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

Transcript

hey bankless nation we are super excited to host this live debate this is a debate on tara luna ust the stablecoin the bull versus bearcase i asked this question on twitter david and i think this is the question for our debaters today is tara the ust the future of crypto money or is it a ticking time bomb waiting to explode got a lot of responses on crypto twitter as a result of that question and then two debaters stepped up to the plate and were also nominated by the community to take one of two respective sides one is the bull case for ust and the luna ecosystem the terra ecosystem the other is the bear case and

so we have two representatives taking that side and we're going to try to get to you i guess uh the truth or at least hear the arguments from both sides in this conversation david who do we have on the show today and uh do you have anything to add to that yeah of course coming in in the left side of the ring on the bull case we have jose makato from from delphi digital and then in the right side of the ring we have jordy alexander chief investment officer of uh cellini capital uh for the the bear case for tara usd and i think really this conversation hinges on the question of do algorithmic stable coins can they work at all and if they can work has terra usd has ust cracked that nut we've seen

many algo stable coins come and go lots of algorithmic staple coin experiments on ethereum empty set dollar dynamics at dollar but we have not tried the experiment as a layer one until terra came along and so far that's been going pretty well with tara but that's still there's still a fundamental question as can an algorithmic stablecoin work in the long term and i think that's going to be the main topic of what we are going to talk about today along with all these other periphery topics as well such as how is anchor involved with this the 10 billion of bitcoin treasury that's being accumulated by the the luna guard foundation uh and a few other things as well uh so ryan these are the focus uh the the focus of today's show and here's

why this is important guys like luna is valued at something like 30 billion dollars uh you know plus or minus i'm not sure at the time of recording ust is now 16 billion dollars it's definitely making its way into all corners of of d5 and so this is uh this is a substantial market cap for these assets so we want to poke and see what's the viability look like for these assets what do the growth prospects look like guys before we get in a quick announcement for you i want to tell you a little bit about a fantastic nft drop opportunity and i think this is an opportunity for maybe first-time nft buyers or early buyers who want to support a good cause so it is national youth hiv and aids awareness day on april 10th

and the consensus nft team and also mac that's mac the makeup company have partnered together to launch a um a set of nfts from the iconic keith herring okay art by keith herring there are three different levels you can get in on this nft the first starts at 25 so all of the proceeds from this here's the cool part all of the proceeds 100 go to hiv aids issues um involving youth to support youth who are affected by hiv and aids so really cool cause and not only 100 of the sales but also uh all of the resale values so remember the cool thing about nft is every time

you sell an nft royalty can be collected in this case it's two and a half percent that also on an ongoing basis forever goes to the same cause uh so coop super cool opportunity we will include a link in the show notes but if you want to memorize this it's bankless.cc slash mac that's all capital mac and you can check this out the the next step is really just sign up get on their list so that when these nfts come out you will be first to know uh david with that man i i'm really excited about this panel because i feel like uh i haven't fully explored the terra and luna and ust ecosystem in the way i've wanted to you and i've been looking for an opportunity to sort of get both sides of the

argument so i'm excited to learn along with the guests i probably have some you know preconceived notions coming into this and i want to check those and see if they're true or not but this is going to be a this is a very important conversation probably one of the most important conversations happening in crypto right now so super excited about this you have anything else to add yeah it's extremely relevant it's the talk of the town uh the terra community is full of energy at the moment and so i think ryan if we can do this show right it will both be a 0 to 60 in understanding the the luna ecosystem while also having a good back and forth debate as to the the merits of the of the system as well as the risks of the system as well well there's your hype guys we will be

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almost instantaneously across bridges are powered by uma's optimistic oracle to securely transfer tokens from layer 2 back to ethereum a token proposal is being deliberated as we speak in the across forum where community members will decide on the token distribution you can have your part of across the story by joining the discord and becoming a co-founder and helping to design the fair fair launch of the cross if you want to bridge your assets quickly and securely go to across.to to bridge your assets between ethereum optimism arbitrarum or boba networks maker dow is the ogd5 protocol the maker dial produces dai the industry's most battle tested and resilient stable coin using maker you don't need to sell your collateral if you need liquidity instead

you can spin up a maker vault and use your collateral to mint die directly with maker the power to mint new money is in your hands the maker protocol is extremely hardened and operated by one of the most experienced dows in existence they've been here since the beginning they've seen it all and so you can mint die with the assurance that your collateral is safe soon maker will be present on all chains and l2s so minting dye can take place on oasis.app xerion zapper or any other d5 protocol that you use follow maker on twitter at maker dow and learn from the oldest and most resilient down existence [Music] alright ladies and gentlemen of the bankless nation here are our two panelists again in the left side of your screen we have jose macedo coming in

from delphi digital he is going to be arguing the the bowl case uh for for tara luna and then on the right side of the ring we have jordy alexander from celine capital arguing for the bear case for the terra ecosystem and for ust jose and jordi welcome to bankless thanks very much for having me big fan of the show hey guys happy to be here cheers thank you guys for for volunteering to do this i think this is going to be pretty fun and like i said going into this uh i think this will be an opportunity to go to teach a lot of the bankless listeners the bankless community who haven't uh completely dove in to the luna ecosystem all about luna while also providing the pros and cons the benefits and the costs the bull and the bear case for tara

and so i'd actually kind of like to start at that high level of just kind of defining what we're actually talking about and so uh jose i'd like to start with you can you simply just explain the fundamental properties of luna and ust like what is what is the design philosophy and what are its goals uh and how does it achieve those goals for sure yeah i know it's an educated audience probably more steeped in sort of ethereum projects than than tara so i'll try and use some metaphors there so i think the easiest way to understand terra is actually through its product which is uast right so ust is a decentralized stable coin you can think of it as something similar to dai but unlike dai which is built on top of ethereum ust exists on its own layer one which is which is terra which is a

tendermint proof of stake uh app chain so for the eth maxis or for for people who understand eth uh you you can you can say like uh it's as if maker mkr token didn't exist right so it's like eth uh just eat and die and you have no mkr in the middle uh so all the value would would accrue to eat and you'd have like diets sort of built into the layer one level into the into into the eat layer one um and then so how does ust itself work so in terms of mechanism design it's actually different from maker right so maker is is a is a debt-based stablecoin um ust is more similar to an algorithmic stable coin that has existed on ethereum before you mentioned some of them esd dsd

etc um where basically the way you mint ust is by is by burning luna and the way you burn ust is by minting luna um and so this gives doing a really interesting role in the tere ecosystem right where it's both the staking token uh like it would be for proof of stake chain but it's also the share token um and the the governance token for this for this decentralized stable coin right um and so in a sense it secures both the the systems like technical sort of consensus risk but also the stable coins financial and and economic risk um this also me gives luna like unrivaled value capture i would say at layer one right because unlike most layer ones which just capture value from from transaction

fees uh luna actually captures value in the growth of its main stablecoin and since stablecoins are crypto's killer app on pretty much every chain uh luna like basically verticalizes it's like vertically integrated and it also captures the value from its from its main and like most successful uh application so and then in terms of contextual data that might be useful to your users uh to your listeners sorry ust is the is the biggest decentralized stable coin by market cap it's it's a roughly 16 bill right now it's also probably about to be the most liquid with the four pool uh maybe maybe controversial but uh yeah probably about to be most liquid i would also argue and i'll argue later that it's the most decentralized in a certain sense um and then luna has its own layer one

ecosystem which itself is is thriving uh in the sense that it has around 30 billion in tvl it's the second largest l1 by tvl it has core primitives for a lot of the stuff that you'd see on ethereum uh savings credit um exchange perps also an nft like a bunch of nft marketplaces a bunch of bunch of dope nfts so yeah um that that's i'd say like a a high level intro to tara so jose i'm going to ask jordy to add to that but just just to kind of summarize the taking from maybe the ethereum paradigm right so it's it's as if a layer one like ethereum that's what that's what terra essentially is had an algorithmic stable coin almost baked in tightly coupled to

its pr uh core protocol and the value of that algorithmic stable coin was somewhat sort of linked to in an algorithmic way eth the asset so the l1 acid itself and it's like the senior if the senior orange accrued to eat right like the growth in imagine if the growth and diet all accrued to eat or in the centralized tables all accrued to eat right and that is not the only uh usc of course is not the only application on terra terra also has you know general purpose smart contract uh layer where it has other sort of defy applications as as well but it it does have this special status almost like um proto almost protocol native i don't know if that's

too strong a term would i say would you say protocol native or do you still consider ust a separate app that is distinct from the protocol no it's it's a native it's protocol native for sure so it's minted and burnt at the protocol level and luna and ust are both the two uh protocol native tokens so that that is helpful because um we can't really talk about ust without talking about luna so i think for um listeners listening to this when we say luna and usd you know sometimes we'll use them somewhat interchangeably but of course usd is sort of the the stablecoin pegged aspect but it is almost a product of of luna and these two things might be used somewhat interchangeably uh in this episode jordy um what would you add to

this is there anything you would add to uh jose's description or anything you might disagree with um i mean in terms of the analogy to maker and some of the you know stable coins that people might be familiar with like die for example that are over collateralized um the difference is that in a way ust is collateralized by the value of the underlying chain itself by the l1 but instead of a model where you are necessarily changing your ust for luna instead it is adding inflation to the system so imagine if somebody wanted to get rid of their dye instead of getting ethereum from

somebody the system would literally just print new ethereums and just kind of bestow those ethereums onto the person that has die so in a way like the dye is an extension of ethereum where you could just get more ethereum created from that system of course the problem we know with inflation is that it reduces the price um and that's kind of why historically these things have always failed because as you create inflation you reduce the price you get into a death spiral where you know the underlying price is going down and then you know people want to redeem more and then there's like a rush for the exit and if you find that there is not enough exit for everybody some people are kind of left holding the

bag and usually things go to zero in that case that's kind of what we've seen historically at least so i think to bolster this conversation uh and jordy you just touched on it a little bit and jose also touched on it but i want to make this a little bit more formal there's a relationship between the value capture of the terra ecosystem and then the luna token and then also the ust token and i want to kind of go back through this again jose when the terra ecosystem captures value how does it manifest in the supply of ust versus the unit price of luna as in like the market cap of luna versus the total supply of outstanding ust when the terra ecosystem grows and captures value how does how

