This Is How the Terra Stablecoin Actually Imploded

So we're going to be speaking with someone who has framed himself as Rome in the historic parallel going after Carthage, which would be Tara and Luna. The algorithmic stable coin, slash cryptos This is such a wild story. I mean, like I think you know, look, crashes, hacks, pond zis, rug polls, they happened all the time in crypto, right like it's almost it almost just like boring, And most of the time they're not even worth reporting on or

talking about because they're like a daily occurrent. But the Terra ecosystem, the us T stable coin, the Luna token had gotten so big, so valuable, and so many major backers of crypto um were invested in it or had invested in it in some way that this is not just like another coin to crash. I think that's absolutely right. So two things here. One top ten coin, right, like, it's not it's not every day that you see something

like this happened to a top ten coin. Secondly, the marketing, so everyone knew it was an unusual experiment, an algorithmic stable coin, and we'll get into exactly how it's supposed to work. But even with that said, it was pitched as a stable coin, as something that is supposed to maintain a peg one to one with the dollar, and people are supposed to be able to use it to get in and out of more volatile cryptocurrencies. And clearly that's not what's been happening because we've seen the peg

has crashed. I think it got too as low as like point three is right, No, I mean that's exactly right. So it's a stable coin. The interesting thing is, like stable coins, there are many different flavors of stable coins, and people have been skeptical about them for a while. Most of the discussion about vulnerable stable coins was focused on tether, which but this was a so called algorithmic

stable coin. They had some collateral backing. It's sort of complicated, we're gonna get into it, but the point is that, yes, it is sort of this classic example of the thing that blows up is the thing that has to maintain a peg, which is a lesson that in the trad fi world is understood for a long time, which is often the sorts of big sources of big risk are the things that, on the surface appear to have the least volatility. Here's the other thing that makes the story

so in staying it's the people involved. You know, you mentioned some of the big funds like Galaxy Slash Novograts who were invested in Tara slash Luna. Yeah, which I thought was fake when I first saw that photo, but it is in fact real. But the other thing is there are strong personalities attached on both the pro Luna Tara side and the sort of against or warning about Tara slash Luna side. And that's where that Rome versus

Carthage analogy comes in. You had the founder Do Kuan, and I don't know if anyone follows him on Twitter, but he is incredibly I guess outspoken would be Yeah, this is putting it all very very politely. But people would come out with criticisms of the entire algorithmic stable coin idea, and people would highlight vulnerabilities in the system and he would just bat them away, or he would just say, you're poor. I don't Yeah, you're poor. I don't need to talk to you. So what is going on?

We are going to be speaking with a perfect guest. When everyone was like odd Lots has to do an episode on Luna obviously, and everyone my d MS flooded with this is the guest you have to have on because he's been warning about it for a while. We're gonna be speaking with Kevin So. He's the co founder of Gail Walk Capital, which is a crypto hedge fund that was launched in so that's old by crypto hedge fund uh longevity. But actually he's been in the space

for about a decade, which is truly extraordinary. He knows it well. He's been warning. He had been warning about Tara and Luna for a while. So, Kevin, thank you so much for coming on odd Lots. Yeah, absolutely, thanks for having me. Kevin, you started a crypto hedge fund, like you know, now everyone has a crypto hedge fund obviously, but you that's legit, legit, legit veteran in the space. What what's your background? Why did you how did you

get into it so much earlier than most people? Um, yeah, so you know, I think my background, Um, you know, I've been in crypto for a while now, really got started in I hadn't joined industry at the time. I was just mostly trading my own p a uh. And then I joined the industry, joined a small um bitcoin startup. It was an exchange. It was called butter Coin. It was the second y C company that was dealing with crypto,

the first being coin base. Um, things didn't go so well over there and in the in the winter of two thousand thirteen, we shut down. Afterwards, I joined Kraken, ran their trading desk for two years, and then afterwards in uh, you know, in I guess early seen, decided to leave and start Galwa Capital and we launched in January. So, as we mentioned in the intro, there's been a lot of criticism of Terra and Luna and you're I think

probably the biggest voice in that space. What piqued your interest in this particular pin or you know, system, when did you first start getting interested and start looking into it? And why? You know, when I first started looking into it, I'd say it was around mid or late last year. And uh, you know, at the time, I didn't think too much of it. I thought, oh, you know, this is just one of those i'll go stable coins. It probably won't work out, you know, it'll just implode pretty soon.

Turned out not to be the case. It just kept going, uh, you know, Luna kept going up, us T kept maintaining stability. It grew bigger and bigger. And then I revisited it in January of this year, and I at this point, you know, I was kind of surprised at just how big it got, you know, it all of a sudden, you know, it's now like a top ten coin or something like that. So now I was starting to get worried because I've never seen one of these, you know,

i'll go stable coins get so big. Usually they just collapsed before that. So you know that I thought, well, you know, maybe this is first one, maybe a great shorting opportunity, and to maybe this poses some systemic risks to the entire space, and and maybe it's time intosan sound the alarm, you know not. I mean, obviously for my own benefit, I would definitely like to make money on the short but also I think just as a public service to also let everybody else know to So

can you actually back up for listeners? And we hear stable coins and we sort of mentioned it in the intro, which is that there are various flavors of stable coins. Tethers one model, U S d C is a similar model. There's also um maker and die. But what is uh an Elgo stable coin, this project that keep trying and they do have a long history of continuing to blow up.

