Terra: Is It Some Kind of Bitcoin?

stable stable coin. The name of that organization, Terraform Labs, now splashed all over billboards, uniforms, seats, anywhere you might look. It might have seemed like a good play when they signed the contract, but by the time that stable coin crashed and burned in early May, it started to look more like a streakout. The Nats aren't the only sports team to have accepted crypto sponsorship, even if they're one in the spotlight. Today, Bloomberg Senior editor Mike Reagan joins

the conversation to sort through how this deal happened. Mike, thank you so much for joining us. Oh thanks for having me, Stacy. Are you a baseball fan? I am not so much this season since my Phillies are are kind of struggling, But I'll be on the bandwagon if they if they turn it around for sure, do they

have any crypto sponsorships? You know, I'm not sure. I don't think they do though, But why do so many other teams both in baseball, which we want to talk about the Nationals specifically, but kind of elsewhere in sports, Like why is crypto and sports such a thing right now? Well? I think obviously these crypto firms have a lot of money to spend on marketing, so I think they're looking for ways to say, Okay, how can we reach this big captivated audience. And when you think about buying the

naming rights for a stadium, we're saying arena. You know, one night you get a basketball audience, the next night you get a hockey audience. The next night it might be a country music concert or a rap concert. And you know, instead of being at home on the TV, where you might watching TV and be distracted by doom, scrolling through your Twitter or you know, falling asleep changing the channels, you're kind of a active audience. So it really like it gets the eyeballs on your logo and

on your product. But like I said, a pretty broad demographic of potential customers at least in that one city. And then the hope is obviously your team mix to the playoffs and suddenly your arena is on the national stage. Right. So in theory, it's pretty good bang for a book. As as far as marketing r I might go, you know, if you've got that kind of marketing budget with these firms,

clearly do. I mean a lot of people saw it and immediately, older people like myself immediately thought back to the dot com days, you know, where all of a sudden, dot Coms, we're sponsoring getting the naming rights for stadiums, and we all know how that ended and poorly and and Ron Stadium in Houston. So I think it raised some eyebrows when a lot of these naming rights were sold. Well,

here's an example of something that's going poorly. Right. So the Washington Nationals, which as a non baseball fan, I had research, but but the way that I found out about them is because I was like, Okay, what's happening with Taro, let's see and then it's like, by the way, they have signed this deal with Terraform Labs, which is the organization co founded by Do Kwan that issued an algorithmic stable coin that has been pretty much dominating news headlines for the past I don't know a month at

this point. Why would they have done that? What what is the upside? And now obviously like there's all of this reputational risk. Well, why would the Nationals get involved? I think because Do Kuan wrote them a big check three million dollars. How much was the check? I was like thirty eight millions something like that. But I think what's fascinating is why Do Kuan chose the Nationals? Right?

And this sponsorship included a few things. You know that the Nationals are tweeting out crypto videos sponsored by Terra, that sort of thing. But also he sponsored the v I P club right behind home plate called the Terra Club, and I'm now called the Terrat Club right still called the Terrat Club. I don't know if it's sort of the general population understands these v I P clubs at stadiums, they're they're very swank. It's not your you know, hot

dogs and Budweiser. It's you know, top shelf liquer free buffet. And I was at the Brooklyn Nets v I P Club once, and you know, your head is kind of on a swivel, like cool, Who's that? You know? Is that a v I P over there over there? So think about that. In d C, you're gonna be looking around thinking is that a representative? Is that someone from

the Treasury? You know, it's it's sort of the clubhouse for the movers and shakers in d C. And do Quan and Terraform have had some problems with with the SEC.

I'll give you a warning on a dual self promoting here, but I wrote a story about a year ago about the synthetic equities trading on terraforms blockchain and fascinating, you know that they can basically make a crypto currency token that tracks the value of apples et f s. Really innovative stuff, but also you know, kind of flying in the face of this big stack of regulation around the stock market in the US and elsewhere. So that story kind of questioned, well, how can they get away with this?

And I, you know, reached out to the SEC for their comment. They didn't comment. A couple of weeks later, though, the chairman, Gary Gensler, gave a speech where he said basically not naming Terraform, but basically saying this type of stuff filing securities laws. You gotta you gotta watch it. Shortly after that, unit Swap stopped allowing them to be trade and unit Swap is one of the kind of peer to peer exchanges that is so popular with crypto folks.