does it get balanced between these two tokens how does that happen yeah so when there's um demand for for like excess demand for ust ust will trade above a dollar right and at that point there's an incentive for someone to to go and burn some luna in order to mint ust and then sell it on the market and collect the the arbitrage right with luna providing kind of that layer one oracle price that that sets how you can min and burn ust and so as the supply of ust grows there's more demand for for luna to burn it to mint to capture these arbitrage opportunities and then obviously luna also captures a staking yield which comes from from the fees generated on the network the swap fees and the the

actual just transaction fees on the on the on the network there's actually luna's staking which is pretty high it's it's not inflation based at all uh it all comes from from from network fees and then majority with this mechanism uh what are like the strengths and weaknesses in this particular mechanism that stand out to you or just any comment on that mechanism and its sustainability um the problem with so you don't really see there's a problem until there's a huge problem that's that's one big issue where there's going to be a straw that's going to break the camel's back at some point where you know you can keep backing you keep backing keep backing and then there's a point where you just like suddenly like nose dives so it's not like you know you get to slowly notice that something's wrong and you get to adjust

and fix it so that's that's one of the issues that these things historically have like it looks everything's okay and then suddenly it goes bad and the problem is if you have a lot of retail users and you have a few big whales we'll get into this later but yeah if there's a rush yeah like if there's a rush for the exit and you have a few very sophisticated players that own most of the coins and they get out first then um it's kind of bad luck for the people holding well we're just so we're getting things here the only thing i would add to that uh just on the historical metaphor that i think is important to note is uh while i do think historical is important um the comparison and like the idea that it was

all okay at a certain point with like esd or dsd or whatever it is is just like it's not true right but for anyone that was in those games that thing traded at every price except a dollar like it was it it was it ten dollars yesterday at some point or like five dollars and then it was and then obviously it went straight down um all the way to whatever it is now like fractions of a fractions of a cent so i don't think there's been uh any really algorithmic stable coin that has anywhere near the track record of success of what ust has had right and like it's it's the the comparison in a sentence is a little bit disingenuous because like titan esd dsd they really never maintain stability for more than for more than even a few weeks and and so whereas ust has maintained stability

for for for over like a year um in in face some pretty some pretty serious and testing market conditions so i think the metaphors while they're important and the design is similar like the magnitude of success is just on a completely different scale where it's almost like incomparable i feel like we're already like diving into some of the debate topics that we definitely want to uh want to reach but while we're talking still about the intro and the summary to make sure the audience understands usd and luna the the last important piece if you're coming from an ethereum world that's different as i understand things jordy and jose that uh luna does not have a fixed supply the same way it does not have a monetary schedule in the way that bitcoin is 21 million and ethereum is sort of you know um

basically based on parameter controls and validating those sort of things luna will actually inflate its supply in order to like um stable stabilize or respond to uh ust as a stable coin the demand for ust as a stable coin so that is one big distinction from the ethereum ecosystem the unit the luna ecosystem the terra ecosystem so i see you nodding your head yes so i i think that's the case okay so um let's just high level before we get into some of these individual topics i want to hear your high level summary from each of you on jose why you are bullish and then jordi why you are bearish and i think you've both hinted at some of these things but

like just put it into kind of the the elevator pitch for us we'll start with you jose why are you bullish on this design yeah um so i actually think jordy and i uh probably are closer in in views on this than than most other than i would be with most most other bears but i want to do just a few disclaimers before before doing the on the bullishness so i'm very bullish luna in that most of my net worth is in luna and luna alts right so that should tell you something about uh sort of my bullishness on on luna however that doesn't mean i think it's riskless um i've i've consistently sort of outlined what i think what i think are the risks with it

and also the admits against uh to those risks um it also doesn't mean i'm a maxi right um i'm really like as delphi ventures we've invested like most of our investments and most of our our nav is held in non-luna non-luna ecosystem stuff we've invested in other layer ones we're interested in other stable coins like like fraction and phase specifically or design that i'm interested in so by no means uh a maxi um and then okay so in terms of the high level thesis for for uh luna so maybe i'll do the high level and just go through step by step afterwards as well if that's cool i mean maybe cut me off if if not so high level stable coins are cryptos killer app i think this is this is hard to deny um centralized stable

coins are in my mind a temporary stock gap that will be regulated away into irrelevance um the end game is necessarily decentralized stable coins which i think is is arguably the biggest market in crypto i think it's a multi-trillion dollar opportunity ust is the largest decentralized stable coin by market cap and it's also growing the fastest like the the second dye is actually uh not growing it's declining um and and so and it's although decentralization is hard to quantify as i said i'll also argue that it's the most decentralized because it's the only one that doesn't rely on uh centralized sensorable collateral like usdc and tether so that's sort of the the high level the high level thesis i

can go in like in on step by step into like uh each of those points and add a bit more color to them if you want now or i can let jordy do here's a better piece yeah yeah i think that's perfect for now that's the perfect level of uh level of expression of the bull case that we need for now jordy what's what's your bear case yeah i'll do like a very quick disclaimer as well i don't want luna to fail i'm not like betting against fluid i'm not short luna but i do see a lot of you know potential issues on the road and you know compared to the current euphoria around the lunar price that we've seen i think there's a lot of things that people may need to understand and make a journey are you a luna holder

i'm not a luna holder okay sorry i'm i have no luna uh long or short so i am an anchor right now i think it's uh we'll get into anchor later um you know presenting the beer case while being an anchor are not two distinct things i'll explain that i think anchor is like a huge marketing spend right now that um is is a safe thing for investors potentially to to just say thank you and and take some 20 yield um while there's a lot of reserves and and we'll get into that later but in terms of the bear case there are huge amount of assumptions between here and the end game that jose talks about

and i understand the end game and i'm sympathetic to the endgame the end game is basically you know we want something decentralized as opposed to ustc usdt where the government can intervene the problem with something over collateralized is that it is very capital inefficient and cannot grow very fast while ust as we have been talking about has been growing extremely rapidly that also presents risks with it because you can get over your skis grow too fast and and being in an imbalanced situation um but the the main bear case is how far we are from here into execution are many many steps removed and then people realize there's a lot of things that have to go right and there's a lot of assumptions that we don't know and

there's two main ones one is will this peg hold in the meantime through volatility and volatility can come either through a bear market or it can come through a reduction in demand once um you know the yield on anchor which i believe is extremely crucial to the growth of terror right now um reduces and we're actually the reality is nobody knows what the effect of that is going to be and another assumption is even if it doesn't depend that's not the only bare case it is entirely possible that as we have seen with uni-swap as we have seen with other successful protocols in d5 like ave if something works

people will try to make a better mouse trap and you might see other l1s issue stable coins against them and add some little tweak on it on top and they can offer a higher yield this is kind of what we've seen with sushi swap and that will be bearish for luna price without necessarily de-pegging the coin guys thank you for those initial statements and i think we're going to be touching on basically every single element that was discussed by each of you and uh for this first one to to really start off the the detailed side of this of this show i want to go back to jose jose you talked a lot about how these other algo stable coins just have not performed in the same way that ust

has and ust is in a league of its own simply by performance right we had empty set dollar come and not really work dynamic that dollar come and not really work for what reasons do you uh ascribe the success of ust in the face of all the other algo stable coins that haven't worked like what are the properties what are the features of of tara and ust that has made ust hold its peg and be so successful um and and what are those elements what would you what would you say is the rationale behind that yeah i'd say that the main uh the main thing is just that most people treated algo stables as a mechanism problem design where actually it's it's a utility and demand problem right so like

everyone sees these things as just you design a mechanism you design a coupon system a bonds you just alter that over time and hopefully uh it can maintain the peg but actually that the main thing that backs a stable coin is demand for it right that that's the main backer sort of build it and they will come approach or like peg it and we'll come approach right as long as we keep the system safe and pegged people people will use this and what we've seen is that that just hasn't really worked right and the the the approach that ust

took sorry it says my connections are stable can you hear me all right yeah we can kind of hear you you're breaking up here and there um it actually might be beneficial if we actually just started from the beginning can you can you just start over yeah sorry about that um so i think the big difference is that uh most so algo stables and stable coins generally treat stable coins as a as a mechanism design problem where in reality it's a demand problem right so you can construct the most elegant mechanism you want but the main thing that backs a stable coin is is demand for it and so where everyone else kind of focused on their their coupon mechanism or building an economy and around it and

and so it's a lot for example the maker approach which is sort of build it and they will come or get and they'll come where you know and we've seen we've seen we've seen the struggles of that whereas ust the the approach was let's not just build um a stable coin with a clever mechanism let's build an entire economy of use cases around this centered around ust um which which which allows which creates that demand around it and obviously that the first one was mir which was uh allowed people to get exposed to synthetic assets and i mean at a high level i would split sort of because ust is money right and and money you want to use it for for two main things either spending or deferred spending right um which would which would be like investment so deferred spending is sort of all of d5

and t5 like all these tools so mirror which gives you exposure to to traditional assets synthetic assets you have anchor which gives you a savings rate you have astroport where you can exchange it for different assets you have um you know mars protocols as a credit protocol you have prism where you can split your yield all these primitives that make this investment ecosystem really compelling and that's only going to going to keep growing and then you have the spending use case which is how can i actually spend my usc in the real world right because i don't want to have this savings account that's separate from my for my spending account and and there you have all these neo banks come come online like cato like cash like alice that are building all over the world and sort of doing the work on the on the front lines on the

regulatory front lines to make ust spendable everywhere and the ultimate vision is to sort of close the loop right where you never have to leave this ecosystem you have a like a really well developed financial system with with t5 and then you also have a really well developed spending ecosystem where you can spend this stuff all over the world and sort of make that really seamless and i think that vision is is the big difference between ust and and all the other stable coins and we're seeing some some of them understand this so for instance the fey and rari merger i think is an admission of this right that it's difficult to have just a stable coin you need to build you need to like verticalize and have your use cases on top of it and so you've seen faye like join up with rari and build these use