How is an Elgo stable coin different than other stable coiners? Um? Yeah, So I think we should first separate out these so called um these centralized stable coins with the centralized ones. So you know, first on the centralized side, you have folks like UH USDT which is tether, and USDC which is uh you know, circles dollar and you know, basically what's happening here is that there's a dollar in some bank account and for every dollar there they issue out

one coin. Anytime you return a coin to them, you can demount of physical dollar, you know, by wire transfer or whatnot. It's very much kind of tethered together between the real world and the virtual world. Um. You know, on the on the sort of decentralized side, you really have variations of two models, right, So you have sort of like the collateralized model, which is like make or

die um. What that is is basically you can post uh some amount of um some other type of asset, and in return you're going to get some stable coin, which is maybe you know, like if you if you over collateralize it by then you're gonna get a percent. So if you put in a dollar worth of value,

you get back a dollar uh. And then at some point the price of the underlying collateral will fluctuate to the point at which you reach like a point where there's a margin call and then you know, either your collateral get seized or you top it up or you return the borrow. Right, So it's basically collateralized leading right. That's kind of you know, that that sort of model. And then finally, and this is where you know we

we we start talking about Luna and Ust. You know, finally there is this pure class of algo stable coins which do not have collateral or or severely undercollateralized and they have some kind of stabilization mechanism. Long story short, it's basically like a perpetual motion machine. And it's not the first time that exact phrase has been used on this podcast in reference to a Tero slash Luna. Yeah, definitely, I would say either perpetual motion machine or giant Rue

Goldberg machine. Right, So some of these are just really elaborate contraptions and you know, you don't know where the hand crank is, but someone's turning a hand crank to keep the system going. And it's not actually a perpetual motion machine, which we know is impossible, but um so,

so that's the analogy. But basically the idea is that you have some kind of mechanism which in some way, you know, indirectly or directly expands the supply of that stable point when the price is too high in order to push it back down, and on the other side, contracts the supply of that stable point through some mechanism when the price is too low, hence pushing the price back up. Right. So these are kind of like these. You know, there are these feedback mechanisms regardless of how

you design it. Within this class of stable coin. They're all these feedback mechanisms which eventually caused something like this to happen, which is why in the end, I think they're all pretty much the same, but you know, just through different methods. I mean, they all look different, but when you really, like when you start to really break it down, it's all just about supply contraction and expansion.

So two things here. One, could you give us a little bit more detail on that arbitrage mechanism between Terra and Luna, like walk us through exactly how it works if the price of Luna goes up or the price of Luna goes down, and you know, vice versa with Tera. And then secondly, you mentioned a hand kind of turning

the rank. And my understanding here is that yields on offer from Tera slash Luna were exceptionally high, I think something like nineteen or And this is another question that we ask a lot in the crypto or DeFi space more broadly, but where do those yields actually come from?

Like how does this entire incentivization mechanism work? M Yeah, definitely, And and I completely agree with you that I think this component of it, which is the anchor yields on deposits for US T this nineteen and a half percent, which then eventually dropped down eight. That's exactly the hand crank in this perpetual motion machine that that makes it not perpetual. That's it's a great question always I think

to ask where do the yields come from? I think a lot of times, you know, it just seems like there's free money, but it turns out you're you're just subsuming all of this kind of indirect or hidden risk that you're not aware of, right, A lot of this kind of like tail risk, which only manifests once in a blue moon, but when it does, it completely wipes you out, right. So it's just it's just really kind

of like very dangerous kind of invisible risk. What I always like to say is that most of the time, you know, if you can't find where the yield is coming from, then effectively it's coming from future bag holders. Right. So it's like this idea that the sort of true belief and sort of the cultish behavior of true believers will eventually produce some value which gets extracted from them, and it is given to you now in the present.

So it's extracted in the future and given to you in the present right now, right, And I think that's basically exactly what's going on with this with this lunar model. I know that's a little bit abstract, but um, you know that's kind of how I how I see it.

And then maybe just returning to your first question, we could do remind me again with the first question, can you explain exactly how the arbitrage mechanism between Luna and Terra or Ust actually works, Like, walk us through what is happening as the prices of either of these things move, like how they balance out. Yeah, so, um, how they're supposed to balance out, I should say, yeah. So I'll first, um, sort of just describe the simple model and then I'll

add some caveats on some of the intricacies there. So the simple model is that at any point you can always redeem one UST for one dollars worth of Luna, right, So, like if Luna was at a hundred dollars, then one us t would get you, uh, one luna penny right point zero one Luna, which is equivalent to one dollar. And if Luna is one dollar, then you know one UST is going to give you one Luna. Right. But in any case, you're always able to redeem us T

UH for the equivalent amount of dollars worth of Luna. Uh. And the amount of Luna you get is based on where the current market value for Luna is and the vice and you know the opposite is true too. You can all is destroy or burn one dollar's worth of Luna to create one U s T. Right. So the idea behind this feedback mechanism is that if us T is trading below one dollar, what you can do is you can buy that on the open market, right, and then convert that to one dollar's worth of Luna and

then sell that one dollar of luna. Right. So that's kind of how that arbitrage mechanism works in order to maintain this peck. So that's that's basically the simple model. Now it gets a little bit more complicated because there's a lot of dials um and and knobs that you can adjust uh and you know, bells and whistles around this. So the first thing is that it's not technically true that you get exactly one dollar's worth of Luna for burning one U s T. There is basically something called

a automated market maker. This is something that has been popularized by you know, uh, you know, unit swap, sushi swap, curve balancer, a lot of these you know, m M protocols, these uh, these sort of decentralized liquidity pools, and it's really this automated market maker bonding curve which governs sort of the slippage or the costs of converting between Luna and UST. So the first component of this mechanism is that the greater the size that you do, the worse

of a price you're going to get. Right, So this is like equivalent to like market slippage. You know, if you want to buy, you know, a million dollars worth of something, you know you're gonna pay a little above market price. If you want to buy a billion dollars worth worth of something, you're gonna pay well above market price. Right. So it's just you know, it kind of depends on liquid in the market, but really it's governed by this bonding curve, and you know, the greater the size that

you do, the more slippage you in curve. The second part of it that's a little bit nuanced, is that there is some fee that's collected in the middle just like all these other bonding curves, all these other A M M s. There is a fee for converting. It's not very high, but you know, there is still some fee which adds on to basically the transactional costs, which

are the slippage you know, plus the fee itself. And then the last part that's really interesting about this mechanism is that you know, before the full collapse, you know, in the past couple of days, there was basically a gating mechanism on which governed exactly how much ust could be created or destroyed per day, So being destroyed being you know, moving back into Luna, and I think that that number was around like two fifty mil uh dollars

worth per day. Um, So anything beyond that you just you're just gonna have to wait until the next day. And then you know, there's also all sorts of like um, you know, much finer details like pool recovery periods and stuff like that, but you know, none of that is really that important, I think, to what we're gonna be talking about next. So I think just based on that explanation, I think we should be able to describe the phenomenon

that we've we've seen in the past few days. So I want to get before we get into sort of like what happened over the last few days, because I think you've said some important things. The fact that there's a limit on how much can be converted in a given day is really important to understanding the action. The fact that there's a fee obviously for the more you trade, which if everyone's trading, fees go up. The one other UM element I'm curious about an understanding its role actually too.

