Speaker 1: So as long as Luna has any bit in the
Speaker 1: market and any market price in the market, you can
Speaker 1: always generate some kind of hyper inflating value to create
Speaker 1: these dollars. So the issue is if you're guaranteed to
Speaker 1: get a dollar for us T, all that happens and
Speaker 1: let's say Luna or sorry, a dollar's worth of Luna
Speaker 1: for us T, and then Luna plunges by then whatever.
Speaker 1: Then to continue to redeem those, you just have to
Speaker 1: create billions and billions of fresh lunas to meet that obligation.
Speaker 1: That pushes it down. Then the next wave of redeemers
Speaker 1: that makes even more billions, and so you have this
Speaker 1: like true hyperinflation to defend the peg. But that's what
Speaker 1: the AMM is supposed to do. I mean, this is
Speaker 1: the bot basically working as the code instructed it too. Yes, exactly.
Speaker 1: And I think this is actually a really great point
Speaker 1: that you bring up, Joe, And I think there's a
Speaker 1: lot of interesting nuance here, which is that first of all,
Speaker 1: this is hyper inflation, but this is actually worse than hyperinflation.
Speaker 1: This is hyper hyperinflation because it's hyper inflation, which itself
Speaker 1: is accelerating, right, So it's like it's hyper inflation of
Speaker 1: hyper inflation. Basically, it's like exponentially bad, right because basically,
Speaker 1: as more and more luna get created, pushing the price
Speaker 1: further down, exponentially more lunar needs get created. Right, So
Speaker 1: like maybe you like you burn a clip of ust
Speaker 1: and you have to mint a million luna, and then
Speaker 1: next time you you do it, you have to mint
Speaker 1: a billion Luna and next time you have to do
Speaker 1: do it, you have to mint a trillion lunar. Next
Speaker 1: time you do, you have to minto quadrillion luna. Right,
Speaker 1: So it just like exponentially gets worse. Right. So, on
Speaker 1: one hand, yes, this still does allow the UST holders
Speaker 1: to get out, But now there's kind of a political consideration, right,
Speaker 1: because the holders of Luna and the holders of UST
Speaker 1: are not aligned. Right. The us T holders don't really
Speaker 1: care about the lunar price. You want to give the
Speaker 1: thing down to, Yeah, points one, that's fine for them,
Speaker 1: you know, as long as they have they meant enough
Speaker 1: that they can get out a dollar's worth or you know,
Speaker 1: close to a dollar's worth of us T. Well, the
Speaker 1: Luna holders, you know, they're not happy that the us
Speaker 1: T guys just continuously crushing this price when no one
Speaker 1: in sight, I mean, we got yards to go, you know,
Speaker 1: there's no end and insight, right, Um, so I think
Speaker 1: there is some political disconnect between the interests of either
Speaker 1: the holders. And then I would say, finally, you know,
Speaker 1: how does this actually end? Well, what I think is
Speaker 1: that in the end, you don't actually fully redeem out
Speaker 1: all of this us T at a dollar you know,
Speaker 1: even if it takes forever, and even if you hyper
Speaker 1: inflate Luna to like a Googleplex or whatever. Right, Like,
Speaker 1: I don't think you actually get out this us T
Speaker 1: because at the end of the day, there is still
Speaker 1: a tick size constraint on exchanges. Right. So, like let's
Speaker 1: say the tick size on the exchange is one penny. Right, Eventually,
Speaker 1: if Luna it's actual fair value price is below half
Speaker 1: a penny, which rounds down to zero, and it's technically
Speaker 1: below one tick, then there will just be no bids
Speaker 1: in the order book. It will just be a one
Speaker 1: sided order book with only offers and no bid. Right.
Speaker 1: So at that point you can't actually complete this arm.
Speaker 1: You can't actually you know, sell that no matter how
Speaker 1: much Trillon's or Google's of of you know Luna you have,
Speaker 1: there's just no market to sell it because it's worth
Speaker 1: less than a tick, right, So like it, once that happens,
Speaker 1: then basically everything remaining in us T is just bad debt. Right.
Speaker 1: So what is the market saying right now? I think
Speaker 1: it's being, first of all, a little bit optimistic. I
Speaker 1: think it's saying that, you know, thirty eight cents on
Speaker 1: the dollar basically they're saying that if everybody takes a
Speaker 1: haircut of sixty cents, everybody can have thirty eight cents.
Speaker 1: First of all, I think this is wrong, but let's
Speaker 1: say that this was right. Right, So if this was right,
Speaker 1: then maybe that would be the fair thing to do.
Speaker 1: Everybody just takes a haircut, everybody gets thirty eight cents.
Speaker 1: But what's actually gonna happen is not not quite that.
