Lessons Learned from Building with Terra and Celsius w/ McDavid Stoddard (Aperture Finance)

Transcript

[Music] hello and welcome back to the strange waterer podcast thank you for joining us for another episode all across the history of modern Finance We have dealt with investment Cycles character by irrational exuberance and moral eroding greed crypto takes this phenomena to a whole new scale both in terms of the sheer size of the bubbles that we create and in the speed in which we cycle through them and regrettably we also create some of the most cartoonish examples of frauders and

charlatans let's look back at the last cycle where we can name at least a dozen people who went on a main character Arc and ended up in prison or running from the law after 10 plus figure scams let's focus on two in particular do Kuan and Alex mashinski Doan was the cult-like leader of terraform Labs the company responsible for Luna and us us was launched in 2020 and by May 2022 had grown to a circulating supply of of over $18 billion while the Luna token was valued at around $40 billion Alex masinski was the founder

and CEO of Celsius Network a crypto lending company that boasted over2 billion under management and hundreds of thousands of global customers both of these men built enormous businesses that stood at the very center of our industry during the peak of the last cycle and both of these men are not only remembered for their violent crashes but are generally held responsible for the end of last cycle and these are not just embarrassing professional failures both dwan and Alex mashinsky have been arrested and Fa trial for federal crimes and long-term prison

sentences for as long as they will be remembered the names Do Kwan and Alex mashinsky will be forever associated with fraud and failure but that is only from today's vantage point after we all know and paid for what happened but back in 2021 and early 2022 these men were Titans and the companies they LED were the most exciting projects in crypto today we're going to look back at those times before it all fell apart and remember what it felt like to be working with the great Heroes of the postco cycle McDavid Stoddard is the growth lead for aperture Finance during the

last cycle McDavid and aperture were working with both terraform labs and Celsius Network to build projects service clients and grow their businesses during the next hour we walked through what it was like to work with these cursed projects and how these experienes felt when the collapse finally came well this is an incredibly interesting down memory lane it's not just an old battle story it's an important reminder of what's coming during this next cycle one more thing before we begin please do not take Financial advice from this or any podcast ethereum will change the world one day but you can easily lose all of

your money between now and then okay let's bring on McDavid McDavid thank you so much for joining us on the strange water podcast GM thanks for having me of course man so I'm so excited for this conversation but uh before we like really uh Deep dive into it I'm a big believer that the most important part of every conversation are the people in it so can you give us like a little bit about yourself your background and how did you find this uh kind of absurd industry yeah for sure so I'm McDavid I am heading up like growth product BD Rel related stuff at aperture Finance um been there

for uh since the like basically the very end of 2021 um so I've witnessed the uh a couple different meteor Rises and collapses within within crypto we can get into that later um and yeah I've been you I've been in Tech my whole career um and just prior to actually going full-time into defi I was at a news app um where I was heading up uh sort of the web 3 expiration project for them and the project was very interesting but I could tell the company wasn't very serious about it so I was like kind of like I need I need to just go full-time into the industry and I live in the Bay Area so it was like fairly easy to get plugged in with uh some of the builders

down here cool makes a lot of sense and so um it sounds like you've been at aperture since like your whole um I guess like jump into defi so can you talk a little bit about like when you're transitioning from this company that you can tell like aren't really that into the thing that you're super into like what are the types of stuff you're looking for and I guess like spoiler alert you ended up at aperture but like kind of how did that happen yeah I mean it wasn't like I had some like super long long drawn out job search and I had like 10 offers and was like strategically picked aperture um I basically kind of just started like um my girlfriend said at the time I was like manifesting it but I was sort of just like yeah I want to like pivot into

crypto and I started just like telling people my network this I never actually applied for a job I just sorted like when I was catching up with people like yeah like I'm looking to just like get fulltime into crypto and um just saying that out loud kind of like you know this aperture job kind of like shook out of my local network um like a you know a ex colleagues you know a friend of an ex- colleague was you know plugged in with the company and um made the introduction and I was kind of like yeah sure like they're local like let's do it I I had no at the time I wasn't like you know aperture we were building these like structured product vaults at the time I had no that wasn't like some thesis I was bullish on per se it was kind of

just uh the opportunity that was that looked I lik the team that it was close I was like yeah sure like just aped in as you would say nice yeah and I think there's probably a lesson in there about like finding something that you're passionate about and like we say it with a laugh but manifesting is like a real thing and I guess like it's more converse that's the true thing which is like if you want something but you're not manifesting it like it's just not going to happen so um Kudos and uh like for all of our sakes I'm glad you made it into the industry yeah yeah me too it's been a uh like going back to my girlfriend when I first joined she was like yeah you're kind of like getting in bed with the dragon going into crypto like you just don't know if you're going

to be riding on the back of the thing or getting like fire spewed at you it could go either way it could both things could happen at the same time so um she was definitely right about I think that's like the perfect frame your girlfriend gave to us for this conversation which is like she's absolutely right like crypto is like trying to write a dragon where like we can soar really high and like conquer the world if we do it right but like every single second is an opportunity to like get burnt or to fall off the back or to like find catastrophic failure and so um over the next like hour I really want to talk about like some of these moments and what it was like to be like so close to the Maelstrom and survive through but I