But I want to go back to what you're saying about this not being Terra's first run in with a product that various people were like, surely this is not a good idea, right, What was the basis of the thing that has gotten them in trouble in recent weeks. So it's like, Okay, not signed a deal seems fine. One month later we're talking about why that's not fine. What happened in between? Well, obviously the stable coin terry

USD just just blew up, you know that. The So basically, for those who aren't familiar with an algorithmic statement is most of the population. Bear with me here and I'm getting a little technical. You know, a typical stable coin tries to track say the dollar. Some track maybe track the Euro or some other currency, but the big ones

track the dollar. Uh. And the way say a tether stable coin does that is they hold assets, you know, some treasury bonds, maybe some commercial paper with sort of, you know, a reserve to allow that token to always be worth a dollar, right, An algorithmic stable coin tries

to do it without those reserves. They try to maintain that stable one dollar price through a relationship with another cryptocurrency that is, let's say not so stable and that is Luna, and through an arbitrage mechanism that's probably too complicated to get into in this. You know, the relationship between Luna and ust the stable coin is is always meant to keep that stable coined exactly to a dollar, but it did not write. And that's that's why we're here.

And so, you know, one of the things I was really interested in understanding is if I'm a sports team, one of my first questions would be if I we without sports teams lawyers, like, did we get this money up front? In fact? And they did at the National State I think, you know, in that old set of president, I'm sure everyone's going to catch that check before renaming the name of their clubhouse after them. I think it's important to focus in on why he did focus on Washington.

You know, he wanted to be in front of the regulators, in front of the politicians. He wanted to give them a good impression. You know, this was a multi year deal. His ambition was really to make that stable coin be useful in real life. He the goal was that eventually the Nationals would be selling tickets in exchange for the UST stable coin. So a person who was saying that season ticket hold buy that ticket using their stable coin, Right, that was the goal. That's kind of been blown up.

I don't think it's been officially announced that that's plan is one, right, yeah, with with the price of you know, Ust and the penny is at any given moment, as I pointed out, a lust of the the Nationals really start playing as badly as they started the season, and that maybe but but otherwise that plan is unlikely. But it's sort of gives you some perspective on Do Kuan's ambitions. You know, obviously there's a lot of scammers and crypto, there's a lot of quote unquote rug poll but this guy,

you know, I think of it. You remember the book when Genius failed long Term Capital Management. I feel like this is an instance of not a scam, of of not fraud, but of when that genius innovation failed because he he was trying to get in front of the regulators and say, look, we're we're literally in front of them.

And partly because he ended up being subpoena at about those synthetic equities last year and he's been sort of fighting the SEC over this, so I think he wanted to put a good face in front of the regulators and say, look with you know, we're adults here. This is a mature or hopefully soon to be mature business. We're trying to do something real here the collapse of the stable coin, so tune on the heels of this.

This sponsorship is just I popping, because you know, he really was trying to move this industry forward a little bit.

Thank you, Mike, we'll be right back. Well, it's interesting that you raised the analogy of long term capital managements and because they were, you know, supposed to be the original smartest guys in the room, that they really knew what they were doing, and they utterly miss priced risk, got all of the correlations wrong, and you know, and and in that particular case, like utterly misread the macro

economic environment and where risks were embedded. And frankly, that's very similar to what happened over the past few weeks where you've had this unexpected inflationary environment, the Fed's response to that inflationary environment, various other concerns about macro economic indicators, resurgence of the pandemic, like things that generally make people a little bit shaky and us prone to buy into risk asset, right right, And I think that played into

it completely. You know, at one point, do Kuan pivoted from and terraform Labs. Obviously it's a d A oh, so they vote on everything. A D A O or DOW is a decentralized those tonomous organizations, which is like crypto's version of trying to make a company or an LLC right right, a co op kind of basically where everyone gets to vote and anyone who's holding the token

gets to vote on the governance and what happens. So, you know, do Quan and Terraform Labs were trying to sort of pivot away from the algorithmic stable coin model because you know, the project got so big and the risks became greater and greater that they know clearly got worried that something could go wrong. So they started buying bitcoin, you know, and the plan was to buy up to ten billion dollars in bitcoin to help back us t

the stable coin. So then you would have kind of a hybrid algo traditional there's both in you know, the model of other stable coins, there's some kinds of assets backing it's but they would also maintained that peg using Luna described right. And you know, make no mistake, this is a bit of improv on their part right here, you know, I mean this was and how they what

they set out to do. Uh. You know, Uh, Terror was named after a video game called StarCraft and the humans in that game there it's there's a bunch of aliens, you know, space battle video game. The humans are known for adapting on the fly very quickly, uh to any situation,

and and clearly that's what he was doing in this situation. Um. But of course then bitcoin starts crashing with every other risky asset in the world, so that's sort of undermines um, you know, the notion of using bitcoin as a reserve

to to back up the stable coin. Everything just became increasingly expensive at the same time, right right, And um, you know there was there was sort of a run on the bank of liquidity, uh in certain pools that trade stable coins, and that happened over a weekend and just helped to really just pull the bottom card out of what turned out to be a house of cards

with this stable coin. So I'm a lawyer for a sports team, my GM or somebody in marketing comes to me and says, hey, should we do a deal with this crypto company that's going to pay us thirty something million dollars up front? What would you tell them? First? I'd consult my own lawyer, But like you said, get to get catch the check up front, uh, right into into the contract that you can. You know, if this thing blows up, you can erase the logo off of

the arena at anytime. They do you think there's a reputational risk there. I mean, I think part of what I'm struggling with is most people in the world don't know who these crypto companies are, right, just like as a broad proportion of billions, lots of people do shortly.