Speaker 1: What's going to happen is that thirty eight percent of
Speaker 1: people are going to get a dollar and people are
Speaker 1: going to hold that debt word zero. Wow, that's really depressing.
Speaker 1: Speaking of depressing, so one of the things Joe and
Speaker 1: I were doing was we were looking at the subredit,
Speaker 1: the terror Luna subreddit, and there are some really sad
Speaker 1: stories out there, you know, people claiming to have lost
Speaker 1: their life savings, um threatening to commit suicide, things like that.
Speaker 1: And one of the stories that struck me it was
Speaker 1: someone who said that they had done all their research,
Speaker 1: they really believed in the project, and this happened to
Speaker 1: them and they've lost a lot of money. And one
Speaker 1: of the interesting things about crypto, at least to me,
Speaker 1: is it is such a polarizing space on the one hand,
Speaker 1: there are people saying this is going to be the
Speaker 1: next big thing Web three point oh, a new financial system.
Speaker 1: And on the other side, there are people who are
Speaker 1: saying that this is an outright ponzi. So I guess
Speaker 1: my question is, you know, someone comes and they see
Speaker 1: the same they read the same things about Terra and
Speaker 1: Luna that you do, presumably, and they come to a
Speaker 1: completely different conclusion. How does crypto, as like a wider
Speaker 1: space try to solve some of that tension? And what
Speaker 1: advice would you give to people who are trying to
Speaker 1: evaluate these different projects or boxes. Yeah, you know, I
Speaker 1: think I think you're breaking bring up a lot of
Speaker 1: very interesting topics there. Maybe just starting with that what
Speaker 1: I would say, And this is a bit more on
Speaker 1: the brutal side, but I think in crypto, you know,
Speaker 1: it's literally the wild West. Everybody needs to be personally
Speaker 1: responsible for their own decisions and accountable to themselves, do
Speaker 1: their own research, and that's kind of how a market works.
Speaker 1: To people can look at the same mechanics, do the
Speaker 1: same research and come to different conclusions, and then based
Speaker 1: on the market mechanism, eventually one side is right and
Speaker 1: the other side is wrong. But that is basically the
Speaker 1: function of the market. The bet making here is exactly
Speaker 1: what creates the price discovery. So I don't think that
Speaker 1: there's anything particularly wrong about that. But I do think
Speaker 1: that people should think very clearly for themselves whether or
Speaker 1: not they want to put up their mortgage on a
Speaker 1: bet that they think is good. But maybe you know,
Speaker 1: have some doubt, maybe have have have some skepticism, to
Speaker 1: have a little bit more skepticism, maybe don't put in
Speaker 1: more than you can lose. And you know, my sympathies,
Speaker 1: I think go out to all of these folks who
Speaker 1: you know, lost their home, lost their life savings, that
Speaker 1: sort of thing. But what I would say is that
Speaker 1: better that this happened now than later. You know, if
Speaker 1: if if us T was hunter billion and eventually there
Speaker 1: was of bad debt or ninety billion of bad debt,
Speaker 1: I mean, it would be way more devastating, right, I mean,
Speaker 1: even more people would have lost their lost their shurts.
Speaker 1: I wish it would have unwound earlier. You know, I think,
Speaker 1: I think we've been great to have this unlinding last year,
Speaker 1: But you know, at the end of the day, you know,
Speaker 1: better now then later, at least well, so I want
Speaker 1: to just go back to your history with it, because
Speaker 1: you did. You've the reason people said you gotta have
Speaker 1: Kevin on the show is because you have been allowed
Speaker 1: critic slash skeptic publicly on Twitter about the model and
Speaker 1: about its unsustainability. But also, as we discussed, being wrong
Speaker 1: can or being early can be devastatingly wrong when it
Speaker 1: comes time to place a trade, and with us T
Speaker 1: in particular, because you have this big like tact are
Speaker 1: you you know you have to pay that if you're
Speaker 1: going to short a stable coin or whatever. And the
Speaker 1: Luna just kept going up, even amid the sort of
Speaker 1: like broader crypto malaise of the last year. So what
Speaker 1: did you see that? What you went from being like, Okay,
Speaker 1: this is unstable too, Yep, Okay it's falling apart. Now.
Speaker 1: I always thought it was going to fall apart. I
Speaker 1: just didn't know when I actually thought the timing was
Speaker 1: not bad at all because I I thought this thing
Speaker 1: would have lasted a little bit longer, to be honest.
Speaker 1: So I think this is one of the more optimistic outcomes. Um.