I want to understand a little bit further them. The Luna Foundation bought a ton of bitcoin I think earlier in the year, and their basic idea was like, Okay, you know, just in case I guess this the the perpetual motion machine starts to wobble a little bit, we can defend the PEG with this big bitcoin reserves, sort of like classic e M style. So I found this move really weird because either you're sort of a fully backed stable coin or its traditional reserves, or you're an

algorithmic stable coin. Because the whole the whole problem they were trying to solve was that they wanted to get away from the traditional financial system UM without having to build the reserves. It's sort of like being like a little bit pregnant or something like we're sort of a little bit a little bit uh, a little bit unbacked. Yeah, like we're sort of reserved back but not so what is what was the role? Well, I I want to know what is the role of the Bitcoin Stabilization Fund?

And then also I know you touched on it, but could you just explain a little bit and Tracy as but I think it's crucial that percent yield that was being given to induce people to hold us t this sort of big reason to hold a stable coin and actually make money holding a stable Like where was that coming from? Like what was the source of funds specifically other than just sort of theoretical future bag holders, Like

how was that paid out? So basically, you know, when Luna or the terror Eco system first got started, Uh, there was some funds that were set aside for the company itself, right, And the main company is Terraform Labs TfL, and they have this huge stash of Luna which unlocks over a certain investing schedule. Right, so even for them, you know, slowly unlocks over time. So what they would do in order to finance their operations and to also

finance the anchor yield reserve. Is they would sell large clips of this too, you know, willing investors at some kind of discount that also has a one year clip for some kind of vesting schedule, uh something like that, and then they would use that for operations, and they would also use that to keep basically topping up the anchor protocol on their year reserve because they were paying more interests to depositors than they were collecting from borrowers.

And you know, I think in the end stages of Luna, in its final days, um, you could see that the uh you know, the the deposit amount was way way higher than the borrowed amount. So you know, they're they were bleeding. I mean, I think at some point so everyone so everyone buys UFT in order to collect that. But that basically has the effect, if you think it through, of sapping those reserves fund faster. They're sort of like set aside to sort of bootstrap the whole thing and

incentivize the whole thing. But essentially, if everyone is chasing for it at once, that starts to get depleted or you start to like strain your ability to pay that up. Uh. Yeah, that's exactly right. I think at the at the peak, they were burning maybe about seven million a day, uh dollars worth a day of their their their yield reserve, and uh, you know, originally I think it was something like fifty mil or eighty mil or something like that.

And then they had to do a top up of four fifty mill and then, you know, very quickly soon after that, soon was almost depleted, and they were thinking about how much to do another top above. Whether you know, they were thinking about whether to do it or not. Everybody was you know, you know, lobbying Dough Dough quant to to do it. You know, he was, you know, running some rumors that oh maybe it's going to be over a billion this time, this, this and that. So

you know, the whole the whole thing was very expensive. Now, I think what they were thinking, because I don't want to strawman them, you or, I think what they were thinking is that, you know, they just want to uh you know, they think about this as a marketing expense, right, so they just want to get to get everybody talking

about Luna, everybody using us t um. You know, they're just bleeding seven million in a day, but they're getting a lot of people you know, talking about anchor using anchor, you know, using their ecosystem, putting their money into it, uh, into this bar lending protocol. So you know, I personally don't think it was worth it. I think they you know, probably even even if they were right, which I don't think.

I think they're absolutely wrong. But even if they were right, they probably could have gone away with a little bit lower than yields. I mean probably like even like eighteen seventeen probably would have been fine. Now, it's not going to save them that much more money, but I do think they overpaid for that. Uh, if you know, it's

just the random thought there. And what about what do you think was the rationale for the bitcoin reserves, because I think before this week happened, I think they ended up with something like three billion worth of bitcoin that they'd accumulated. I think that's right. Yeah, um, yeah, that's about right. So you know, um, I think this, uh, this whole purchasing of the bitcoin was, in my opinion, a great move, uh in some ways and in some

ways a really bad move. Right. So it was a really good move I think in terms of trying to make the system solvent eventually they probably needed about actually about ten billion dollars worth of collateral. They got to maybe about only only seven billion more, you know, And it's uh, I mean easier said than done, definitely, but you know, at least it was I think a step in the right direction in terms of creating solvency for the system. I think the system was way in the past.

It was already insolvent. You know. It's just that nobody realized because they had created such a strong supply sink an anchor for this us T. You know, if that disappeared overnight or even gradually, the entire system was insolvent. I mean even at a price I would say, of over a hundred dollars a luna. Uh, this whole thing

was already insolvent, just nobody realized it. But anyway, returning back to the bitcoin, um so, I think in that sense it was really good that they bought the bitcoin, But in some ways it was ald bit bad because it kind of destroyed the narrative a little bit, right. Yeah, Now it's just like a kind of half backed, a

little bit half aspect, you know, kind of Uh. I don't know if I could say that something, but uh, but you know, but it's you know, now it's sort of like it's destroying their own narrative because like they basically said that, oh, we we finally constructed this perpetual motion machine. You know, behold everybody, We finally did it, you know, and it's working and it's amazing. But actually, you know, just in case it doesn't work, let's get some insurance. You know. So like before they were the

narrative was very strong. It was just like there was just saying, oh, yeah, for sure the state works now, and obviously it doesn't. But you know, they were saying and a lot of people were believing them. But you know, it's almost like they were capitulating a little bit on the narrative and making certain concessions by even buying the bitcoin in the first place, because now it begets the question.