think like we we'll start our story in 2021 when you're joining aperture so like I want to kind of like put us in that mind space back then 2021 I guess depending on the the point of the year uh was like probably a pretty exciting time and this is like really the the the moment where like SPF is like reaching his uh like most um iconic and uh yeah the height of his powers exactly like Celsius and like the centralized lenders like they just seem like they're running a good business and like we're all just feeling like a little bit like dumb and slow for not doing that like can you can you talk a little bit about as you're entering Defi and like now knowing what's going to

come um can you just like give us a little bit about into your understanding of the space like did it feel like as sketchy as it ended up being like how did you feel when you started to aperture so the aperture team the the three like initial team members all came from Big Tech in the Bay Area so there was two engineers at Google and then the CEO came from uh I think he was at Amazon at the time it was his last Web Two job um so it's a very like you know Web Two background that the team had um but through some just like chance networking and connections that we got really plugged in with uh tfl the Tera you know the team running Tera the blockchain at the time um and that

included like dwan um who was actually uh like a seed investor I mean he never actually paid us so like I don't think it was valid but like we had I think there was a Saft out to Doan at one point um we were in some group chats with him and our kind of initial idea was you know team has very strong technical background so we're going to leverage that to build some of these like automated vaults on Shan you know at that time defi was still pretty crazy with all this like Ponzi yield going on all these like emissions were still were like that was the peak of Def emissions I think emissions today are still pretty prevalent but it's not nearly as egregious as it used to be um even like

a year and a half ago um so we had kind of settled like I I show up um I have all this like you know General marketing and Business Development experience in web 2 but I show up and I'm thrusted to trying to like market and explain this like kind of complicated structured product that we were running on Tera um so for any listeners out there that were active on Tera classic you probably were you definitely were familiar with anchor n um at the very minimum which was that like super unsustainable yield they were paying out on us it was around 19% uh for for most of its history um but one thing I mean a lot of

people in I think were familiar with this but they had there was another project that this the first time actually Doan ever got in trouble was for this other project that they were running called Mirror which was like these synthetic stock assets like you know very obviously problematic for a number of reasons um but the way those things worked was there was like a uh a farm token that would incentivize people to short or long the asset and that farm token like the weights of the distribution of it would be were kind of dynamically updating to keep the asset close to the peg of like what the real world asset

was trading at um so for legal purposes I will I will use a a somewhat more kosher example like one of the assets on there was just like even Bitcoin uh so there was a synthetic version of Bitcoin that like was pegged to the price of Bitcoin by this uh like emission schedule and mirror anyways the point being like we were uh we basically created this delta neutral Vault where you the user would come in and like deposit like 23s of your uh initial position would go into anchor earn you would take out a us which was like the receipt token from anre earn you would

use that to short an asset on mirror um and then you would use the other part of your Capital that you had not deployed at the start to Long the same asset on mirror um and the the like end result was you had like all these like random like you know absurd emissions from various act activities you're getting yield from anchor earn not sustainable you were getting uh emissions from mirror for shorting and longing the asset and providing liquidity on the asset um not sustainable and there was also like I think an additional emissions token from the compound we were using to like Auto compound the lp position so it has like this absurd like laundry list of yield points

um and so my first initial like foray into defi was like oh wow like this is kind of absurdly complicated um but people at the end of the day would just see this like in yield number which was higher than anchor earn so the end yield for the strategy was like 35 to 50% [Music] um and uh the strategy was also pretty well known in the teror community uh there was like lots of YouTubers Shilling this strategy um and a lot of people across the industry um I think basically all the

major you know blowups from the 2022 cycle had some exposure to Luna or anchor n or both um and that includes like three arrows had you know they had exposure Celsius had a ton of exposure which I know for Sam because we like worked closely with their defi team as they were vetting our our vaults and putting in like starting to like deposit money into them um so this was a very like I think this was the most important ecosystem um in 2022 because it was kind of like the canary and the coal mine for all the collapses that happened like all these often all the stories you of the major blowups from FDX three arrows Celsius they all kind of started with the Luna slust dpeg that

was the thing that kind of sent the dominoes tumbling um and yeah so like we launched this thing in a so I've been there for like less than two months at this point and part of that I was only part-time because I was kind of like still had a foot in ja a for a while U before I switched over full-time and like two months into this thing we we went from like you know being a nobody to having 120 million of tvl um just a few weeks after launching which was just like an insane roller coaster you know at that point we're like eyeing tge like a few months later like we're you know

tripling the whatever the last valuation was from the fundraising round like we're going to easily clear this number and our tge and everyone was just kind of like you know we were on the the good part of the Dragon ride so to speak um and yeah it was during this time like we're like in addition to the Vault being really solid and having good product Market fit we were getting like retweets from dwan and you know like we're sending him updates and the chats and he was just like very uh pretty point and shoot at the time with like any Terror project I think um like basically I think he had a of a piece of every single project that