cases on top you've seen fracs with fracs lending and i think the most successful ones are the ones that are able to do that but i don't think like the with the lead ust has in terms of the system and just the the the community and everything i think it's it's much better position than most of the others i want to throw this to jordy in a second but one quick follow-up jose on this um i i think your argument to summarize it is that the vanilla algorithmic stable coin model i think you are in agreement that that like without utility algo stable coins don't work you can't just have an algo stable coin just to have a salgo stable coin you need to actually imbue it with utility for it actually to be

sustainable but my question to you is are we just adding like a utility layer around an unstable foundation like if we know that albigo stable coins are inherently unstable can you really solve that by adding just a utility layer around it or because in my mind i think an argument could be made about how you're just obfuscating the instability and the instability will rear its head at one day you've just obfuscated with utility between now and then and what would you say to that i would i would say that it's not that algo stables are inherently unstable it's just that most of them focused on ponzi incentives right versus utility and what that does is it is it it's really good at bootstrapping the supply of this algo stable which so

right with the sd in the in the expansions you were getting like massive growth in in esd supply but actually like there's no real demand sustaining that and the the that when when the market turns the outstanding stable coins are actually a liability of the share token right the share token has to honor that and and get minted in order to satisfy that and so you have this situation where you've created loads of stable coins through ponzi demand and yield and when that goes everyone wants to redeem at the same time right which is why it's really important for an algo stable you have to build demand at the same time as you build this this holder base because you need it you need it you need to be that when when sort of markets turn and and people aren't you know uh collecting their like ten

percent you know seniority or whatever on the sd there needs to be people that are actually using esd and so they're not redeeming it because they actually see utility in it and they're using it to do all this stuff and so it's not they're inherently unstable it's just that they got ahead of their skis because they used ponzi incentives to grow supply loads without having the utility to actually like back that up in the contraction phase awesome that that's a fantastic illustration jordy what would you say to that what are the thoughts that have risen to your mind um you know first of all um in terms of like the ponzinomics i would say that giving an unsustainable yield like anker is doing is a little bit like that i understand why it is and it's sort of it's a marketing span where you say okay

if it's 15 billion dollars and we're paying 10 above market we're spending a billion and a half dollars but if we're creating so much market cap then then it's sort of okay and it's a worthwhile investment um and there's a lot of assumptions baked into that i think jordy can you take a minute just to explain what you're talking about with with anchor so this is some way to in elicit demand for ust as i understand it through yield which is maybe goes back to like what is what is a ponzi uh incentive but you're saying it exists in anchor could you explain that for the listeners yeah i think like um let's take a quick step back and tell the listeners what is on terra because um it's been around a while it's not it's not like it just got created now

even though the price has been going up recently um you know there there are there is some fundamental building blocks that the terror team built into the system one was chai which was a payment system the idea was um if you integrate the stable coins into real world spending that will be a link towards long-term sustainability because there's people actually spending it it was a great idea there's been a lot of issues with that and i think the chai experiment was fantastic regulation and other things in korea um i don't think that you know ust is being spent uh for purchases so um let's call that kind of like a good idea that didn't necessarily follow through then we had mirror protocol which was a

synthetics competitor in terms of um synthetic assets stocks uh bonds creating these like financial instruments on chain to give access to people around the world um also not something that's been extremely successful uh we at selena capital have been in in mirror for a very long time and we like the protocol but the reality is both on the regulatory side as we saw with the sec kind of complaints about it and even on the stability side now um it it was doing very well and it's it's been doing less well and the assets there are not necessarily um very stable right now so another very good idea that has had problems executing so what is the killer app it

is anchor anchor is your savings bank uh instead of getting 0.1 at wells fargo you get 20 that is something simple enough and desirable enough that it has created this huge huge surge in ust and it is especially the case now that we're out of defy summer we're out of the initial uh d5 explosion where 20 yield was nothing right like you had very easy 80 100 yields like nobody cared about it and nobody was looking at anchor but since then we've had a huge contraction in yields um as you know the new protocols have figured out that maybe you shouldn't necessarily just give out all your tokens in the first

week to predatory people who are just going to take them and leave so that's reduced the risk-free yield in d5 in general and if you call it 10 now the anchor is actually higher now and they haven't reduced it because they realize what's going on like suddenly like everybody wants to come to anchor now because it's 20 so we should not reduce it um jordan what do you mean what do you mean by like they haven't reduced it who's in charge of reducing it and or increasing it and and also where does the 20 yield an anchor actually come from just just to um yeah i'm sorry dirty pretty quickly to answer that actually this just i think maybe it would be useful to

uh i'm because i'm happy to talk about anchor but i think it it would be useful to have like the context of kind of the death spiral risk and the and the and like all of that and like that argument first because um so i don't know how i want to do it because i think jose i think we'll get there for sure what i do want to hear from jordy though is like this uh you said something jose which is um that it's based on utility like utility value is is the big differentiator with usc and i'm wondering if jordy is getting to a point where he's saying well actually anchor is similar to some of the ponzi game type economics that we've seen in empty set dollar i don't know if that's the point you're making jordy but i'd like to hear your

your kind of your full expression of what you're saying with anchor so where's the 20 coming from so the 20 i can't say um what uh those that kyle somani but uh the 20 is that was a south park joke by the way [Laughter] um so the the 20 is coming from the luna foundation guard it's coming from ultimately the the powers that be that control terra that have money to spend on marketing a way to look at it is they're saying you know we've made we have this money in the treasury uh we will keep topping up as long as we

feel like we're getting a worthwhile return on adoption and we will keep topping up um this 20 yield above what you know maybe 10 is like a normal value for the yield given um you know some of the natural rewards rates where you're getting um the yield from the assets that are being staked so it's it's a very expensive marketing spend um the problem i have with it is twofold one is the civil resistance is always impossible to solve for so yeah if you can actually give 20 to retail real people you know alice and joe and they actually

have a savings account with twenty thousand dollars they wanna get twenty percent and you think it's worthwhile to give them this extra five hundred dollars a year because you want to bring them into the ecosystem that makes a lot of sense but what you end up happening is uh degen box for example which is like a a way to wrap mim and ust together and kind of magnify the yield and and kind of keep farming this like extra yield um that's kind of more the type of people that have taken advantage of of the offer so i don't think it's necessarily being super effective in terms of bringing in retail people um and it's so hard to do like this is the problem with crypto in general and with blockchain in

general it's like how do you just direct the rewards that you want to direct to real human beings instead of just a huge corporation or you know some degen box thing taking all of the uh incentives so so jordy back to kind of david's root question here which is i think jose was saying hey this is different than other algo stable coin experiments in the past it's not empty set dollar it's not bases cash this is fundamentally different and so won't end up with the same fate i mean we have like a field of gravestones as uh david said it uh peter the show of other algo stable coins do you think that usd is destined to join those do you think it will ultimately fall in the same ways

or do you think this time it is different with ust um i think some some people i talk to are completely convinced i'm not convinced i think it's sort of 50 50 it hangs in the balance we have a much better team executing on luna like do kwan um has a an amazing like execution um spirit to him you have jump you have like some strong players that are backing that are not gonna just let this thing die i think you know last may may 2021 where we had a big drop in the entire market and ust started to d-peg um there were some powerful friends that came in and and saved the day and it didn't depend and you know one year

later those guys are um kind of reaping the rewards so it's much stronger than like some of these prior experiments and i'm not sure it's going to depend but there are risks there's two risks one is luna uh price goes down because the entire market is going down people start worrying that there is not enough collateral in luna to absorb all the ust so if the entire market goes down 50 60 in a bear market including bitcoin which is kind of the collateral that is now being accumulated which we'll get it we haven't touched upon um but you know god forbid the entire crypto market goes into like a really bad bear market there's going to be a loss of trust in ust because people are worried that

there is not enough collateral to back it in terms of actual dollars the collateralization percentage goes down and there's a rush for the doors that's the one risk and then the second risk comes from the other side it comes from the dollar side where if um the 20 on anchor gets reduced to 10 percent and then people no longer care about it then you will see a like we talked about before they will burn ust that will mint more luna it will create inflation in luna and that's kind of a potential risk that starts to create the basis of a death spiral where you know if luna market cap is 30 billion and somebody burns 5 billion of ust

it's not just that luna is going to go down by 5 billion to 25 billion there is a multiplayer effect so it'll be like times three to times eight or kind of like the the estimates historically um on on like you know the effect of market caps like like we've seen now in bitcoin bitcoin has gone up 10 based on you know a few billion of buying it's not proportional to the market cap so that's kind of like the hammer that falls down and five billion of luna sales just wipes out the entire thing right uh jose i'm about to throw this to you but just i think to recap that is uh jordy i think what you're saying is that if you compare the outstanding supply of ust to the market cap of luna you're saying that there's no way that the luna has enough like ammo right that doesn't

have enough capital to to fully uh prevent a a death spiral uh jose you're about to kind of illustrate i think the the case for a death pile and can you also just illustrate how anchor you think phil fits into that role does the utility that anchor providing uh to ust is that helping ust maintain its peg or do you also see a risk with anker and can you just uh illustrate some of your thoughts here on this yeah so so the first thing is like anchor the 20 rate right now is unsustainable right the yield reserve is is depleting but simulations that have been done um and we can link to a few in the show notes show that the sustainable rate would be anywhere from seven to twelve

percent right which is still much higher than anything else available in d5 so so the question is like how much do you need to pay for people to accept the perceived peg risk of ust right and the number that the ecosystem landed on to start with was this 20 which which is a really strong meme it's it's uh and and it's like the the number where people are like and even jordy right who's who's a who's a bear is is uh sort of one the yield is high enough to compensate for him having some ust in there so so the question is at what point and now a proposal is passed to to make the rate more dynamic so it's gonna it's gonna adjust every month and so that the the yield's gonna lower and so the question is like what is the the

rate at which this uh people start saying you know this isn't um this isn't worth the risk anymore and for me that would be like below ten percent that's my sort of estimate there um because i think anchor is still going to be the highest rate in d5 for for the foreseeable future and i think with its model probably forever in terms of the combination of stability and high yield i think anchor will continue to be that and then the other thing to say is it's it's unsustainable um just like paypal giving away 20 bucks to everyone that use paypal initially was unsustainable right it's like jordy said it's marketing spend and i i totally disagree with the idea that it's that it's been not that successful or that the goal was to attract retail in my mind it's been massively successful