Now people were thinking, well, wait a second, this thing is just always it was going to work all along. Why do we even need that, Like you're telling me that, you know that that's not really a vote of confidence there, you know that you even feel the need to get some insurance there. But you know, all that being said, still happy that they did, I mean, it would have been even worse if they did. So walk us through what you think just happened, Because I've seen some wild

theories out there. I mean a lot of the lunar bowls, I guess they sometimes call themselves lunatics, but a lot of them are talking about this idea of a concerted attack from people like Citadel and yeah, I mean it just sounds crazy to me. But also, but also here's the thing, Like, even if it was some sort of concerted attack a bunch of people shorting all at once, that still seems like a fundamental vulnerability in this machine

that you've designed to be stable. So I guess, walk us through what you think happened and what the exact trigger was for the chaos that we've seen this week. Yeah, the deep pegging. Yeah, you know, I think we're really entering this phase in the market cycle, which I've been calling on Twitter the finger pointing phase. You know, now that this thing is clearly you know, it's clearly failed, who should take the blame for this? Right? Is it a some external party in a foreign world, the trad

fi world? Right? The boomers in the suits that nobody likes crypto? Yeah, easy scapegoat? Right? Probably was Citadel or black Rock right, turned out to be just a post of four chance, you know, like I mean, like they're not. I can't believe we're in historic times. The Black Rocket Citadel. Now I have to issue rebuttals to a four champ post. But that's absolutely ridiculous. I mean, it just goes to show how quickly means spread and how quickly narrative spreads,

whether it's right or wrong. Where we're in the age of social media and words spread so fast that literally a four chand post can trigger a response from set it on black Rock And it's absolutely ridiculous. I mean, where people coming up with these conspiracies. Uh so is it a them, right, these outsiders, these boomer trade tread rad fight guys. Is it be somebody internal to Crypto? You know, some big shorters like uh you know, like galwah Capital or like some of the other noted uh

you know six Factors of Luna. Was it Sam, you know, was it Winter Mew? Who knows? Maybe it was one of our own people, right or is it c Um? Is it do Kuans fault? You know, because he built this project, the mechanism was clearly unsound. Maybe he's a grifter. Maybe he was a scammer all along. Maybe it's his fault or is it cut d like? Is it? Is it like people's own fault in a way? Right? Is

it that they themselves got a bit greedy? Um? They wanted so badly to believe that there was free money raining from this sky that they turned off all their reason and logic because they you know, they had some

hope of changing the circumstances of their life. You know, it's a bit sad to say, but I think you know there is some bit of that too, you know, So what I would say is really hard to say what you know exactly triggered it, but I think it would you know, if this is any lesson for us, and I think you know, the crypto space, we've we've always been um kind of like we want to be

a self regulatory, regulating industry. We do. We don't really need regulators to step in, you know, protect the little guy, protect the retail from themselves. Right, we can handle things on our own. And if that is the case, then every time something like this happens, we have to take some very good lessons about them. We have to, you know, take a hard look at ourselves and why this happened?

You know, why how did people get so greedy and not just not just retail themselves to write I think it is good for them to reflect on themselves too. But also, you know, how did the vcs? How did the investors get so greedy about this stuff? How did the founders get so greedy about this stuff? You know,

the exchanges, I mean to some extent. I mean, they definitely benefit from all the trading volume, right, so you know, maybe it's not that you know, they're particularly greedy, but maybe they look the other way because they don't really care. As long as you could trade a coin back and forth, uh, and you know, collect the fees, maybe it was still good for them, right. So you know, I think I think it is important for us to reflect on ourselves

before we just start pointing fingers. Now that being said, if we want to talk about how how you know, it actually went down, there's been you know, a lot of speculation and you know, some people have woven these very intricate narratives about Okay, on this time, this thing happened, this time, that thing happened. Um, what I would say is that most mostly its speculation. There are some things that are I think factual. So maybe we can just start with that, which is that when Luna first um

started to unwind. This was during a period, you know, when the first deep pegging happened. There's a couple of days ago. Just before you keep moving. We're recording this Thursday, May twelve, and so it was really I feel like last Saturday morning. I guess that was maybe the seventh or something. I just wanted to sort of like set that when people like people have been talking about for a while, but that was sort of when it suddenly started to deviate. I think it was about roughly five

or six days ago. But anyway, sorry, keep going. I just want to make sure listeners start to understand the time frame here. Yeah, exactly. So, so it was around that time, and it was during a time when there was a migration of assets from the three pool on Curve to the new four pool, right, So maybe I just I'll explain that a So I guess starting with curve. Curve is basically it's a little bit like unit swap.

It's a it's a bonding curve. M M. It's a bit flatter in terms of the bonding curve meaning that you can trade greater size near quote unquote the peg, you know, and this is like this is mostly for stable points, right see. You know, for three pool, it's like, you know, you have USDC USDT Die, and those are three three coins in three pool, and they're all stable coins.

They should all be pegged roughly to a dollar. Uh so you know, around a dollar you can trade huge amounts of size, which is not quite doable in you know, rounder bonding curve like you know, most things on NITA, at least un swab. So it's an a MM, it's a it's a it's a defy MM. But it's particularly well optimized for trading stables between each other. Yes, I mean there's some caveats there, but you know, I think

the details don't don't matter too much. So, um, it is particularly optimized for trading stables for the most part. So that's three pool. Three pool is you know, circles Dollar, Tether, and Die which is makers coin, and then four pool would have been would have been two of the coins from three pool being tether and Circle dollar. But instead of having Die, they we're gonna have ust and they

were gonna have fracts as dollar. So you know, the whole idea there is that they kind of it to kill die, and they wanted to have more of their own native liquidity. They didn't want to just have a meta pool, which is you know, for example, ust against three curve, right, so it's it's a pool between two assets, but one of the assets is a pool itself, right. So they don't want to just be attached as like a sidecar, you know, to three pool. They wanted to

be you know, have their own native pool. So these great plans for you know, four pool and whatnot. So you know, during this time in the DP pegging, returning to that point of the story, um, you know, they were basically the lunar guys TfL they were doing a migration from three pool of the four pool. So they're pulling all the liquity from three pool putting into four pool.