had launched on terara at that like juncture um and for him like really anything you it makes sense like anything on the chain that does well is like ultimately was good for them um so that was like quite crazy too to see like one of the biggest you know immediately jump into this industry and you see like one of the biggest most controversial figures on crypto Twitter like Shilling your platform um and you like immediately seeing like a huge upswing and usage right after that happen um so that was all pretty crazy and then of course like we're also now you know the Celsius team has like started to reach out to us

because they want you know they have a defi team so I should I could go a little bit more into that if you want Rex yeah no let's for sure go into that and I really want to get to this moment where the dominoes start to fall but while we're still talking about this moment I would love for you to answer the same question from three different perspectives the perspectives being like the general Community you guys aperture as like people building in the community and then I'm going to ask you to think like on behalf of tfl and Doan but like during these Early times before the musical chairs stopped like how well understood do you think it was that like this is like so incredi rickety and like

can't last forever or how much of it and again from the three different perspectives felt like yeah this is obviously a little crazy but like there's something real here and like if we can grip onto the dragon like we're going to make it through on the other side with like real game-changing technology yeah this is a great question um basically to summarize it's like if you look at all the major vested parties in the Luna ecosystem how many of them were like somewhat aware or fully aware of like the the like utter risk of this algorithmic stable coin and the unsustainable anchor yield payout rate um so if you start I'll start with aperture so I think within aperture we

were to be to be honest like pretty naive um and for good reasons like we're all new to the space um like everyone's kind of left web too we've gotten on the crypto rocket ship and now like boom Doan retweet boom tvl 0 to 120 million in like 60 seconds and we're all like seeing our bags pump before our eyes and so we're all like drunk off the insane product Market fit gross story that I don't think we were being uh I mean we even like to to back this up we had a large portion of our treasury a very large portion of our treasury was in US

um so that shows you that we were not like even remotely considering I would actually put us at the bottom of this list like the most blinded group was the was our own team um which sort of makes sense like you you know your a startup you kind of gotta you got to belong whatever thing you're building on yeah and I guess like as a developer you're like just as long as the community of the investors regardless of you put money in like you're just as long but you're even more so because you've like bet your career and your protocol and your company on the specific technology so it wasn't until you just said it but like you're totally right like the bottom or I guess like

the most zeelot Zealot but also means most blinded probably does fall at to like the actual developer and the project level yeah and you see this like if you read the Michael Lewis book on FTX like I feel so bad for those employees they probably got the most turbo [ __ ] out of everyone um because they had both their like career and their own brand was tied up in the thing as well as all their personal finances um uh but yeah anyways back to to terara so like that's aperture we're heavily exposed including our own personal money I had a ton of money in this this Vault

myself I was like 30% yield why not like sure I'll move a large like dumb amount of my savings into this Vault um but if you look at the other the so I'll talk about the community next I that's the thing I'm the second most educated on tfl is a little bit of a black box but we'll get to that um if you looked in the community I felt even within the like Tera die hards I would say a a healthy portion maybe even up up to half we kind of sus about either the anchor earn sustainability or the PO potential risk

of uh a death spiral with us I read quite a bit of content um in in q1 2022 about these pundits these kind of like crypto like think boys that were posting like like Doom scenarios for us um [Music] um and I I feel like yeah within the community it sort of seemed like there there was like there were definitely everyone was getting drunk off the the Kool-Aid but half of the people that were getting drunk were kind of like maybe we should stop drinking this kind of soon you know like there was some trepidation and sorry just to interrupt

you a little bit here do you feel like that trepidation with with let's call it half of the community do you think that came from this like true understanding of the system and the vulnerabilities or do you think it really came from just like standing in the corner of the party and watching that it's starting to get like really Manic and like oh I see that like these guys that are dancing like right by like the candle station and these guys are like tossing around gasoline and like I don't really know what's going to go wrong but like I can just tell by the energy that like I probably need to be ready to die for the door like what what sense did you get for like why people were starting to get bad vibes yeah or like seeing Mike novag

grats get a tattoo of like the teror logo on his shoulder um that's a good question um how much of it was just like people having some Spidey senses about things getting too frothy and bubble likee versus like an actual understanding the the flaws and the design mechanism for us or or anchor I I would say I it's hard to spe that there's definitely a portion of people that were I think overall for the entire economy all risk assets there was obviously a lot of people at the time that were like something's off um I mean you famously had like Bezos and Elon