Speaker 1: But uh, you know what what I would say is
Speaker 1: that you know, with all these kinds of mechanisms most
Speaker 1: of the time. You know, you look at all these
Speaker 1: kinds of I call them money games, right, these i'll
Speaker 1: go stable coins, these rebasing games. They've never gotten this
Speaker 1: big before, right. You know. You look at Home for example,
Speaker 1: barely you know, Billy, I forget how much it was,
Speaker 1: but it was like it was, it was much much smaller,
Speaker 1: right order magnitude smaller. Right, you look at like mem
Speaker 1: You look at all you know, all this stuff. Mim
Speaker 1: was a collateralized staple coin though, but I mean there
Speaker 1: was still some contagion from the time Wonderland fallout over there,
Speaker 1: and you like e S D DSD based VAMS Basis Cash,
Speaker 1: who some people think that do Quan was also the
Speaker 1: founder of I've also heard that remark reported it um yesterday,
Speaker 1: in fact May eleven, that do Quan, the creator of Luna,
Speaker 1: was involved in the other stable, Elgo stable that crash
Speaker 1: called Basis Cash. So at least they they it has
Speaker 1: been reported that that is the case. Yeah, I've been
Speaker 1: here in that rumor for a while too. Um you know,
Speaker 1: I don't know if it's true or not, but you know,
Speaker 1: I tend to believe that that is true. Um So,
Speaker 1: But Anyway, these experiments have all been tried before, but
Speaker 1: never to this scale, right, And that's what I thought
Speaker 1: was particularly alarming, because even with the collapse of Wonderland time,
Speaker 1: with the whole seafood drama, I mean, there was already
Speaker 1: some contagion, but it was it was still well contained, right,
Speaker 1: but you could see that like any bigger and there
Speaker 1: would just be massive whiteouts. You know. It's like at
Speaker 1: some point the cancer really is it's terminal, right. And
Speaker 1: and for that one, we did some chemo, we came
Speaker 1: out of Wonderland time. For this one, you know, it
Speaker 1: is stage four, you know what I mean. So this
Speaker 1: one's a lot worse, right, So you know, So that's
Speaker 1: that's what really really got me thinking about this one
Speaker 1: in particular. And this is also why I've never really
Speaker 1: called down any projects in the past. You know, if
Speaker 1: you if you look at my Twitter. Um, first of all,
Speaker 1: I rarely tweet, and most of the times when I
Speaker 1: do tweet, it's about some new obscure play that I found.
Speaker 1: I generally share Alpha and you know, you know, we
Speaker 1: found FTT, we found WiFi in the very early days. Um,
Speaker 1: you know, I think, you know, I think you'll find
Speaker 1: some you know, interesting eleph and mostly on the positive side.
Speaker 1: But I think this one and I maybe just to
Speaker 1: take a step back. One of the reasons that I
Speaker 1: don't like calling out projects is because in some ways
Speaker 1: I don't believe you can stop human nature. Right, if
Speaker 1: people want to gamble, if people want to play these
Speaker 1: money games. Um, I think if you if, even if
Speaker 1: if you can't really suppress it, and even if you did,
Speaker 1: it would come out in other ways, right. But I
Speaker 1: think for this one in particularly, it was just so
Speaker 1: bad that I felt I had to say something because
Speaker 1: you know, this is just gonna be devastating for the space.
Speaker 1: I mean, regulators are going to use this as an
Speaker 1: excuse to basically put on more regulation, and this is
Speaker 1: going to stifle innovation. You know, it's gonna be It's
Speaker 1: just gonna be a rough ride. What are the chances
Speaker 1: that someone comes to the rescue here and pours more
Speaker 1: money into it and gets the machine going again. Well,
Speaker 1: what I would say is that there probably is going
Speaker 1: to be some residual value in Luna and Ust, but
Speaker 1: not until all of the bad debt on wines. Right,
Speaker 1: So I think it's better to wait for the dust
Speaker 1: to clear out, and then you know, if you want to,
Speaker 1: you can just have you know, you can bid up Luna. Uh,
Speaker 1: you know, you can have some price discovery. But what
Speaker 1: I would say is that until that bad debt winds down,
Speaker 1: you're just gonna have hyperinflation. You're just gonna have massive
Speaker 1: selling pressure, crushing the price to a tick and then
Speaker 1: to note ticks. Right, So until that happens, you know,
Speaker 1: and and who who knows what the actual intrinsic value
Speaker 1: of an l one without the stable coin really is.
Speaker 1: You know, it could be actually well higher than like
Speaker 1: three cents or wherever it's training two cents right now.
Speaker 1: It could be well well higher than that, but we
Speaker 1: won't know that. We can't really have that price discovery
Speaker 1: until all the bad debt winds out. So you know,
Speaker 1: for now, you know, I'm really no bid on Luna.