And this is basically when somebody just took up all the liquidity left on us T by basically just in the U S T pools, just by dumping all their us T and taking out all the other assets. And this basically was what caused the first panic. Now was that one person was that multiple people I think really hard to say. I think you'd have to take a look at the chain. Right now, the narrative is that it was just one attacker, But I mean, I think

this is kind of like a like a boogeyman. I think we should we should actually take a look at the actual transactions that had happened on Curve at that time and see if it came from multiple addresses or came from a single address. I mean, to be fair, I mean, even if it comes from ultiple addresses, it could still be you know, the same party. Maybe they just split up their wallets, you know, But at least we shouldn't We should verify right before making these kinds

of speculations. But in any case, basically all the us T was dumped, all the other assets were drained from these pools, and then that that basically caused a little bit of a panic. Other people pulled money out of anchor, people try to find ways of getting rid of their us T. Luna started tanking. The entire markets were already tanking. Um you know, it's kind of like an alignment of

the stars. The equity markets were tanking, and cryptos really correlated with the equity markets these days, so everything was dropping, and on top of that, the migration was happening. So it was, you know, a cacophony of the perfect sequence of events and um, you know, coincidences there. So this system was already very unstable, and this was something that you know, you recognized and other people, but you recognized

going back to last year, it was inherently flawed. But then we get this sort of perfect storm because we have this big risk asset sell off. You know, stock market has obviously been tanking Bitcoin, which on some level had of course been a contributor to ust stability. Bitcoin has obviously been tanking, so did the extent that that's

a backstop that's dissolved or diminishing by the day. And then you have this migration and it was about to be a switch and someone dumps a lot and drains the liquidity from the existing pool you mentioned and I saw I've seen a lot of people talk about this move from the three pool to the four pool. Was there something inherent about that migration that made it vulnerable? Was that inherently going to be a less liquid moment

for us? T Yeah, I mean it would definitely be a less liquid moment, But I don't want to just say that definitively someone was trying to attack the probo at that time, you know, because what it really could be is that somebody was just looking at the liquidity and didn't even know that the migration was happening that day, right, and then just saw all the liquidity evaporate, panicked themselves, right, and then just dumped all their us t training the

rest of liquidity, right. Or or it might not have been one person, it could have been multiple people who all you know, we're sitting at their computers one day and not having read that they were doing the migration, everybody feeling the same panic, everybody dumping, right. So, speaking of opportunistic moments, I guess or triggers for these type of types of moves. You mentioned that you were short, and I know you probably can't necessarily go into detail

of exactly what that position looked like. But I imagine, given the degree of criticism against Terra slash Luna, that there were a number of people who would have liked to or maybe have better against this over time. And I'm wondering, you know what, what, how did those trades

theoretically work? And then is it possible that there were frictions within the Luna Terra ecosystem that made shorting it kind of difficult, because this is a classic thing in markets, right, you know, you can identify the bubble or you can identify the ponzi and then get killed. So I guess I'm wondering how painful it would have been to short this for a substantial amount of time. Yeah, I definitely would be very painful. And this is why we didn't

start shorting this thing until actually pretty recently. I want to say, I don't want to say exactly when, but it was sometime this month, and it wasn't actually earlier than that that we were shut um. And you know, I think that with something like this, being early is almost as bad as being wrong, right uh. And you know, partly one of the reasons that this thing was so difficult to short was because the funding on putting on shorts uh was extremely high. And that's because the opportunity

cost was getting yield on anchor. Right, So basically you're paying maybe about but it's about that, it'll be about that, right, Like that yield was higher, maybe even harder to shore that yield was lower. It would be easier to shore, right. But basically that's the opportunity cost of not shorting, right.

So that's why, you know, that's why this this trade I think was particularly difficult to put on just from mechanically, from that standpoint, but also I think on top of that, this whole system and this whole design is so reflexive on both the up and the downstading, right, So like we saw this thing go negative down right, right, just in a couple of days, right. But you know, on the up side, it's also very violent, right, So you know, you could be right, but you know, the market could

still liquidate, you you know, for some reason. You know, the equity markets rally, everything rally, Bitcoin rallies, the you know, Luna having beta to bitcoin it also rallies. Uh. And then on top of that they make some kind of crazy announcement whether it's true or not, you know, and then and then you know, you could completely get blown out. So you know, I think that that's why, you know, this thing was just particularly difficult to short. You know,

just structurally, it's just very difficult. But we did get it in. Uh, And I think it was just roughly about the right timing, so very happy about that. Yeah, I bet um. I mean it feels to me like one of the difficulties or one of the reasons this week has been so extreme, is because there's no natural circuit breaker on while either on the upside and this is why you saw you know, some phenomenal valuations, but

also on the downside. Yeah, you know, I think my opinion there is a little bit you know, different than yours, Tracy, because you know, I think that the circuit breakers could have slowed things down, but couldn't have stopped them. And in some ways by doing the circuit breakers, uh you know, like let's say the exchange is just you know, limit

up or down. They just hit the circuit breakers. Well, there's still the defied markets, right, and then there's still like all these other sources of true price discovery, and as long as there's some kind of outlet for it, you're basically just building up pressure on the Sea FI exchange once the circuit breaker is released, right, So now like instead of it just like you know, exponentially crashing down,

now it might just be straight up vertical line. You hit the limit and then the moment the market reopens, another straight vertical line down to the next limit and then just like staggered lines down right instead of like more more a curve line, almost vertical down. So you know, I think at the end of the day, Um, you can't really go against the market. If it wants to go down, it's just gonna go down. I mean, you know,

any kind and especially for something so reflexive. Um, most people are not trading, you know, people are trading emotionally. But there's like there's what I'm saying is that there's there's more that's coming, right, It's not that oh you know, after a while, people just want to go buy the dip. Right,