because it's grown ust supply to 16 billion it's increased ust liquidity and i don't i don't necessarily buy this thing that we need to attract retail or like this is a sort of a separate argument i i think like majority is the user like now george is using ust and so are a bunch of other big funds in the space they have exposure to usd and and you have this magic thing that happens where when when the capital went into anchor um that's when people saw ust is most risky because it was completely uncollateralized and so they needed that 20 but now there's a bitcoin reserve right and what if by the time and doe can fund this this this yield reserve for a long time and so what if by the time the yield reserve is is the the yield comes down the ust is like 80

backed by reserves right then suddenly you have this magic trick where people came in because they wanted the high yield really high yield and they needed that high yield to compensate them for the risk but now there's a magic trick that happens and you're like well i kind of trust this thing now you know it's been around for a while the four pool's the most liquid pool in in d5 this thing has all the trading pairs there's exchanges on layer 2 like zigzag that are using this actually i wanna i wanna keep my usc and so it's achieved exactly what it's set out to do right and and for me it's the most no-brainer marketing spend ever like if you can spend 500 million to top up a reserve and get 16 you know or like 10 billion in an additional ust and get everyone

using it and talking about it and then you can collateralize it in the meanwhile and increase the trust in it um i just think it's like just a genius move in my mind and so that those are sort of my thoughts on the on the anchor uh sustainability piece on the uh you indicated something like a 10 real rate real yield coming from people that are actually paying uh into into anchor and then it goes up to 20 when you add in like the the rewards right it's basically like a yield farming incentive program uh uh not exactly like that but but yeah it's just that um basically the rate that could be sustained because the the anchor rate is sort of a liability for the anchor platform right because they have to generate enough borrowing

in order to be able to pay that rate to depositors because the depositors right so and so the the simulations that have been done is given current borrowing activity how much uh how much yield could actually actually pay out and so anchor's maintaining the 20 rate not through any it's not like a yield farm it's just it's just literally uh you know uh lfg sending some money to the yield reserve which which allows it to keep depleting and paying out that liability of the platform right but and you said that if if uh the fund stopped paying stopped incentivizing the yields it would come down to something like seven to twelve percent i i think you said yeah that is so high above the the rest of the industry i think like uscc is two to three percent where does so much demand to borrow out of anchor come from

yeah i mean uh it's it's it is the best place to borrow most uh proof-of-stake layer one assets right the model is that you you give up your your proof of stake yield on on your layer one asset and in exchange uh you you borrow um very very cheaply and you have the anchor incentives on top so there is some like this model uh is like like any model of stuff like this has its flaws for instance it obviously has to assume an anchor price and the incentives that are being paid out to borrowers and stuff like that and there's some reflexivity all the way through but yeah that's that's how it does it i think we're going to talk about maybe the probability of um dpeg risk in in just a minute because i think jose you sort of um underweight that a little bit

you think it's overstated maybe uh and i'm guessing jordy you probably believe the opposite but i do want to just zone in on this question because you brought it up jose is the fact that lfg which is a fund associated with with luna and kind of um that ecosystem and helping to like prop up the the value of that economy and specifically ust uh there's been recently in in crypto news uh dokwan purchasing you know up to 10 billion dollars worth of of luna and just before this college i saw a lfg fund purchase which is kind of an acting org for for dog quantum the terror ecosystem purchasing you know 200 million or something bitcoin like

they're doing this um this is one thing i don't understand personally which is is the fact that they're having to buy a foreign asset this is kind of to me like a bank reserve or a central bank reserve maybe going and buying a foreign asset an off-chain asset to luna the fact that they're buying bitcoin is that not an admission that the model isn't sustainable and doesn't work tell me about that jose how would you respond yeah i just don't i don't really get that argument like for instance like ethereum is is where is the fact that if ethereum's moving uh to e 2.0 proof of stake sharding and admission that ethereum as it currently stands doesn't

work no theorem as it currently stands works it's just ev 2.0 is way better right it's a better design and so like luna as it existed for for its history as a pure algorithmic stable worked there's it's hard to deny that it worked it survived uh contractions it grew like exponentially it it created a lot of use cases around it but as it gets into this next stage of adoption and trust it that that bitcoin uh reserve backing is super important in order in order to bootstrap that trust and increase that trust and allow it to scale further jordy do you want to comment on this before we move to systemic risks and the dpeg risk specifically um

i think it was you know universally agreed even by the bears that um using bitcoin as collateral and not only luna is the right decision it was a very smart move it makes even if you say it's very highly correlated to luna it's not going to be one to one correlated so it is adding potentially some diversification and stability to the system versus having just luna um it just adds uh bitcoin risk and people will always be looking at you know what the big like if bitcoin goes down they'll be saying well you know luna took a one billion dollar loss today because they have eight

billion in bitcoin and it went down ten percent and that could create um some fud that you're kind of opening up to but i think that move in itself was not a bad move and jordy that that bitcoin itself that's custody is it not like where does that bitcoin live so this is like when i talked at the very beginning that we are so far from like the vision which i like the vision but look we are so far from the vision there are so many things to figure out um even for these like super smart people that are trying to figure it out that are extremely complex like you have bitcoin bitcoins on the bitcoin network you want to have bitcoin on the luna network so that it automatically in a decentralized fashion will uh be able to be redeemed at 98 of a ust and we can explain why it's 98

not one to one but um you know there's we've seen all the hacks with bridges we're gonna see what solution ends up being found if it's run btc or what what uh version of wrapped bitcoin they end up using but this is an execution risk that in my mind is far from being solved and is not without risks we've always like on bankruptcy i would agree with that yeah yeah i'm curious your thoughts it's like always on bank list we've we've always been i mean the show is called bankless right but we we've we've always been on the mindsets the the moment the asset starts to have trust assumptions and get custodied is the moment you start to turn into a bank and i'm wondering maybe

maybe jose like your take on this is what tara is creating with ust now it's bringing in foreign asset reserves basically how how's this different than a bank um yeah so i'm by the way i'm uh i'm a director of lfg so one of one of seven directors of lfg this is a kind of disclosure um and yeah i agree it's an unsolved problem to jordy's point how to how to bring bitcoin to tara in the most trustless way possible there are solutions out there there's axillar i think is is an interesting solution it's pretty trustless there's obviously thor chain but none of them are ready for multiple billion dollars of bitcoin and so at this stage the bitcoin is custodied by

um by the foundation itself which is which is not ideal um and then in terms of whether bringing in an asset like adds um makes it a bank no i don't i don't think so because like the there's already an asset there there's luna right um and and that asset is is is like the native asset of the network the only thing that it adds is is trust assumptions for sure in terms of bringing bitcoin over to the network uh but i don't think uh trust assumptions make it a bank right a bank is is literally uh the bank controls it it's a centralized legal entity uh that that controls these assets that this like what depending what solution is chosen is going to be much more of a

decentralized process and obviously with its own with its own set of additional trust assumptions that that's that that much is like inevitable today i want to i want to ask a similar question just from the the perspective of the protocol though ryan said that um when you use bitcoin to help backstop ust you're kind of admitting that you need external help to make the protocol sustainable and i think this really goes into one of the design philosophy differences between ethereum and terra where tara seems to uh be totally okay with like tapping into the power in the market cap of bitcoin to help bolster its ecosystem but in my mind that is one protocol the terra the luna protocol saying that uh we need security from

external we need external help for security for the protocol as in the protocol can't sustain itself we need to tap into the power of bitcoin in order to make this thing long-term sustainable and i don't think in my mind that you don't really as a layer one protocol it's it's a risk it's a risk to tap into something that you don't have control over in order to help maintain the functioning of your ecosystem like bitcoin can do things that are outside of the control of terra because it's outside of the protocol jose do you see these concerns um not really because like maker you know die is backed by bitcoin and actually a very weak form of bitcoin right with with very weak trust assumptions which

is wbtc which is basically a bit go multisig yeah it's also backed by usdc right which is which is literally like centralized stable coins or an iou for dollars in a bank account right like if if the us government calls calls circle and and obviously it's not uh i'm not saying it's gonna be a phone call but like there's processes in which those funds could be frozen um usd uscc's blacklisted addresses before uh like it's it's very vulnerable and i i would argue a much bigger vulnerability um than than than the bitcoin one and i still don't agree with this admission article uh argument sorry because it's not an admission it's sort of a a growth of the model and i i don't think bitcoin's going to be the only asset

that backs uh ust either in the future i think there's going to be additional layer one assets as they prove themselves that that the community might think would make for good reserve assets so yeah i don't see it as an admission i see it as an evolution of the model in the same way that ethereum 2.0 isn't an admission that ethereum doesn't work because clearly a theorem works it's the most successful network in crypto um it's just this is a better model does it does this require uh is it in for this to really work does this kind of require um like a trustless bridge ecosystem to be sufficiently built out like we don't really want the long-term luna system to really just be dependent on like trust right well like we want to have these things baked into smart contracts using trustless bridges is

that kind of the model for how we would get all these layer one assets also backing ust yes uh yeah we need we need good trustless bridges but there are other design opportunities right like you could create synthetic assets um sort of at the layer one level with with an oracle at the layer one level there's a design space here which has different trust assumptions and and different trade-offs but i i don't think that that's the only possible solution okay jordy uh let's move on to like um the dpeg risk here because that's um the something we've seen with other algo stable coins you know death spiral de-pegging and um eventual kind of like tombstone at the end of it um what are the risks of a dpeg

event in the usd terra ecosystem uh yeah ryan i think uh it's the two that i i touched upon so one is there is a reduction in ust demand and um you know i think even jose said how important that demand is and the the role that the luna team has is to sustain that demand because if the demand goes down that really kind of creates a problem so a reduction in demand because of anker having to reduce its yields and then people finding higher yields somewhere else like i said it's entirely possible that another layer one designs the same mechanism