Musk selling I think it was in like the end of 2021 if I'm fact check me on this but I think they had both of those guys had done like you know huge sales of their you know stake in Amazon or Tesla and there were a lot of pundants at the time like the the the all-in VC group was kind of calling out that this was uh like a potential top signal and like if these guys are selling like what do they know that you don't know um so there's definitely some of that but there there was also a surprising amount of I think even amongst retail users like at least an understanding that the US the anchor earn rate was unsustainable that was pretty easy to to

grasp like you could just look at the amount of money sitting in the like the account that's paying this thing out versus how much us is locked in Anchor earn and then like you can just there was a very easy like you could calculate there's 100 days worth of yield left or whatever um and it didn't seem like tfl was being like aggressive enough to cut the rates so I feel like a lot of people like sense that was an issue but you could both hold the belief that you could both hold the belief that um anchor earn was unsustainable and

also still be bullish on the ecosystem at large um so that wasn't really enough I think to like fully spook people it was the the the smaller group of more analytical skep who I think within that group there was also a camp that were purely just based on the fundamental design had issues with us and there's another group that was like this is exploitable you could gain by shorting us um and like those two camps kind of like were together futing the like overall design mechanism yeah and I did like I remember back to that time and I remember it was like a very common occurrence to like be on crypto Twitter having a conversation and like you get

to Tera and then like immediately both people would be like anchor not sustainable this is going to run out check check okay we've put that in a box now we can both safely say that like because we've addressed it it's no longer a concern let's like continue the conversation and like I don't know why just tfl and just anchor got that treatment it was pretty crazy like I I mean I'm probably slightly biased here just because of my exposure but I felt like dwan was probably one of the most effective cult leaders in like the entire history of crypto more so than like vitalic or CZ ever was I I feel like

he was able to he was so Crypton native he was so active he was so like L iair about what he said that it was sort of like the Elon Musk of of crypto in many ways um and as a result of that you had a very very very following that would Overlook some pretty obvious shortcomings so what what do you think about Doan and of course like nobody like can really speak about it but like your understanding based on how everything played out like and let's not talk about Doan specifically let's talk about tfl as a whole like how much do you think they understood that this was like one of the most high stakes games of musical chairs ever invented or how

much do you think that they were true believers yeah and so like to answer the last part of the question like how aware of they were of the like potential risk um so I don't actually have anything like firsthand that I think gives me more insight we're very far at the end to day like apture is very very far removed from the inner thinkings of tfl um but like just based on my speculation on like what is public knowledge I think I I think they had a very minimum realized they were vulnerable to like a short sale type of attack um and and possibly also sort of

aware of the general death spiral potential of USC because there was a lot of effort to like build up this defense fund that had avac and Bitcoin and eth and like other uh like quote unquote Blue Chip Assets in crypto that they would use to back stop the the beop Luna in USC um and like they were doing quite I think there was like even more plans to like that back stop was supposed to be bigger like they were like pretty aggressively trying to ramp it up and they just kind of like too late um in the game so my my speculation is that they were

like bullish on the ecosystem but they weren't totally stupid I I think they did you know they have tons of incredibly smart people around them and they have they were somewhat aware of the risk so I think there was um a a decent amount of awareness of like what what could go wrong um they were just too slow to to act in my opinion yeah and I'm not going to ask you to like comment on if Doan is like a good faith actor or not like I think to even categories like that is to like miss an important part of human nature but I do think it's probably fair to say that like regardless of what she think of dwan that project just like got it grew so much faster than it should have and like

yeah maybe some smart guys realized once it was like a $40 billion project that like this isn't safe but it was just too late at that point and um you know if anything like you could make the argument that like building up that defense fund like sent the signal to attack now before it's too late yeah that's a good way to look at it um there was also some like EX tional mishaps that they had when us initially the like the very beginning of the dpeg that killed them was because there was a a a temporary like blip and liquidity as they were migrating I think they were moving liquidity onto curve or off of curve to somewhere else I don't remember

exactly the order of events but they did not do it in an atomic transaction it wasn't like it liquit immediately show up there was a a a a gap in the blockchain time where liquidity was a lot lower and that was when the attack happened um so you could one could also speculate like what would have happened had maybe it was still inevitable um maybe it just would have bought more time but uh there were some executional mishaps as well um and yeah it's a good point like they were very public about announcing the back stop like to what extent that that also put them in danger who knows yeah no for

sure so earlier you kind of like gestured that um that the collapse of Luna like was more important than just like the collapse of this like very large protocol and all the retail that was like directly exposed to it because like it turns out and we all didn't realize this until it was too late but like basically every large player was like playing in that ecosystem as well and so you brought Celsius that's what I want to talk about right now but like as we go into this conversation I think it's important to recognize that like Celsius is one example of somebody who like really really [ __ ] up and like that we you know we'll talk about how that ended out but like everybody was

doing this everybody thought that like this like yeah we understand it's not safe we've addressed that we're going to run out of yield but like because we put it in the Box move forward like everybody fromb F to Alex machinski to um you know like very reputable people Galaxy the winkl Voss twins like everybody was in there so I want to I want to start this with the uh like the understanding that the story we're about to tell about Celsius is not a unique story it like really can be told again and again through every other protocol but with that being said can you tell us a little bit about like at least from your understanding like how did Celsius

which essentially just takes Bitcoin or whatever crypto and lends it back out like how did they even find themselves in this situation where they're playing again the most high stakes of M high stakes game of musical chairs ever invented yeah um so I I'll start off by confessing I don't actually know the exact set of transactions that masinski took that got Celsius in trouble that that whole part of the story to me is I've never gotten like a very clear answer but I can speak to like what we saw at aperture working with a particular team at Celsius that was responsible for managing their defi book um and the funny thing about that team was they were they did incredible