This asset is the complete opposite of a dip buying asset. Right, some assets they're more mean reverting when it goes down and you buy something looks cheap when it's when it pops up, you know, when you sell down a little bit because it looks expensive. This is the complete opposite. The further it goes down, the easier it is to shore, right, because then first of all, like everybody else is unwinding,

you know that's happening. And then uh, second of all, the entire value of everything back in us T which is circularly, Luna It's itself and Bitcoin are both losing value. Right, So then at some point, you know, if you if you think collateralization ratio was bad yesterday, then today it's even worse, and the next day it's going to be even worse, and you can see that trend deterministically playing out, than at that point you might as well just dump

it today, right. So this thing is a purely reflective asset. It's the purest of momentum assets. So what you say makes total sense. But you know, I'm trying to understand actually how different fundamentally Luna Terra is from a lot

of other crypto defy assets. And of course, we recently did an episode with Sam Bankman for and he was asked to describe yield farming and he's like, oh, it's a box and you put money in and then you know, you get some governance tokens to incentivize more money in the box, and then more money goes into the box, and then you make a lot of money if you're

earlier in the box. You talk about the reflexivity of the Luna Tarot box and when it's going down, there's literally no reason there's no cash flow, there's no book value or anything that inherently stabilizes the price. There's this is what I meant by a natural by the way, So then how different is it from a lot of other crypto things in terms of this reflexivity? And is this and I mean, is it really different from the rest of the space, because I don't see, like it

feels like a lot of crypto assets have the same reflexivity. Yeah, so I want to separate out the reflexivity from the garbageness of it. Right, So, like I think on the reflexivity part, this is uniquely bad, like or Luna is uniquely bad in its reflexivity. It's extremely extremely high reflectivity. I think that's not the case for a lot of

these other yield farming boxes. Um. Now that being said, uh, on the other side, there are some similarities in the sense that there was a box also for Luna, and it was called Anchor, and you put money in that

box and seemingly you've got money out of it. Now what it turned out to be is that, uh, you know, And I want to maybe just go off of Sam's metaphor here, which I found hilarious, which is that you know, in a lot of these cases, right, you put money in the box and then money comes out of it, especially you know, if you're early, I would say that in this case, you put money in the box, seemingly money comes out of it, but really, really the true transfer value here is that you put your money in

the box, that money, somehow, through many different pipes, goes to investors and founders of the project, and then your money disappears and you have nothing. So it's it's more like that, I would say, so instead of how is that different? Sorry, yeah, because I would say that certain boxes are a little bit more honest in the sense that you know, it's kind of like a like a chicken game, right, So it's like users competing with users, and the earlier you are, the better that you do. Right.

I know it sounds really bad. It is really bad, But what I'm saying is that this is even worse than that, because it's not even it's not really just users competing against users. It's more like users thinking they're competing against other users, but really getting all their funds siphoned out by you know, investors and the inside team. So one of the other things that's been happening this

week is now Tether has depegged. And initially at the start of this week, when Tara was going down, when ust hit point three or whatever it was, everyone was talking about, Oh, it's it's a problem with the algorithmic stable coins, only this thing is worse than a lot of other stuff. But now we've seen strains on Tether, which is supposed to be reserved backed, but of course there have always been questions swirling around what those reserves

actually are, what they look like. We've also seen some stable coins um I can't remember exactly what it was, but like stuff like USDC and b USD and things like that, UM that seemed to have done relatively better. So those are holding up. So I guess my question is, is this now a shakeout in the stable coin space or what happens now? Do people go to stuff that they perceived to be safe or does the safe stuff get liquidated because a bunch of hedge funds have Luna

Tera exposure and need to raise money. Like what exactly happens? Yeah, you know, I think a lot of those things. So let's first talk about the general sort of financial contagion, right, So, like a lot of these guys who are just like these funds uh and and other types of investors who are just really long but let's say Luna or Ustu or sometimes even doubling down on the position. Uh. You know, they basically, you know, as as the price moves against them,

they're facing margin calls. So I think what a lot of them did is that they sold their other hard assets, right, so other coins, bitcoin, ethereum, whatever, they had to meet these margin calls, uh, and then eventually, like some of them even got wiped out on on the entire fund. So I think that's probably why you're seeing all of this contagion. I mean, some some of it is just correlated to equities, but I think for the most part,

there's also some psychological contagion. And you know, people just all of a sudden, you know, they see this huge you know, top ten coin implode, they start to feel a little bit less safe about all their other investments in general. And then some of it is this like to meet margin calls and to find ants themselves. You know, some people have just sold off actually much better assets than than Luna and ust to defend their position, and Lunar and U s t so I think that that

that definitely happened. So I forget what the first part of that. I guess, how does the stable coin market shake out now? Does more money flow into things that are perceived to be higher quality, or how do people start to differentiate? Yeah, definitely. Uh, you know, I think, you know, these days, you're starting to see like some of these coins trade above parody that are not, you know,

the non tether stable coins. At least for a little bit, I think a lot of stuff was trading like a dollar and two cents dollar in three cents, that sort of thing. I think generally the consensus right now in the market is that us d C is the safest and there's a little bit of worry about Tether. I think that's fair. But I do think the worries about

Tether or a little bit overblown. And I want to qualify that statement by saying that although Tether as a company has done some really shady stuff in the past, actually happened to believe that they're actually more than just fully collateralized. I think they're actually overcollateralized. Um. So you know, if you think, if you think about some of the

weird and wacky stuff they did that they shouldn't have done. Um, they actually backed some of the tether with crypto righte with with bitcoin itself, and this is like during a bull run. So first of all, they really shouldn't do that because that's not the point of what their business. Yeah yeah, I mean they really should just be keeping like really dollar like instruments or actual dollars that would be the absolute safist in the bank account and they

shouldn't be speculating with client funds like that. But given that they actually did do that something that they shouldn't, they actually worked out for them. So they kind of got lucky and with you know, I don't know if they kept a lot of the profits themselves are whatnot, But if at least some of that profits still was held on the vaults, then they should actually be overcollateralized.

And then you know the other you know, crazy stuff that they did, you know, where they loaned money to themselves because you know, Tether is also owned by X, just the parent company at bit foin X. They basically loan money to bitfoin X because of you know, some some bad debt that bitfoin X had because they they were like short like eight million or something because of like crypto capital something I don't I don't remember exactly,

but it was something like that. Um so they were basically like doing all these crazy loans between their own companies. And you know that's you know, I think, definitely something that they shouldn't have done. But technically they you know, they made it out of that too. They issued the LEO token, they sold it to investors, raised a billion, put that money back in, gave that money back to Tether. Uh So you know, technically it should still be a whole.