and gives a slightly higher yield and that can create a relative i mean i agree with jose like it can't just be like a totally like new layer one that exists out of thin air because people won't trust it and we've seen something similar recently with waves which is not new but is um it's kind of had some issues with uh a similar model but um an existing layer one can try to start seeing how successful this design is can just start doing it themselves and increase uh yield a little bit so there's a lot of ways that the demand for ust can go down now what they're trying to do in the meantime i don't think it's exactly marketing spent i think what uh what in effect they're doing is

buying time they're buying time on the lunar side to say we will do this for a year and in that year we will go like all out and integrate as many places as we can in the d5 ecosystem we will get on curve we will get on the pools we will try to have ust perpetuals trading instead of usdt tether perpetuals for trading venues we will put ust everywhere to the point where we try to like it's sort of a bet that you can create enough use cases where people will just like you know we've been living with uh tether risk for years right because we need we need it we need it to exist uh trading venues need it finance needs it

and it's been it's kind of been supported by the whole community and in a way i think the plan is make it similar to that make it similar to tether and not in the centralized sense but in the sense of the community accepts that yeah maybe it's not we don't know if it's 100 back but we're just gonna go with it and and it's a gamble and you know um it's i'm not saying it's a bad gamble it's a gamble um i don't know if you guys have korean friends i have korean friends and they love to gamble and they're you know it's it's fine but that's we should say what's going on it's funny one one person's uh fake it till you make it is another person's

like that's just bootstrapping and so i'm curious jose what your response would be to the deep the depending and um i guess uh death spiral risk in usc do you think it's overrated or underrated well the the first thing i'd say is uh it's important to concede that there is a risk right and people need to be aware of that risk when they both use ust and when they use luna because there is that risk it's a design where that's happened in the past and and obviously that's that's there but but um what i would say is that like first of all even even before the the bitcoin reserves actually maybe if we go from from from a little bit higher level um when you have a design like die uh

well even higher level actually so all these things have risks right uh die as safe as the over cholesterol design is nearly blew up on on in you know black black friday or whatever black thursday whatever it was because of congestion on the at the chain level like all these things have risks even things that you don't think have risks and have smart contract bugs and things and so and and then also um decentralized tables that use centralized collateral have a complete other set of risks right which is that actually the collateral they're using could be censored um and if if we go pvp with governments which is the real pvp rather than the pvp against each other um that that that's like a very real risk so there's there's like a spectrum of risks and it's not it's not that ust

is the only risky stable coin it's that stable coins have different sets of risks and trade-offs that they make right and so the trade-off for me between die and ust which are the only like the two biggest decentralized stable coins is that die prioritizes uh safety and like protection from from tail risk over growth and ust prioritizes growth and capital efficiency over downside risk right and so what we've seen with with dye is um it's really hard to grow it because demand for for a diet actually doesn't grow the supply of diet it's the demand for leverage that does and so maker ends up competing with other lending platforms for this which is why they've had to add centralized collateral like like like usdc right um and so

that that's that's a problem in in in itself right and then ust obviously as we've seen can grow much quicker but the trade-off is this this downside risk that we're that we're talking about this tail risk that can happen with the reflexivity death spiral and just like geordi explained it really well but there's kind of two scenarios right with it with a death spiral one is like luna bear market or like that or like um crypto bear market luna crashes people are like oh i don't know if luna can can i swear on this that's not just maybe you can bleep it out later uh uh the yeah luna crashes everyone's like i don't know if luna can can can like honor all its liabilities in ust they start redeeming their ust more luna gets minted the price crashes further more

people want to redeem ust et cetera and the second one is it starts with ust instead right there's a large contraction of demand for for ust which means a lot of luna price goes down um and then and then the desk file starts that way um and so the first thing i would say is that like luna is backed by an every stable coin but luna specifically is backed by by three things right the first and most important one is demand for itself uh non-speculative demand is is really the holy grail of of backing for a stable coin and that's what backed luna for most of its history um other than in certain contractions where luna had to come in so and so the second thing that backs luna is is loon itself right in that it absorbs um shifts in

demand for ust when when when demand goes down luna gets minted to absorb that and now we have this this third layer as well which is this bitcoin reserve which effectively acts as an escape hatch and breaks that reflexivity spiral right because now when people want to redeem usc and there's there's there's a large contraction sharp contraction in demand instead of having to mint luna they have this ability to that this escape hatch this escape valve which is bitcoin where they can they can redeem it for bitcoin right which reduces the pressure on luna and breaks that like reflexive death spiral which is which is really the problem now so that's all that's all clear um that the valid question to ask about this is um whether three billion is enough right

like given that ust is now at 16 billion is three billion actually enough reserves to to to um to protect it and i think the honest answer is that no one knows it's it's it's impossible to to model these things like reflexivity is really hard to model right all these things you have variables that aren't independent they all actually like are recursive and depend on each other so it's it's really hard to model um what i would say is the system survived until now with with no reserves and so i think the psychological impact of this is going to be huge and then i would also say that um what the lfg raise really shows is that people understand like investors understand the the upside of ust which is the other side of the trade-off right

which you can which is that you can grow faster stable coins are a network affects business um there's going to be one or a few big winners on this there's there's a bunch of network effects liquidity um lindy and so it's really difficult to to um to unseat a stable coin and what we've seen is that when you start with collateralization you don't necessarily get demand but when you start with demand you can get collateralization that's what the lfg raise proves right and what we're seeing right now i have good reason to believe uh there's enough demand on secondary markets to bring luna above sort of 50 to 75 percent in bitcoin reserves just right now right through transactions on the secondary market and so my view is that basically three billion um

i don't know if it's enough but if it isn't i think luna can can collateralize itself over time both through these these secondary sales and collateralize the wrong word um reserves is really the right word but it can grow those reserves over time both on the secondary market and through these through these um through senior edge so changing the mechanism so that instead of all the luna being burnt part of it's actually used to acquire bitcoin over time so that the reserves can grow organically over time um that's my view on it yeah i have one quick question that we're gonna have to pause for break and i look guys uh if you're okay with it we we want to go over time because this has been such an insightful like conversation we still have a few more topics to cover is that cool more time after the break okay uh just

one quick follow-up on this jose i mean you mentioned uh lindy effect right you also mentioned uh neil maker uh being tested in 2020 part of me wonders about this has ust actually been tested because the real test of i think any stable coin design algorithmic or otherwise is how does it sustain not during the good times but during like the bad times as jordy was saying earlier the the tail risk events and when maker uh had that like price drop with you know exorbitant gases and everything in uh the covet drop of black thursday in march of 2020 that was a

huge testing event for maker and like people didn't know how it would fare because it never had felt something like that before but it made it out and sustained it on the other side i'm curious whether luna has actually been tested in your mind like it's one thing for an elgo stablecoin to work during the a bull run and luna has had an absolutely massive secular bull run for the last year or more that's one thing but that's easy mode that's not what a stable coin is is uh meant to be built for it's meant to be built when there's earthquakes and tornadoes and hurricanes and the entire world is shaking uh you know around you um has it been tested in that way and do you think that is an important piece

in terms of building the credibility of this system a hundred percent i think so our equivalent or the the terror community's equivalent of the of the maker black thursday was was may 2021 so may 2021 last year where luna dropped from uh there was a contraction in ust supply at the same time as there was sort of some some coordinated um fud around around luna not to say coordinated in the sense of like that there was anything malicious just that there was it all happened at the same time right it was very adverse market conditions luna dropped from 20 plus dollars to three dollars in that time there was a contraction in ust supply uh but then you know uh buyers came in for for luna and the system the system survived right and there was a lot of lessons learned

from that both in terms of on the mechanism side increasing on chain liquidity changing some of the parameters for fermenting and burning um and and also other other lessons that have been that have been learned there now the ust was much smaller when that happened so i do think there will be there will be other tests um i don't think like the ust or lunar journey is going to be up only so i think i think they're going to be other tests for it but certainly it's been it's been battle tested like think about how uh you know think about using oh yeah the other thing that was really actually promising during the may that may um drop was that um while luna was dropping and like uh and and sort of the death spiral was underway effectively

you actually saw uh deposits on anchor increase which means that there were some people that were actually selling luna for ust fleeing to safety right and so what that shows and it's like a really positive thing i think psychologically is that some people already see ust as their safe haven you know when hits the fan on chain they're actually fleeing to ust and going into anchor and saying i need a break you know i'm gonna i need to go into stables and so like imagine anyone doing that with like esd or or dsd right like no one is fleeing to the safety of esd yes i don't know i don't know if i i don't know i mean just interrupt like i don't know if you can say that like it's that's proof that like smart people are like you know the smart money is doing

it it's within the terry ecosystem within people who are lunatics it makes sense you know they're like should i have the variable one or the stable one and i'm gonna stay within the ecosystem i'm not gonna bridge out i'm not gonna like find a way out i'm just gonna move between the two i'm not i'm not i mean i agree with a lot of what you said but i'm not sure that that necessarily proves um something that like you know smart people are doing that um no comment on the smart people thing but but it does prove lindy right it proves that for some people it's it's a stable coin it's safety it proves that there's like a psychological sort of belief in it that some people have and it's hard to hard to deny whether you would do it or and whether you think it was it was

smart for them to do it fair enough right fair enough i'm trying to say every community like a cardano you know if cardano community there was a market crash they would do the same every community that that is a community that is a layer one there will be people within that community within that later one that seeks to do that um but i'd say it's i'd say it's slightly different i agree but i'd say it's slightly different because that one thing is buying cardano when it drops and you're like cut down to them i'm happy the price dropped you know i get to buy more or whatever the the cope stuff that people people say at those points another thing is is buying the actual stable coin right because that that shows that you you trust the system it's not even that you want it it

doesn't you're not buying it for profit or you're buying the dip you're actually just like using the system as it's meant to be designed so like i think it's a slightly like different point i agree with you it's slightly different um and i do want to ask you um [Music] would you not say that in terms of lindiness the upcoming like you said the yield reduction in anchor is going to be a whole new different type of test that we don't know yet what's going to happen with that yeah i would i would i would say so um i'm pretty positive on that i don't think it'll matter that much for the reason i said before but i agree it's going to be a big big test and the test face now will be much bigger than the ones faced uh previously for sure awesome guys that uh thank you for for

going on that back and forth that was immensely interesting there are a couple subjects which we haven't touched on yet which we definitely need to before we wrap up this show the pool 4 is definitely clamoring being talked about throughout the ecosystem both on the maker side and on the on the terrace side it seems to be that the word maker just creates a bunch of uh just very strong emotions according to the youtube chat that i've been watching uh they do not like that word uh so we're gonna have to talk about the four pool uh there's also we wanna talk about dokwan himself uh the level of key man risk that is associated with uh ust and and do kwan uh the guy has a ton of confidence lately uh and i want to get

you guys his perceptions as to the level of risk and there's also the conversation of just simply being too big to fail uh and is this an actual intent uh intentful strategy by the terror ecosystem just become so large that uh it it becomes too big to fail and what does that even mean so these are the the remaining topics that we want to get your guys's opinions on and we'll get there right after we talk about some of these fantastic sponsors that make the show possible if you're trying to grow and preserve your crypto wealth optimizing your taxes is just as lucrative as trying to find the next hidden gem also ira can help you invest in crypto in tax advantage ways to help you preserve your hard earned money also crypto ira lets you invest in more than 150 coins and tokens with all the same tax advantages of an