due diligence they were very smart very thoughtful and seemed like like truly like a very like Blue Chip uh like Prop Shop sort of Team um operating this massive massive book um on behalf of Celsius so you contrast that with mashinsky who like I watched some of the live I had money in Celsius as well um and I watched some of the like there's like amas they would do once a week and those things to me always that was where I got the sense of like there's something off about this like his wife is on this AMA they're like showing random customer

service people they're like trying to like overhype this like sell token burn thing they're doing I'm like what like but at the time I'm also like new enough to crypto and you know everyone's kind of so drunk on the the the bull market that I'm not like putting a together but now like if I saw something like that going forward for the rest of my life I would immediately like nope I'm like not touching this with this 50 foot pole um but yeah I basically my comment overall on Celsius is that the there were clearly some like inexperienced people in that company but the team that was actually deploying on the def like on the defi side was very very

competent um to the point of they could do their own smart contract audits on a chain like terara which is you know has some nuances it's not just like a standard EPM chain it was still pretty new back then um but yeah the team was incredibly confident very very like cautious they were they like would do test amounts of capital first and then would slowly scale that up um and I think like at the time they had gotten up to like 10 million worth of us into this like aperture Vault and were telling us they were targeting like a 100 million or more um was kind of their end goal if if like they thought the uh like strategy itself could even hold that much hold that much

Capital um but as we've now come to see like somewhere else in the company someone was like deciding to put rates on us that were not not sustainable um long term uh because I was seeing like one thing you we can I could kind of speculate is like they were offering uh like us rates that were slightly above anchor n um for quite some time and like the expectation would be that they're like they need to be taking a cut like I would I wouldn't expect like fully passing that rate through to the users and then furthermore the rate was above that of anchor earn so I'm like okay

then they were definitely doing other stuff where they were re hypothecating the US to some other Market um so there was definitely some like some breakdown within that company uh but I would say like not the entire like I would similar to FDX there were tons of very competent people working inside that company that kind of got [ __ ] by some bad decisions that were made at the top or in some other department yeah yeah so let me let me tell me if this is fair from what you just said that like from your actual work with the Celsius team like you were impressed like these guys knew what they were doing and like you sounds like you still only have good things to say to them I would say to even go a step

further we were actually taking advice from them on what Vault to build next because they had such a deep and nuanced understanding of what sort of Structured Products could be built across anywhere salana on evm chains or Al elsewhere in the cosmos ecosystem that we were actively like getting them to tell us what should we productize next um and their advice there was like incredible like they had they like some of the best knowledge of like what strategy could hold the most amount of capital for the longest amount of time that would justify building a vault so yeah very impressed with their team so you're super impressed with the team you're working with them and then like you're watching amas or you're

watching Youtube or maybe you're going to conferences and you're saying Alex mashinsky and there's something there where you're like the work that I'm doing doesn't feel like it's the same company as like what I'm saying in front of you and like unfortunately like we all learned this at some point in our life like our gut is actually like smarter than all of us and is trying to tell us something and we all ignore it the first time and then we never ignored ever again um but I guess I guess like with this understanding that like you have so much respect and like admiration for the Celsius people like can you talk a sorry the the Celsius defi team can you talk a little bit about like that moment when uh Luna is blowing up um and

then it's like pretty shortly afterwards like within a month that celsi like the game's over at Celsius as well like working with them um like what was it what what were their reactions like were they reacting um in a different way than you expected because like there was other things going on I guess like take me to the like this like catastrophic moment um and like what was it like working with the Celsius people yeah so I don't know I don't have any specific memories of what our Communications were with the Celsius team but one bit of history that I think kind of got swept under the rug a bit in this

whole story was that when uh us D pegged it became we sort of realized at that moment that there had been an exploit in mirror that had happened many many months prior um and there was like basically a contract that held like the collateral for the short positions something of this nature and that contract had been drained and so the only way people had the the way people had actually been withdrawing from Mirror was like just based on New Capital coming in um a lot of a literal Ponzi yeah and because

there was enough New Capital coming in there was never an issue with drawing it wasn't until the entire thing needed to like revert to zero that we realized there wasn't enough money in that smart contract not us in the smart contract um and so what happened when the dpeg people everyone's trying to flee Tera um so exiting anchor n exiting mirror exiting the aperture Vault and the the way the the exiting worked was basically like if you were a super large position you were [ __ ] there just like was not enough liquidity possibly flowing in to

help you out but there were enough like speculative people on the other side that were like depositing us into the Vault even things were going down there was a period where like people were buying the dip right like it it took it took like well over a week before the it was kind of inevitably doomed um and so those it was those people that were providing exit liquidity for basically smaller retail users um because it was like a th000 here 5,000 here it was never like 7 million worth of us that was was coming in so Celsius and all the other larger institutional users of that Vault were just like they were totally so and we did have this wasn't Celsius we did have this other there's this

other gentleman I won't like name his fund or who his name but he had like set up this um this company that basically would like invest treasury like invest like the treasury of like some traditional non- crypto company that had like a bunch of cash on their balance sheet and he would basically like tell them like hey I can get you 15% or 20% on this on this cash just like give it to me and he was literally just like taking those dollars from their Treasury and like un ramping into these like defi strategies one of which was aperture and um we I'll never forget we got an