I mean, they keep doing things that they shouldn't do, but yet they always get lucky and they come out of it. So I actually tend to believe that Tether is pretty safe. But you know, they really should stop doing crazy ship I want to ask about the more the terror fall out in a different direction. So clearly there's this sort of pure financial contagion. You see the top ten coin crash and cetera, or you start to wonder about the safety of some of these other yield

boxes and so forth. But the other thing good striking, and I mentioned this in the intro, which is that we're used to hacks and crashes in crypto. They happened all the time, and most of the time they're too

boring to even mention. But this one was like backed by like legit or people who are respected leaders in the industry, people who go on TV and obviously like Nova grads who has the dog tattoo mean nothing seriously, So you know, but there's others two And if you look at you know, I saw the press release of the first time, like you know, when Tara got funded, and it's all of the like some of the biggest names in crypto, and so I'm curious, like how that

affects the industry that this is not like some like big connect weird thing where everyone sort of new was really terrible, like a bunch of people really stood by this. Yeah, definitely, And you know, I think historically we've seen stuff like that happened before. You know, look at like the Dow for example, you know when that came out and it got act I mean that was also backed by a lot of heavy hitters in the industry. And then you know, there was at some point there was like the whole

Bitcoin cash fork. Uh, And I wouldn't I want, I don't want to say it was backed by like everybody. It was in the majority. It was still a minority within the industry, but it was a very healthy minority, right, So we've definitely had situations like that in the past. What I would say, and I don't want to cast any expersions on most of the investors in Luna and Terra, what I would say is that I think it's a

combination of three things. I think the first is that people got used to too much easy money in the bull cycles. And you know, before the FED started hiking up rates, you know, they were used to this kind of access arbitrage right as vcs, they're very well connected. Um, they can get into these very early seed round deals and massive discounts mark that stuff up, you know, crazy amounts, you know, ten X in a week, you know ten X in a couple of months, hundreds X in a year,

you know, even thousands possible. So I think they just saw that as a continuation of business as usual, right. And you know that also like to get some questions like why why should the returns be so high in the first place, But you know that's I think another philosophical discussion. I mean, but I think you know, they got kind of used to that, and for them, they hadn't really switched their mindsets yet to more of a bearish, more of a hawkish kind of fed environment. So I

think that's one part. I think the second part is that generally some of them tended to be true believers. And what I mean by that is that they thought that, yeah, maybe most likely this thing fails, like nine chance this thing fails, but maybe ten percent chance the same thing succeeds and it goes up a million x, right, So then that still makes the investment positive ev right, positive expected value. So I think from that standpoint, they thought that this was still maybe a good bet to make,

and it was an honest bet. Um, you know, they

thought it was good at the time. Maybe they don't think so anymore, but maybe some of them even still now made money because they got out in time, right, And I think the I think the third thing is that probably some of these investors realize that this thing would never work, but they figured that they can make some money in the short term, and being a bit on the more cynical side within that demographic of investors, uh, they figured that they could exit out of this thing

before it blew right so I think it's a combination of those things, you know, just you know, true belief and plus c v um cynicism and quick flip and hopium not being adjusted to a new bear market. So before we go, I want to like talk a little bit more about sort of what's happened or where we are now. And again, one of the things that we've seen with Tara and Luna specifically is Tera continues the stable cling continues to have these periods where it drives

up back towards the peg of a dollar. Meanwhile, Luna is just absolutely blown out and every day it's going down by like in a a and the total issuance of I think there is like a hundred million, I don't know, and now there's like billions and billions. Can you walk us through like this sort of like weird, like I guess like put rigor mortis or something, or this sort of like afterlife of the court right now. The death was like, what is actually this like weird

phenomenon that we're seeing right now? You know, I totally agree with you, it's actually pretty bizarre. But there's a there's a couple of theories here. So the first theory is that lf G Lunafination Guards still has some reserves left, right,

and they know the timing of it. They decide, Okay, at this point, you know us T is too low, We're just going to exhaust the rest of it, and we're just going to support the price either for a for people on the inside to get out, or for be uh you know, altruistically to just get whoever wants to get out. Whatever remaining back holders want to get out of USC they can with with the remainder of

these reserves. So that could be the case. Another possibility is that uh, it's the arbors that are closing up this that that are pushing the us T price up because the Luna protocol itself the underlying virtually and M will always consider us T is worth one dollar of Luna, right, So as long as Luna has any bit in the market and any market price in the market, you can always generate some kind of hyper inflating value to create

these dollars. So the issue is if you're guaranteed to get a dollar for us T, all that happens and let's say Luna or sorry, a dollar's worth of Luna for us T, and then Luna plunges by then whatever. Then to continue to redeem those, you just have to create billions and billions of fresh lunas to meet that obligation. That pushes it down. Then the next wave of redeemers that makes even more billions, and so you have this like true hyperinflation to defend the peg. But that's what

the AMM is supposed to do. I mean, this is the bot basically working as the code instructed it too. Yes, exactly. And I think this is actually a really great point that you bring up, Joe, And I think there's a lot of interesting nuance here, which is that first of all, this is hyper inflation, but this is actually worse than hyperinflation. This is hyper hyperinflation because it's hyper inflation, which itself is accelerating, right, So it's like it's hyper inflation of

hyper inflation. Basically, it's like exponentially bad, right because basically, as more and more luna get created, pushing the price further down, exponentially more lunar needs get created. Right, So like maybe you like you burn a clip of ust and you have to mint a million luna, and then next time you you do it, you have to mint a billion Luna and next time you have to do do it, you have to mint a trillion lunar. Next time you do, you have to minto quadrillion luna. Right,