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and also check out the ave protocol governance forums to see what more than a hundred thousand dow members are all robbing about at governance.ave.com hey guys we are back with jose and jordi this is uh the best debate i've ever heard on this topic uh you know just fantastic so we we appreciate these two for for going over time with us but we just wanted to make sure we covered all of the topics to best inform you uh here's another topic some i i think the the bears of the critics of uh luna and ust would say that there's a lot of key man risk some might even say like is this like banker type risk uh dokwan is appearing more and more as kind of a an elon musk type of

figure i would say in the community and to take that for the kind of the good and the bad side of things but definitely somebody who uh makes statements like by mine own hand dye will die when uh like talking about the competition between maker and the dye ecosystem and ust um some have talked about how maybe uh do kwan is is flying a bit close to the sun with with some of these statements and uh maybe some of the regulatory risk that that's going on as well of course the the sec is in play but um like when you have a centralized you would say decentralized i think jose but when you have a stable coin of this type you might attract some unwanted attention from regulators as

well and all of this kind of comes down to uh dokuan and sort of a smaller operating team would be the criticism i'm curious first of all maybe the bear case for for all of this uh from your perspective jordy do you think that there's some key man risk that um the ust terra ecosystem is is dealing with you think there are some centralization vectors how would you talk about this piece of it yeah i'm glad you said centralization vectors because i think that's the bigger issue um in terms of dokwan i think he's phenomenally intelligent he's been making very good decisions and he's the reason why this has gone as far as it's gone compared to like you know the things that have not even gotten out of the gate

obviously there's he-man risk if he gets hit by a bus here in singapore tomorrow we'll everyone's going to sell like that's a problem i don't have a huge problem with that because we are early stages and he's building something that eventually is supposed to kind of run itself um i don't think it's a question that right now there is a key man risk i don't want to personally focus on that because anything like you could say about elon and tesla like does that mean like tesla should not exist because um you know elon there's human risk i don't think it's a big deal in itself um i do want to touch on the second point about centralization i don't know if jose wants to answer about doc juan first though he he's obviously worked uh with him when i haven't maybe he can answer

about that not good go ahead i probably agree with your with your take on it pretty pretty closely so yeah go ahead on the centralization point and then i can answer i can answer both yeah i mean the the bigger issue i have um is we're talking about decentralization this decentralized stablecoin i don't know that there is enough diversity in the ecosystem and the people who are building and supporting the ecosystem yet and i'm not talking about dough i'm talking more kind of like the jump uh jump capital jump crypto whatever they call themselves now um they are such a huge backer and supporter that i think overshadows um obviously delphi as well but uh i'm sure

you you're behind the scenes you kind of know what i'm talking about um it's a bit less organic than um some of the other layer ones and that's gonna take a while to change and i don't know exactly how we get from point a to point b where it is a community fully decentralized kind of run thing as opposed to you know you have one brilliant founder and and like a very powerful uh kind of company that's really how do you get from point a to point b yep uh do you want me to comment on that now yeah go ahead respond uh jose cool yeah so the first thing to say is i

obviously really believe in decentralization like i wouldn't be in this space if i didn't think uh that was super important however um i do think it i believe in like progressive decentralization right and i do think projects need to decentralize over time and in the right way um and i think the way like um especially for a stablecoin because a stablecoin requires a lot of like uh like get done energy you know you need to you need to push integrations you need to build products around it you need to do all the stuff that that kind of the quan has been has been so good at doing um and i think what we see with like when you decentralize too early is sort of what you're seeing in my mind by the way this is just my opinion on the

maker governance forums um and i'm a huge fan of maker it was my first altcoin that i bought after ethereum i learned loads on those make reforms back in the days so like big big fan of maker but to me to see their governance at work now is is is a huge disappointment right it's a it's a massive bureaucratic mess um there's committees for everything people aren't well paid uh like communities weighing in and commenting on things they're very focused on risk assessment versus growth uh you know roon the founder of maker kind of admitted he doesn't understand the curve wars which which are sort of like the lifeblood of liquidity for for stable coins in a decentralized world they seem to have that like sort of an arrogant attitude towards d5 generally that it's all ponzi's and the only thing that matters is these real world assets

and and green bonds and all this so like i do think that that decentralizing too early is a problem and for me the the the right way to decentralize is actually to do what what tara is doing and on board like these big organizations with skin in the game that act as like a separate participant and stakeholder in the ecosystem right and there's a bunch of those now obviously jump as jordan pointed out is is a big one i would say delphi labs so the the part of delphi that i head up is another big one sort of contributing to projects in the terra ecosystem in the recent round we had some really good additions with with three arrows and others um there's someone um behind the scenes that are that are doing a lot of work in the terra ecosystem and i do think that's the right way to

decentralize right with these big organizations that are that are focused that have skin in the game and then and the other thing to remember is like we're literally descent like decentralizing now would be so early because ust market cap is 16 billion and this is a multi-trillion dollar market right and the the the time to to like it's much easier to grow fast when you're more more centralized than it is decentralized and so for me the plan should be to progressively decentralize over time grow supply loads and then uh once once once you have that lindy effect and once you once you've grown uh decentralize and and focus on robustness and obviously there's a balance but that that's sort of my my take and i i do think decentralization in crypto uh unfortunately often gets used is sort of

um a way for for founders that have made it to kind of like semi-retire right and and become contributors and like pass it off to the community when really the project isn't ready for that and it needs the founder it needs that founder energy to kind of push things forward not not that they should be a centralized point of control and though isn't right the system would work without him but they need that energy of contribution and that inspiration uh inspirational leadership to push it forward um and then in terms of key man risk clearly there's key man risk around dough he's a machine like uh i worked with a lot of founders in the space i'd say though is is the best one maybe along with like sani um he's like a really good mix of sort of a great engineer and like a very very sharp engineering brain

with hustle vision and then he's obviously like made it several times over but is still incredibly motivated works harder than me you know takes takes less holidays than i do um so it's clearly key man risk around that um hard to avoid in an early stage project jose with the the spectrum of centralization and decentralization uh yeah i'm wondering if you agree with this take right so like you've you've got like a bitcoin and ethereum which are maybe on the the far left side of the decentralization spectrum like veering towards most decentralized right and then you have like the traditional tradfi system that's called that call that kind of the right side of the spectrum right and then you have like crypto banks you have the uh ftx's of the world and you have the coin bases of the world that you know are a bit left

of the uh the traditional finance because they're using decentralized crypto networks to settle things that sort of thing um some people have compared uh the terra ecosystem to almost like this hybrid mix it's sort of like fintech ish meets blockchain and placed it kind of somewhere in the middle this hybrid sort of blend do you think that's where you'd place it in the decentralization spectrum do you think it's like or do you think it's more uh kind of toward the left more decentralized over time and maybe competing with uh layer ones like ethereum and bitcoin yeah i think uh even putting decentralization on like a linear spectrum is really tough because

there are ways in which ethereum is extremely decentralized but then also it's its main stable coin uh is is entirely centralized and actually the biggest stable coins in ethereum are completely centralized they're just ious for dollars in a bank account and those are the undercurrent of all of ethereum d5 and so if those go down if ethereum is it really has like a big centralized attack vector in these centralized stable coins so like technically and in terms of node count and all of that ethereum's extremely decentralized but then it has this very you know centralized attack vector and i think that's why it's hard to put it on like a spectrum um in terms of terror i would say the system itself you know from a technical perspective is fairly decentralized you know um nowhere near as decentralized as ethereum in terms of

node count and and all of that but it's a it's a tendermint chain right so it's it's it's a proof of stake tendermint chain um what i would say is is centralized um is just like there are organizations in the ecosystem who um who have like a can make a big impact on the success or failure of this like jump um like uh you know tfl like though if you if you agree with that like lfg um but now increasing there's an increasing number of those to the point where that is becoming a decentralizing force in itself so that's kind of my take on like i think the system is decentralized but there are some uh there are some you know centralized entities that are that are a big sort of um part of its success does that make sense

yeah it's a good take david's on me all right thank you uh yeah thank you for that jose jordy what thoughts have come to mind before we go and move on to any other subject anything that's come up to your brain i mean in terms of like you know you start centralize and you make incremental steps i fully believe in that um in terms of the ecosystem the fact that like two main big groups are building a lot of the primitives um i have mixed feelings about it like i know one team that's been working uh hard to try to get like one of the options protocols out on terra and they just realized that oh there's a there's they just launched one that's backed by the founding team how are we going to compete with them when they're backed by doe and these guys and we you know we wanted to launch

the same thing so you're going to have a lot of the ecosystem be kind of you have that a little bit with solana but not as much i think you know solana has quite a diverse group of founders that and ultimately are not necessarily all um you know ftx related et cetera um or jump related um but look at the end of the game like does it really matter what ecosystem terra has if the the key thing is a stable coin like for me it it might not even matter it might just matter what what what they managed to do in terms of going to other chains and getting ust on other chains and making it spread everywhere as opposed to necessarily building all the primitives