email like sometime during that like the dpeg the like dpeg week where he was basically just like you know dear my name and our CEO's name like I'm so [ __ ] I've lost all my investors money I don't know what to do I'm I think my career my career is over I think I'm legally in like a world of [ __ ] that was like sort of verbatim What the email was and we were just like oh my God talk about being caught with your pants down like when the tide goes out like that was um pretty awful uh to see that

um and it it was those sorts of people that I feel the worse the like I I feel for the most like the DG that had 10K 50k 100K um you know tied up caught up somewhere in like some US based strategy like I those people like whatever like you know that most of those guys were playing around with money that was made on the back of that like incredible Bull Run um so I don't feel as bad for those types it was the people that had like I mean what was in hindsight like an incredibly stupid business idea had set out to like bet the

house on us those are the ones I think you know that that that's like a like a major R type of event like you know aperture we we ended up taking a hit to our treasury we got out of us at like 72 cents on the dollar um painful sure but like there's still money like we we're able to keep building we're still alive you know well over two years later and and thriving and doing quite well so um you know despite the fact that we still had posted a pretty big L it um it's not as bad as some of these people that had sort of like bet the house no man I totally feel you and I like I remember back in 2022 when this started

like you know when terara went down it took my bags with it which were nothing to do with terara but were eth and Bitcoin and all just everything went down and I remember my first thought was like well this is what I signed up for and like every single tweet I see on Twitter it's just like you whiny [ __ ] babies like welcome and then like all of these stories started coming like the story you just told is like definitely sad but I'm also like well you kind of were like a little bit doing fraud there so suck it like you're chickens came to Roose but like there were just so many stories that immediately came out about like people that had built like consumer savings apps or just like payment apps or like just so many people that didn't

even understand that crypto was like invented like lost money in this and like that's the thing where like we all need to sober up about yeah it it's actually the number of companies and products that were purely built on top of anchor earn % at the end of the day like the number of names on that list is like shockingly large and the amount of money that those projects raise is it's not trivial um so just like seeing all those companies get nuked at the same time um is insane yeah and so I guess like final uh final point of conversation on like Luna and like let's so depending on like

who you are and and like you you hear what happened as described as like the collapsing of an unstable mechanism or an attack on a vulnerable mechanism and um I guess like I just want to hear your perspective as someone who was like building in the system really understood it like and had Capital at stake and lost from that I'm sure like you were paying attention like what did actually happened here to turn the music off and start the Scramble for musical chairs yeah like what was the the mechanism by which it died on yeah and like you said this like maybe it always had to happen like I don't know maybe maybe we could have survived maybe

it maybe it always had to happen but like it happened this way and my question is like well what did happen yeah so it it's hard to orally describe the algorithmic stable coin mechanism for us but the like for any listener out there that I guess wasn't familiar with uh the general setup I recommend you Google it um to read about it but basically the the gist was that us never had a like a there wasn't like an account holding dollars that was one to one with us um us was minted from Luna like the two assets were inextricably linked and there was a conversion you could do between us to Luna that was always kind

of like set at a certain price and if the market rate for either of those assets deviated from that price you could just ARB it and there was always people just arbing uh like the market rate you know by doing the direct conversion between USC and Luna um and so that's all fine in Dandy if both the ass if either of the assets is still worth something but if one of the assets is worth nothing then that AR and the whole process kind of breaks down um that essentially what happened was like uh you know the if the valley of USC started collapsing and the valley of Luna also started collapsing which meant that Luna could not be used to like reeg

the price and Luna could also like mint there's just like this infinite mint structure where like Luna could be continue to be minted to like cover USC was sort of meant that like the price would just further go down um if there was no market demand to buy Luna um so it was basically just a case of like both assets go down very fast um if there's no demand for either of them and super clear how like this mechanism allowed for this to happen but like is your understanding that in this moment when like liquidity was pulled out of a curve pool to migrate to another curve pool like did somebody like did s SPF come in and just like hit the short button and start this death spiral like

was there a third party actor that like launched an attack or like was this just like somebody broke first and like once somebody saw the first person running the second person running the third person and then the Stampede started uh I I think the general consensus on this is that it was a third-party actor that strategically struck when the liquidity was at a an unusually low point and sold a shitload of us um there's probably I think like I've seen people talk about this there's like a handful of firms that could have done this um it's one of the the the big players from the 2022 cycle most likely we don't know which one exactly maybe

maybe like Arkham or someone has kind of deduced exactly who it might have been or has like a a a more datab backed Theory um but yeah my understanding is it was definitely an attack someone wanted to profit from shorting us and they placed a pretty large bet like it was still a like very very large uh sell order of us um that triggered like you know people then to start Panic selling um and of course this is all timed alongside like uh a announcement about like rates coming up in inflation and so the whole economy was quite vulnerable it was very easy like you