Speaker 1: I think UST itself is going to go down. I
Speaker 1: think three or eight cents on dollars. It's still too
Speaker 1: expensive to be honest, And then at some point bad
Speaker 1: debt clears out and then people bid up Luna and
Speaker 1: then it'll settle at its true fair value. But I
Speaker 1: do think that they're doing the right things. I do
Speaker 1: think that survive as a chain. Will it ever be
Speaker 1: top ten again? Very unlikely. I think something like this
Speaker 1: is so damaging to the reputation that I don't think
Speaker 1: it will ever happen again. Kevin So of Gila Capital,
Speaker 1: fascinating conversation. We could talk with you over three hours.
Speaker 1: You're so clear, you're such a such a so good
Speaker 1: at explaining things. So glad we had you on odd
Speaker 1: Lash And yeah, likewise, really glad to be on. Thanks
Speaker 1: for inviting me. Absolutely, Thanks Kevin. That was so good. Yeah,
Speaker 1: that was great. Thank you, Kevin Tracy. Just in terms
Speaker 1: of how crypto defy these markets work, I think Kevin
Speaker 1: is the best guest we've had on that. I think
Speaker 1: he was really good and really clear. He obviously has
Speaker 1: a lot of credibility on this one as well, because
Speaker 1: he was such a big vocal critic of Luna Terra.
Speaker 1: But at the same time, you know, you can't just say, oh,
Speaker 1: he's an anti crypto guy. He doesn't get it. It's
Speaker 1: all fun like he's actually invested in the space and
Speaker 1: called this one out as a bad actor, and he's
Speaker 1: clearly into the space because you know he you know,
Speaker 1: he's on he's clearly of the view that you know,
Speaker 1: it doesn't want like massive regulatory response to this, and
Speaker 1: also that if crypto is going to avoid big regulatory
Speaker 1: responses in the future, whichever one in the industry wanted
Speaker 1: to avoid, presumably there has to be like a greater
Speaker 1: willingness to call out projects that are unsustainable. I also
Speaker 1: really like the description of the self reflexivity of the
Speaker 1: way Luna terror works. And you know, this is something
Speaker 1: that I know we've spoken about before, but this idea
Speaker 1: of you know, the ultimate sort of momentum play, but
Speaker 1: the whole system is predicated that at some point people
Speaker 1: will want exposure that starts falling away because people start
Speaker 1: doubting the way the entire thing is working. Then it
Speaker 1: just feels like there's almost a limited downside. And you
Speaker 1: asked the key question, and I still think that, like
Speaker 1: it's it seems like shades of great to me, the
Speaker 1: difference between Tara Luna or some of these other DeFi things,
Speaker 1: because with the stock, when the stock goes down, where're like, yeah,
Speaker 1: but the company is still selling a bunch of paint
Speaker 1: and they're getting a lot of right, and so there's
Speaker 1: this cash flow that people want. But with a lot
Speaker 1: of DeFi stuff where it's like token trading all the
Speaker 1: way down. There is not like some natural other source
Speaker 1: of cash other than you know is he put it great,
Speaker 1: He said, if you get if you're getting a yield,
Speaker 1: you're often just getting money from future bag holders. But
Speaker 1: if there's no more future bag holders. And I think
Speaker 1: that still is the case with many coins, even if
Speaker 1: they're not quite as convoluted or not quite as blatant
Speaker 1: about how the box were. Yeah, and I mean the
Speaker 1: other thing I would say is this kind of arbitrage mechanism.
Speaker 1: It is not unknown in the world of traditional finance,
Speaker 1: and I think a few people have drawn analogies with
Speaker 1: the way that Exchange traded his work and market making
Speaker 1: for those. But the difference is, you know, you're trading
Speaker 1: a basket of stocks, and the stocks kind of have
Speaker 1: some sort of value, they're tied to some sort of
Speaker 1: cash flow. For this one, the arbitrage is all about
Speaker 1: the crypto, and if you don't think the crypto has
Speaker 1: any value anymore, then it kind of collapses very quickly. Well,
Speaker 1: we can talk about this a long time, and I'm
Speaker 1: sure we will. Yeah, our producer is kicking us out
Speaker 1: of the studio. All right, shall we leave it there?
Speaker 1: Let's leave it there. This has been another episode of
Speaker 1: the All Thoughts podcast. I'm Tracy Alloway. You can follow
Speaker 1: me on Twitter at Tracy Alloway and I'm Joe wi
Speaker 1: Isn't though. You can follow me on Twitter at the Stalwart.
Speaker 1: Follow our guest Kevin So on Twitter. He's at Gail
Speaker 1: law Capital. Follow our producer Kerman Rodriguez at Kerman Arman.
Speaker 1: Follow the Bloomberg head of podcast Francesco Leavi at Francesco Today.
Speaker 1: And check out all of our podcasts at Bloomberg under
Speaker 1: the handle at podcasts. Thanks for listening to