on on terra if they do really good ones then it could work it's obviously got the narrative right now so i don't um i don't have a strong opinion i guess well okay talking about ust on other chains i think it's exactly where we want to go next uh recently dokwan uh proposed the four pool a new curve pool between ust frax usdc and usdt uh so that's of course terra usd the frax stablecoin usc and then tether most importantly pushing out dye moving removing dye from from the the curve pool uh and uh he's claiming that the curve wars are over and that all

missions are going to the four pool means meaning that all the incentives are going to be towards adding liquidity to the four pool rather than the previous pool with dye in it so jose i want to get your perspective on this uh dokwan tweeted out by my hand dai will die which is a pretty aggro thing to tweet out like what's his deal with maker like why does he not like maker so much and what's the how does this four pool put from curve kind of fit into the story um i think though like at least this is my interpretation i'm i don't i don't uh you know pretend to speak for dough it's just that maker and and generally there's there's sort of a group of people on twitter that are constantly um

making some pretty malformed arguments against ust and also just calling it like a ponzi and referring to it and stuff like that and it i think it must be frustrating as a founder who's put their life's work into this and created something pretty incredible which is an algorithmic stable coin that has worked and is now you know and doing everything that he's doing i think it must be pretty annoying to to keep hearing that um and i think maker has been pretty pretty arrogant about it and and sort of dismissive of it and i think that's that my interpretation is that that's rubbed him the wrong way um i don't know if that's accurate or not but and then in terms of the fourth pool it's it's a huge move right uh the three pool is the biggest and like most most liquid pool on on curve so it ends up being the

bridge pool for a lot of uh stable coin swaps and then the bridge pool for a lot of swaps generally especially as curve v2 and the volatile assets becomes bigger um with this so and and frax had it had its own pool which it was uh participating in the curb war so like buying a lot of convex in order to to influence and then terra had its own pool that again it was doing it was doing the same thing and they've basically like teamed up right they've kind of cartelified um and and they're along with redacted and there's also i think a few others joining this coalition in order to put in this four pool which will be you know fracks um ust uh tether in usdc and and send all incentives towards this pool which should make it the most liquid pool in a

stable coin pool and defy and become the bridge pool so that so that uh fracks and ust become the reference decentralized stable coins uh across chain so pretty huge move uh i was really taken aback by it uh i'll be curious to hear what jordy thinks about it actually because yeah it seems seems like a big thing yeah i mean we've been talking about the curve wars for a while now and now we've actually seen somebody make a move and try to get you know uh consortium together and and pull something like this off um i think it's interesting uh you know we're very much an experimental phase here and um you know seeing olympus join in is you know you're having these like strange

bet fellows here where you're kind of getting the votes and [Music] we're in experimental land um i'm interested to see how it all plays out um [Music] yeah i think that's so fully like my popcorn on this one jordy do you think this will like result in the full saturation of ethereum defy with usc uh no i don't think it's that straightforward i mean we're there's so many assumptions like first of all the assumption that centralized stable coins um are problematic right now i i mean i agree with jose like eventually like we have to create something for when the day comes and and we need we need to have something

decentralized but um i don't think that the vast majority of usdc being used on ethereum is is going stop uh being utilized i'm not sure about dye's prospects obviously um that's a different story and i'm not i'm not an expert on it so i can't comment on on dye's prospects but in terms of like usdc uh being outstripped by ust um i don't i don't think we're at that stage right now i don't think we're at that stage either but but i do think uh centralized like if you just zoom out to the long term which is like what the way we we work at delphi is we just try and figure out what's the future of crypto going to be what should it be and then we just try and figure it out to invest in it but

also just build towards it right and for me it's pretty clear that centralized stable coins will not be the long-term solution for a bunch of reasons right like their bank accounts can get frozen and suddenly they're insolvent um they can get forced to freeze uh transactions they have the power to unilaterally like freeze uh balances right and they can get forced to coerce to do that by governments but then there's even smaller things like they're facilitating you know like hundreds of billions of dollars of transactions for clients that they know nothing about right and that's gonna be a problem for nation states like at some point they're gonna be like hey who are these people that are transacting like is there any kyc here and stuff and you you can't do that for dire or for ust in the same way and if those products become kyc they just

become way less relevant right and it's not the case that it'll get regulated and all go at once i don't think that's necessarily going to happen but what's going to happen is let's say suddenly they start freezing balances from from people who didn't pay their taxes right governments find some links from centralized exchanges to people who who didn't declare it on their taxes they find out they have usdc they contact circle and get them to to freeze their balance suddenly um that doesn't just affect people who don't pay their taxes right first of all it affects all the crypto people who don't pay their taxes who i think is uh is a big is a big amount of people but also affects everyone else because suddenly you're like damn when i hold these stables this isn't actually crypto it becomes very visceral right this isn't crypto um and and so that will

cause the slow move and then if they do something like kyc that'll again cause more of a move and so i think like slowly over time it'll all move to decentralized stable coins that's kind of how how we're positioning ourselves um and then just one thing i wanted to touch on that jordy said before about other layer ones uh being able to copy the the design i agree that they should do it i think it's a really good i think it's a good idea because you you literally own your biggest use case right you verticalize and then like own one of your one of your biggest use cases rather than letting someone else build on top of it and rather than letting it become centralized as well which is another big big problem i do think it's going to be really tough for the reasons uh mentioned before that

it's not a mechanism like it is a mechanism but it's much more than a mechanism it's actually the economy and the demand that's built around it and so the layer one would end up having the same problem where it has to go through all its applications and ask them to integrate it right um and so i think you need both uh a layer one that's willing to do it and like a visionary or a group of visionaries that can build all these use cases around it and get people to actually use it because otherwise uh you risk blowing up your layer one as well right uh with with something like this as esd and dsd did so and and also that you you can fork the mechanism you can't fork the reserves you can't fork the lindy you can't fork the experience of a year and a half of

running this so i do think that's much tougher than than uh than generally copying a mechanism is but jose one one uh question i have for you is like about the first point about aml kyc and uh like yeah having a decentralized stablecoin being important to stand up against like the usdcs of the world why do you think the same fate won't befall uh ust right so there are many centralization vectors the lfg group being one of them certainly the jump capitals of the world are highly regulated institutions um some of this is uh you know executed via bridges which also could be a kind of a centralization vector i think someone who is very into like

the consensus layer of chains might even say sort of you know proof of stake validators that uh are run by um you know third parties and not by users you know from their own homes or another centralization vector can you give me the case for why this doesn't also just happen to us ust yeah it's a good question there's an important distinction which is in luna no one can seize assets or freeze balances right there's no one you can subpoena like you can subpoena jump and be like hey you know i want you to freeze this wallet this this dude doesn't pay the taxes they can't do that right neither can though neither can tfl no one can do that in in usdc there's a clear entity circle uh which which is

actually a u.s entity and so like uh in in in the u.s jurisdiction that can freeze balances and if they receive a subpoena and an order by the us government they are able to do it so it's a case of you trusting whether they will or won't whereas with terra you can't so there are there are centralization vectors you can hit and make things difficult so you could say no one can integrate ust because they're not doing kyc in the us or something like that but you can't actually like destroy it in the same way that you could with something like usdc or tether i do want to get back into and just to wrap up the conversation around the four pool uh jose can you like measure for us the significance of the adoption of the four pool in lieu of the

three pool like how critical of a how big of a w would that be for ust and how big of an l would that be for dye um like roon made it yeah it would be a massive when i don't have like um stats off the top of my head but it would be a massive win right like curve is the liquidity hub for stable coins in d5 um and and basically die is is with through the three pool is the most liquid decentralized stable coin on curve this would make it not the case right it would make ust and frax the most liquid decentralized stable coins on carb so it's it's a huge thing because if you want to bridge from from stable coins to other stable coins or just if you want

access to the usc ecosystem um everything becomes way easier when you have the most liquidity and liquidity is one of the biggest moats with um with decentralized stable coins now roon and i also think makers responses is sort of like classic which is just they point out that um unlike something like this happening to ust this isn't a threat to the die peg right which is true like but dye's design means that it losing a huge amount of utility and demand isn't a threat to its peg but is it it is a threat to its stable coin right to it as a stable coin and like it's not enough to just be pegged like you have to grow to win in this market like stable coins are going to be huge and if you're not growing if you're just pegging that's not enough like these

aren't uh risk management products you know that that's one one side of it but there's the other side which is the adoption the utility and demand which i feel like is just not being considered um and and the response to me is like sort of uh symptomatic of of what i see is the problem with them and obviously people will disagree and some people are very bullish on the real world asset strategy at it yeah so just my take let's talk about maybe the the last thing we haven't uh talked about with all of this which is uh what would actually happen during a deep pegging type scenario i think both of you acknowledge that there is some risk there and jose would rate it uh far lower than the jordi but i think of course we're all in d5 as we end every bankless podcast with um this is risky

you could lose everything right uh and and certainly algo stable coins have been risky in the past and so let me just walk through like a nightmare scenario for you why people are maybe worried about those critics are worried about this like if ust fails like it could drag the entire industry down with us but let's say there is some big depending event massive liquidation a bunch of investors get liquidated all across you know chains lots of people lose a lot of money and the next thing you know elizabeth warren is on cnn saying hey i told you guys the shadowy supercoders were going to take from retail and here they are again right and we have to regulate this

industry we have to clamp down on it we have to outlaw it uh until we understand what's going on it can't be the wild west anymore uh and it drags the entire crypto space down with it that is what some people would say is kind of the the tail event risk of uh something like usc growing too big and then suddenly collapsing i'm curious jordy what you think about this do you think this is a possible scenario is this something that you worry about or do you think even like bears and critics who say that are getting a bit over their skis and then we'll get jose to respond as an aside i like how i used over the skis thing early like in the introduction and since then i've noticed

like everyone's used it in different language is mimetic my friend um look uh it's a risk like we just said and i don't think that me and jose are in huge disagreement about the chance of the risk maybe a little bit but not not to a huge extent um in terms of the elizabeth warren thing she's been bringing up you know wonderland she's whatever's been going on that's negative in crypto she'll bring up now if if something happens in the next few months i don't think it's necessarily a big deal i mean it's a big deal but it's it's not going to be the end of the world if it happens in a year where like you know everyone is already assuming that ust is um