know there's a lot of dry Timber and like any match could have started this this fire so to speak and then we haven't really talked about it but the other thing that's going on in parallel throughout this time is like the great collapse of the gbtc trade so for those who weren't around essentially there's the grayscale Bitcoin trust and for a while you could mint these shares and the shares were trading in a premium over Bitcoin and we the reason why it's not relevant but there were a bunch of firms specifically three Aros Capital that were just realizing they could just run that play over and over and over and over again and they made a ton of money but the problem is eventually that premium flipped and was no longer a

premium it was a like a negative amount so one share corresponded to less than the equivalent amount of Bitcoin and like it is hard to overstate just how much Capital was locked up in that trade and so I guess my question for you is like is your understanding that that whatever was going on with three ARS capital and gbcc was that like a direct stressor and a direct component in what happened in the collapse or was that more just part of like the macro background news that like you're talking about when you refer to like you know the the S&P frothiness and the billionaire selling uh major Stakes yeah I don't remember the exact timing of all these things um but my memory was always that like Luna was

really the first Domino that fell um if I'm remembering correctly yeah okay yeah know makes sense and and then um you know I think we all know what happens from there which is like Luna collapses then we have the first wave of Crypt bank failures but SPF is like our um Rockefeller or our uh JP Morgan and says like I am going to bail out all the crypto Banks and make sure that this industry survives and then we find out six months later that the reason he did that was because he had like a bunch of fraudulent loans and stakes and whatever and if everything collapsed then like FTX would have collapsed and um so I think um yeah like that that is the

story of like what ended the party in 2022 and like basically the the story of the 2022 bull cycle but um yeah so man such a wild story and I'm so happy that you shared it with us so I want to spend the last 10 minutes talking about like what's happened to aperture since and like where you guys are at now but before we go there um do you just have any like final Reflections or thoughts or even stories that you want to share about that crazy uh May in 2022 I guess one final thought for me is that like for anyone out there who's familiar like now that we're it's two years later no one's touched an algorithmic stable coin that idea has not garnered any

traction um and there were a lot of projects that had outgo stap coins that like basically like like undid that design mechanism to have it be fully pegged for good reasons but like I did see something quite recently that I was like hm the cycle starting again what which was what the of Athena which uh for anyone who's not familiar Athena launched this basically had tons of Blue Chip investors all the major centralized exchanges have invested in them there's a reason why I get to that um and including some like very very blue chip VCS like Dragon ply um were in the round for Athena and what Athena has basically done is created a stable coin that they

quickly retrac and have decided not to call it a stable coin but it's called usde like the the name of it is a very stable coin s you're not fooling anyone if you try to like call it a tokenized fault asset or whatever their marketing name for it is um but the way this thing works is it like really reminded me of aperture and our our vault in 2022 um which was you know this delta neutral Vault and basically Athena has made a delta neutral Vault using a different uh kind of Finance play called the cash and carry trade which um the way you know it works for theena is basically there's a lot of Demand right now to go long on Futures markets on centralized exchanges or on onchain

places like GMX dydx Etc um and what it means is that if you want to short the assets on that chain you can collect a funding rate for doing so and you can be quote unquote delta neutral if you have simultaneously have an equal amount of long exposure to that asset um and so you you just basically collect the spread for the the funding rate um the Longs pay the shorts and everyone wants to be long right now um and so Athena has basically created this like onchain offchain like hedge fund Vault that they've turned into a stable coin um that's supposed to be equal you know it's basically this thing that supposed to be equal one to one to usdc or usdt but if you stake it you get this

yield um that's like somewhere from like 20 to upwards of like 60% I think like this week it's been around like 50 to 60% um and this is all fine in Danny except when the funding rate flips and people overall want to be short assets and then now like this this whole thing kind of breaks down um and you know Athena has claimed they've done some like similar handwavy like oh like you know in our back tests this was only ever an issue like for like three weeks over the past two years and you know based on our understanding this would be totally fine um and just anyways all of them there's lots of great fud out there if you want to read about

people like myself who had a very like knee-jerk reaction to seeing this thing come to the market um it reminds me of us um to be frank like and I'm my thought is like wow this is really just going to come back every cycle there will be some kind of someone who just like pushes The Edge a little bit on what is like sustainable and viable um because they can tap in into just the inherent like the greed like the crypto core audience right now is just inherently a much more like greedy risk going audience than any other subset slice of humanity and you know until that overall

until we have a lot more users on chain that can kind of like rationalize the whole ecosystem I'm like yeah we're going to keep seeing this stuff maybe maybe atha works out I don't know but like it could very well there's a very possible path to that thing like blowing up and decking to zero so without like like what are what are The Echoes of uh Luna that you see in Athena you're let me guess and you tell me if this is right so one like too much like suspicious amount of institutional buying by like Blue Chip people like too many people getting way too excited about yield that's obviously unsustainable and a mechanism that like seems viable on paper but like has this like one weird scenario where if it

happens like the whole thing falls apart and it feels like those are the three ingredients and then you layer on the Mania of a bull run that like creates the teras exactly and I would even go a step further like um this doesn't apply to dragonfly I think they're truly bullish and believe in the the product but the centralized exchanges if I was being a little bit cynical if you're binance even if you cut a check for like $3 million a million dollars or so to put into this like early stage defi protocol even if that goes to zero binance I'm pretty sure will make much more than that um on their Futures product if they