I'm not saying that there isn't anybody out there who's never heard of a coin base or on f t x. But if things go pear shaped, the people who really care are like media, Twitter, crypto Twitter, anybody who's lost money, certainly, and that sort of fintech ecosystem. But if you have a situation like Tara, where the goal was to introduce this company to people, you know, is there really a net negative for the team. It is mostly that people

are just like, I don't know what that company does shruggy. Yeah, it doesn't seem like it was much of a net negative for the Nationals at this point. Certainly, if you lost money in Tara, you're furious. You're you're furious if you're a Nationals fan. I don't know. Sports sports fandom kind of trumps everything, so you know, you'll you'll be willing to look past it and maybe still follow the team.

I don't know. It would be tough for my team, like the seventy six ers, to do anything in the sponsorship realm enough to turn me off against watching them. But I think it's something they're gonna think long and hard about going forward after after this situation for sure.

And do you still think on this basis that things like naming rights which aren't cheap make sort of econom makes sense from that marketing r o I perspective, given that a lot of the wealth of these crypto companies is in crypto, and as those prices go down, it becomes more expensive for them to you know, convert it into the dollars that they need to pay for these sponsorships, right right, Yeah, I doubt highly that any big checks like that will be written, say for the rest of

the year, given given the slumping crypto that we've seen. But one interesting thing was coin Desk sent some reporters out to the National Stadium. I wish I had thought of the stacy that you would have loved to see my expense account after this trip, like I have got to go on and not any trip, you know, the V I P Club at National Stadiums. And they did that, and they talked to people. No one really knew what

Terra was, none of the fountains, yeah, you know. And they even as to bartender in the club, the Terra club named after this coin, like hey, did he hear about what happened with this thing? And and the bartenders like it's some kind of bitcoin, right, I love that, some kind of bix, which is not wrong, you know, it's it's uh in the thanks gime of things, I guess it's right. But you know, it was very early

days in the in the sponsorship. UM. So it's hard to say, you know, whether the terra got its money's worth out of the exposure. UM, but I would say probably. You know, the regulators and and some of the lawmakers congregating in that V I P Club are quite familiar with it now, let's say, so they'll be reminded every time they go back. Every time. Well, thank you, Um I learned about baseball today. It doesn't happen to me often. And I think it's just as a final question, do

you think in terms of those regulators. One of the things that has come up, and you know we're going to talk a lot about on this podcast is consumer protection. And one of the things you rightly identified with the sponsorship is they're trying to get in front of not just the movers and shakos, but the country music fans, right like anybody who is in that stadium at any time,

and various other types of advertising asset classes. You don't get to just say buy my stuff with no fine prints, like big Pharma, can it be splashing logos anywhere or you know, saying on TV, by these drugs and without somebody speaking really fast with a list of things that will kill you. There isn't really that approach in crypto. Do you think situations like this me you know, accelerate that conversation about the appropriateness of this sort of marketing.

I think it will absolutely. I mean we've already heard Janet Yellen, you know, talking about stable coins. The Treasury and the Fed. We're already looking into them pretty closely, viewing them as sort of if a coin is meant to track the dollar, once one, you're kind of sort of elbowing into the Federal Reserve, and the Treasury is turf there and and that's where you know, that's going to be a magnet for them, especially to to really

keep an eye on. So I do think you know, what was it, sixties seventy billion in value just vaporized in this situation. I think it's going to be a big catalyst, I would guess for bringing forward some of these crypto regulations that you know have been bounced around and talked about for years but but not really put into practice. Well, we'll keep an eye on it. Thank

you for joining us. Thank you say. You can find more of Mike Regan's reporting on the Bloomberg terminal on Bloomberg dot com and on Twitter, he's at reag Anonymous. On the next episode, Bloomberg reporter Alista Mash shares his reporting on how Ukraine has been using crypto during the war to support its armies and its population. Ukraine is even selling its own non fungible token, and it's a

timeline of the Russian invasion. I'm Stacy Marie Ishmael and this is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from my Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Email your comments, questions, or suggestions for the show to Crypto at Bloomberg dot net. You'll find us on Twitter at Crypto. The supervising producer of

this episode is Vicky Vergalina. Associate producer is Ty Butler, Associate producer is zan Ab Sidiki Desta wonder At is our engineer. Original music by Leo Sidron. Bloomberg's head of podcasts is Francesca Levi.