is money it's it's it's equal to a dollar uh and and something for whatever reason happens at that time yeah it'll shake the foundation of a crypto a lot of people might get hurt and the thing that i hate about it the most um you see how these things play out we've seen them recently we've had wonderland so we've seen like the curve pool there there's a certain amount of liquidity that you can get out of and what ends up happening is out of nowhere you just have like alameda one of these like huge whales just smacks the whole thing for 500 million or whatever it takes everything out they'll take a hit you know they'll lose they'll take a 50 million dollar loss because they've they've accepted the

slippage that comes along with such a big order but they will just unilaterally suck all the liquidity out and that's the signal for everybody else to panic but it's kind of too late because the money's already gone there's not much usdc usdt left in so uh in that nightmare scenario the thing that i hated about the most is that the big players um who are like the big whales you know we don't need to talk who they are will probably like be able to swipe the curve pool first they'll take out the best price and then the the system that luna has for um uh you know until the bitcoin system comes along right now they just

uh we'll we'll use luna as the collateral there's a cap every day this is what we saw back in last may there's 20 million dollar cap now even if that's increased 100 million the reality is that the retail guys are not going to be able to get any of that 20 million per day it'll just instantly be taken out every day 20 million luna or 20 million ust um we can go check this out i don't think the cap of daily cap is 20 million usc but we can go we can go check that afterwards okay i'm pretty sure back in may that it was only 20 million dollars of uh ust but back then the price of luna was so small that you may be right maybe it was just because it wasn't that far from a dollar

at the time that uh maybe um the point being um there is some cap and i don't think it's 20 million luna um no it's not 20 million but i i don't i don't know yeah but we'll get the exact numbers for listeners maybe my understanding is uh it used to be 10 million and then john pushed to 20 million and there's been discussion about getting it to 100 million and what we see in times of demand like recently is every day it's capped at the max every day but in the in the other direction people are trying to get into terra because they want to get on anchor so it's capped every day and someone's making a lot of money on the arbitrage because they can make 30 40 bills you can go to binance sell it for 40 bips above the peg and somebody is

getting like all 20 right away and and making like 40 bips on it the reverse is going to happen in the bad scenario where the first the people who are actually able to get out are going to cap the supply and those are going to be like the sophisticated whales so you'll have the curve pool taken out and then you'll have the max supply every day so that's a nightmare scenario i hope doesn't happen but unfortunately if it does happen it won't be um it won't be very equitable so uh jose back to you jordy is uh like manifesting some 20 2008 energy where retail is once again left holding the bag for a tail risk event like this um how do you respond to maybe that that moral risk the moral hazard here of uh an experiment like ust getting too big

yeah um it would definitely be catastrophic i think right now would be mainly catastrophic for terror itself so obviously like luna holders luna would would uh you know death spiral to you know some asymptote towards zero i suppose um ust would would would do the same so be very catastrophic for for terror itself uh there is a lot of ust on on ethereum and liquidity pools but i don't think uh you know most of the effect would really be on ontario itself that actually changes with the four pool right where the effect would be more systemic in that case because it would be the reference currency for d5 as a whole but um i don't really um agree with that with the idea that that uh retail would get screwed because

retail is just like smaller sizing right so it'll be much easier for for them to get out with lower slippage than it would for some of these big funds where some of these big funds would literally just not be able to to get out in size because of what you say where the liquidity would just dry up on the on the curve pool so i think it'll be obviously like they'll be faster yeah exactly it depends who gets out first like if they wait too long and somebody like i agree it's a lot easier to go through the door if you're small but you need to know you need to know to get through the door you need to know but absolutely but but i think there's also going to be like right now most of the queries on curve i think astroport is going to be spinning up its own

stablecoin pool so it's going to be liquidity on ontario too so users will be able to kind of exit that way um so i don't know i agree the the the whales will know first um but they'll also uh suffer a lot more slippage and they'll also we've also seen a few times where whales exited suffered slippage for something that wasn't the death spiral they were looking for so yeah i'm i'm uh sensitive to the moral argument obviously but i do think uh two things there's a moral argument for ust as well right there's a more moral argument for decentralized stable coins like actual decentralized stable coins that can't be stopped by by nation states uh so that's the first thing i think that's really important and then the second thing is that everything in this space has uh failure risk these are all experiments

you know including something like die like i mentioned before almost blew up in in on on black thursday right and that would have been at that time catastrophic for the for the space uh obviously we have the dow hack from back in the day which was something that shouldn't have had shouldn't have even been that risky but was because i had a smart contract bug in it so i think like as you say at the end right this is the frontier um we we we all kind of accept that risk when we when we when we play here but i do think um one thing that is important is that everyone and especially if you have a platform and you're you're bullish luna you're bullish ust um you should be honest about the the risks right and that's something that we're very careful to do

at delphi you know when we present it we're always careful to disclaim it uh and in products that we that we help incubate or contribute to it it's always present in the disclaimers and so i think being honest about the risks that people know them is super important because that's actually what makes me bullish about this it's not it's not that i think it's riskless it's that i understand the risks and think but think the upside is you know far far outweighs it uh bold case bear case it's time for closing arguments right now and uh since we started with jose i'm gonna flip to uh jordy first uh you're closing arguments for why you think it makes sense to be bearish on luna ust yeah i mean we've used them interchangeably but i'll just recap that

i think they are a little bit different the bare case for luna first assuming that ust is okay is that the demand gets kind of dwindled down because other chains do something similar because somebody does a better mouse trap there's ways that luna price itself suffers without a dpeg so that's kind of half of the equation the other half is obviously on ust so there's a lot of risks the btc bridge risk hasn't been figured out there's market risk unfortunately btc might go down and then like a lot of the reserves that have been built up the

narrative will change um if btc could go up and then like jose said everything it just looks completely different but we have to be aware of the risks um we have to be aware that there's centralization right now there's big funds that are going to be able to uh kind of pull strings and have inside information and know things a lot earlier um so i'm very happy that jose gave like a full disclaimer uh i think that's the most important thing um there is indeed a moral moral argument for it succeeding and having something like that succeed my full bear case is that we are very far away from that end point there's a ton of stuff to figure out even with having such a good team working on it

we have no idea what's going to happen even in like in a few months when anchor yield goes down there are so many unknowns um so that's that's the main bear case like we can't just consider it a foreground conclusion that we're going to get to this end state jose i'd love to hear your final thoughts your final uh closing statements as to the the bowl case for for luna and the chat is also asking uh since they are perceiving the show as to be focusing on the bear case i just want to give you just a few extra minutes a few extra time to really just with with confidence give out give us the bowl case for luna just make us all luna maxis yeah absolutely all right so first of all i think you guys have been pretty good thank you very much for the for the

platform and for for opening this up to to other opinions um i think as one thing to note is as lunatics um we need to be like accepting uh of other communities and educating them on luna on the risks because luna actually relies on like ust is relies on being the reference stable coin for d5 as a whole not just for tara so it needs to be on ethereum it needs to be everywhere and being antagonistic and like uh hating on people and and and criticizing and stuff is not the is not the lunatic way i know that though uh sometimes counters that with with some of his uh twitter spice which is which is i love his fruit of spice but it's almost directed at a person right it's never directed at a community and that's

really important like we there's no reason why we should we should we should hate ethereum or hate any of the other chains that are uh we're all gonna make it basically um and then so on the on the lunar bear argue a bull argument sorry so one of the biggest things that makes me bullish is how misunderstood it still is and controversial and also how bad and like repetitive some of the fud is so like i think we the peg fudd and the anchor sustainability to me is is like actually pretty weak um i i sort of explained my arguments for why i think that's the case i think there's stronger arguments against ust i think probably the key man risk and the just the technical which we didn't we didn't cover but just the fact that tara isn't a particularly scalable layer one and

maybe that's not the end game um i think they're they're sort of counter arguments to that as well but i yeah all our best investments have always been controversial and how controversial this is and is is one of the things that makes me super bullish um and then in terms of of ust itself so i think people just over index and focus on this pegaris can just repeat it over and over again without focusing on the upside right on the on on what happens if it works um and what happens if it works is you have the ust as the biggest decentralized stablecoin also in my mind the most decentralized in the biggest marketing crypto which is money right decentralized stable coins are literally going to be a multi-trillion dollar industry i think most most people that

are in crypto can agree with that and ust currently is the is the fastest horse in the in that race and so it in and and if we agree that stable coins are a network effect business right um you need liquidity you need lindy you need people to trust it then you want to bet on the winners and you want to bet on whoever is growing fastest and ust's model while more vulnerable to tailor risks as we've as we've spoken about allows it to grow much faster and that that's that's a big deal you know because if you grow fast in a network effects business you win which is why the anchor um yield reserve subsidy makes so much sense similar to the paypal strategy right of subsidizing its initial users and why this this whole strategy makes makes so much sense to me um

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

building ontario whether it's in completely new primitives as well that haven't succeeded on ethereum like prism right which is a yield splitting primitive there's ap1 and pendle and ethereum but they really haven't succeeded whereas i think prism has has done a much better job nailing that there's other things like perps with with with order book uh you know forex parts that are coming with vertex uh there's perps that are coming with levana there's a whole ecosystem around gaming and nfts that those putting a lot of effort into and so when you combine all of this uh i just think there's there's no uh faster horse in the decentralized stable coin race than ust and we like to bet on winners there you go uh bankless listeners this has been the bull and bear case for luna usd um

probably the most comprehensive i've ever heard and i want to give a special thanks to both jose and jordy for joining us and having such a civil informative uh well-argued debate we appreciate you guys thanks very much guys really appreciate it thank you bankless nation we will uh link to some of the things that that jose in particular referenced in the the show notes as soon as we have some links that's you know links to long-term anchor yield i think you've referenced something there a few other stats we might link to as well but as always gotta end with this none of this has been financial advice all right i think our panelists were very clear that there are risks in crypto their risk in defy they're just everywhere but we want to

let you know that you could definitely lose what you put in we're headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bank list experience you'll get access to our market analysis our alpha leaks and exclusive content and even the bankless token for airdrops raffles and unlocks if you're interested in crypto the bankless community is where you want to be click the link in the description to

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