have if it's very very cheap to go long on binance which is what they want they want someone to come in and like AR this funding rate as close to zero as possible so that it's even more cheap for the core users of binance to go long and I suspect for them it was some pretty easy math to see like oh even if this Athena token is never worth a dollar like we can probably greatly profit from this in the short run by just having better pricing for our futures product um and so yeah like you said I think that it's you know 100% the the ingredients for things to go wrong we have bull run Mania we have blue chip institutional investors um we have froy yield and we have just one

little design flaw that could send everything tumbling to zero woo all right well uh let's walk away from that very scary conversation and end on a high note so McDavid you told her this story of like aperture like literally entering The Inferno and like you've gestured this a few times that like you walked out the other side and like made it through the last two years um still building so I guess like now in 20 March 2024 like there's no uh there's I guess there is but for all intents and purposes there is no um Luna chain there's no anchor like the things that

you were building before just don't exist so can you just talk to us about like what was the journey to get from like walking around the wreckage to where you are at today which uh spoiler alert is like building products for UNIS swap yeah so we basically our kind of Journey post Luna was like a flight to safety um which wound us on top of Unis swap which is you know one of the oldest longest standing unhacked protocols um within Defi and yeah what we do today at aperture basically we use solvers to help the LPS on Unis swap V3 um and shortly we'll be soon be

announcing other con Tred liquidity dexes that we'll be deploying on as well um and basically like if anyone who's LPD on a concentrated liquidity Dex you know the actual like management process um for those positions is very very tricky and cumbersome um and so like what you can do with solvers is basically just have a much simpler user experience um but also get some like better pricing and execution on some like really basic concepts like rebalancing or moving the range of your liquidity position from you know like point A to point B to from point C to point D um and yeah and that's what aperture is today we've just launched a points campaign we're gearing up to tge you

know almost two years post uh USC death spiral we're hoping to tge um here at the end of April um and where we're going from here like in the future is like kind of further so I mentioned solvers like we are in the kind of intense space and our kind of Grand Vision is to build out some more generalized intent infrastructure uh that will be from the user's experience your interaction with the front end will actually be through a chatbot um where you will kind of like basically work with the chatbot to figure out what your declared intent is going to be and the chatbot will help you translate that intent into a highly readable language that can be posted into a mle for solvers to look at um to

compete on finding the best solution for whatever defi action it is that you want to do um and yeah so that's where we are where we're going um it's been quite the journey we've you know really tried to get out of the space of selling APR and selling yield and just instead giving people like you know worldclass execution and tooling to go out and do something very conservative or do something very degenerate it's up to you that's a super cool frame I love that that you're getting out of the business of selling APR and you didn't say this but let me try it out you're getting out of the business of selling APR and you're getting into the business of providing functionality exactly yeah cool and I just like I'm the biggest

believer like I understand why literally the only thing we can talk about in crypto is money and finance and like that's a huge part of like our history and it's a huge part of just like cryptoeconomic security is inherently about money but like I am so confident that in the long history of blockchain like this is technology that's meant for other stuff other than like saving trading and speculating um and so I like I can totally see this world that you're talking about where aperture is starting with like we're going to use solvers to do the Unis swap thing and then we're going to grow to different dii protocols but like the second you said you

interact with a chatbot to help make your intent like what I'm seeing is like a a world where these solvers and these intents aren't just about like how to do Financial operations they're about like really what do you intend to do on the internet and like how can aperture help that happen and so like that's the future that I'm super excited for yeah likewise I mean I I'm also very bullish on a future where like almost all of our any kind of complicated decision we have to make that involves allocating a resource so usually money um will be kind of managed this like chatbot like interface where you C you know can work with some sort of smart agent or solver to like get you

much better pricing or execution I mean the obvious example is travel um you know I spent like an hour earlier this morning trying to book a flight I had like a specific budget and there was some other constraints and it was just like the amount of like a little Min decisions you have to make on that journey is still mind-boggling for 2024 and I think you know I look forward to a future where you know we offload a lot of that computational load to to our you know AI overlords awesome man well um I could keep going like there's so much to continue to unpack about like the history of how we got here and aperture and all the exciting stuff you're doing

but for the sake of your schedule and everyone's attention span I will uh cut us off here so McDavid thank you so much for for coming in and taking the time to just like talk through perhaps like hopefully what will be one of the most traumatic things in this industry and like really help us think through like what do we need to take away from this what do we need to be looking for and um like what what can we fix what what doesn't need to happen again so um just again so grateful so thankful McDavid thank you for coming on the show y thanks for having me of course and before I let you go can you just share with the audience if they want to find you or they want to find aperture what's the best way to uh find you guys yeah I

mean aperture um or aperture Finance on Twitter um and you can find me on Twitter at Rob MC stoda St o d da um or I'm at McDavid on farcaster anyone's doing that cool yeah no the best part about farcaster as we are all able to get the names that we wanted right right yeah all right McDavid thank you so much and uh have a great rest of your day sweet take care y'all n