So it just like exponentially gets worse. Right. So, on one hand, yes, this still does allow the UST holders to get out, But now there's kind of a political consideration, right, because the holders of Luna and the holders of UST are not aligned. Right. The us T holders don't really

care about the lunar price. You want to give the thing down to, Yeah, points one, that's fine for them, you know, as long as they have they meant enough that they can get out a dollar's worth or you know, close to a dollar's worth of us T. Well, the Luna holders, you know, they're not happy that the us T guys just continuously crushing this price when no one in sight, I mean, we got yards to go, you know, there's no end and insight, right, Um, so I think

there is some political disconnect between the interests of either the holders. And then I would say, finally, you know, how does this actually end? Well, what I think is that in the end, you don't actually fully redeem out all of this us T at a dollar you know, even if it takes forever, and even if you hyper inflate Luna to like a Googleplex or whatever. Right, Like, I don't think you actually get out this us T because at the end of the day, there is still

a tick size constraint on exchanges. Right. So, like let's say the tick size on the exchange is one penny. Right, Eventually, if Luna it's actual fair value price is below half a penny, which rounds down to zero, and it's technically below one tick, then there will just be no bids in the order book. It will just be a one sided order book with only offers and no bid. Right. So at that point you can't actually complete this arm.

You can't actually you know, sell that no matter how much Trillon's or Google's of of you know Luna you have, there's just no market to sell it because it's worth less than a tick, right, So like it, once that happens, then basically everything remaining in us T is just bad debt. Right. So what is the market saying right now? I think

it's being, first of all, a little bit optimistic. I think it's saying that, you know, thirty eight cents on the dollar basically they're saying that if everybody takes a haircut of sixty cents, everybody can have thirty eight cents. First of all, I think this is wrong, but let's say that this was right. Right, So if this was right, then maybe that would be the fair thing to do. Everybody just takes a haircut, everybody gets thirty eight cents.

But what's actually gonna happen is not not quite that. What's going to happen is that thirty eight percent of people are going to get a dollar and people are going to hold that debt word zero. Wow, that's really depressing.

Speaking of depressing, so one of the things Joe and I were doing was we were looking at the subredit, the terror Luna subreddit, and there are some really sad stories out there, you know, people claiming to have lost their life savings, um threatening to commit suicide, things like that. And one of the stories that struck me it was someone who said that they had done all their research, they really believed in the project, and this happened to

them and they've lost a lot of money. And one of the interesting things about crypto, at least to me, is it is such a polarizing space on the one hand, there are people saying this is going to be the next big thing Web three point oh, a new financial system. And on the other side, there are people who are

saying that this is an outright ponzi. So I guess my question is, you know, someone comes and they see the same they read the same things about Terra and Luna that you do, presumably, and they come to a completely different conclusion. How does crypto, as like a wider space try to solve some of that tension? And what advice would you give to people who are trying to evaluate these different projects or boxes. Yeah, you know, I think I think you're breaking bring up a lot of

very interesting topics there. Maybe just starting with that what I would say, And this is a bit more on the brutal side, but I think in crypto, you know, it's literally the wild West. Everybody needs to be personally responsible for their own decisions and accountable to themselves, do their own research, and that's kind of how a market works.

To people can look at the same mechanics, do the same research and come to different conclusions, and then based on the market mechanism, eventually one side is right and the other side is wrong. But that is basically the function of the market. The bet making here is exactly what creates the price discovery. So I don't think that

there's anything particularly wrong about that. But I do think that people should think very clearly for themselves whether or not they want to put up their mortgage on a bet that they think is good. But maybe you know, have some doubt, maybe have have have some skepticism, to have a little bit more skepticism, maybe don't put in more than you can lose. And you know, my sympathies, I think go out to all of these folks who you know, lost their home, lost their life savings, that

sort of thing. But what I would say is that better that this happened now than later. You know, if if if us T was hunter billion and eventually there was of bad debt or ninety billion of bad debt, I mean, it would be way more devastating, right, I mean, even more people would have lost their lost their shurts.

I wish it would have unwound earlier. You know, I think, I think we've been great to have this unlinding last year, But you know, at the end of the day, you know, better now then later, at least well, so I want to just go back to your history with it, because you did. You've the reason people said you gotta have Kevin on the show is because you have been allowed critic slash skeptic publicly on Twitter about the model and

about its unsustainability. But also, as we discussed, being wrong can or being early can be devastatingly wrong when it comes time to place a trade, and with us T in particular, because you have this big like tact are you you know you have to pay that if you're going to short a stable coin or whatever. And the Luna just kept going up, even amid the sort of like broader crypto malaise of the last year. So what did you see that? What you went from being like, Okay,

this is unstable too, Yep, Okay it's falling apart. Now. I always thought it was going to fall apart. I just didn't know when I actually thought the timing was not bad at all because I I thought this thing would have lasted a little bit longer, to be honest. So I think this is one of the more optimistic outcomes. Um. But uh, you know what what I would say is that you know, with all these kinds of mechanisms most

of the time. You know, you look at all these kinds of I call them money games, right, these i'll go stable coins, these rebasing games. They've never gotten this big before, right. You know. You look at Home for example, barely you know, Billy, I forget how much it was, but it was like it was, it was much much smaller, right order magnitude smaller. Right, you look at like mem

You look at all you know, all this stuff. Mim was a collateralized staple coin though, but I mean there was still some contagion from the time Wonderland fallout over there, and you like e S D DSD based VAMS Basis Cash, who some people think that do Quan was also the founder of I've also heard that remark reported it um yesterday, in fact May eleven, that do Quan, the creator of Luna, was involved in the other stable, Elgo stable that crash called Basis Cash. So at least they they it has

been reported that that is the case. Yeah, I've been here in that rumor for a while too. Um you know, I don't know if it's true or not, but you know,

I tend to believe that that is true. Um So, But Anyway, these experiments have all been tried before, but never to this scale, right, And that's what I thought was particularly alarming, because even with the collapse of Wonderland time, with the whole seafood drama, I mean, there was already some contagion, but it was it was still well contained, right, but you could see that like any bigger and there would just be massive whiteouts. You know. It's like at

some point the cancer really is it's terminal, right. And and for that one, we did some chemo, we came out of Wonderland time. For this one, you know, it is stage four, you know what I mean. So this one's a lot worse, right, So you know, So that's that's what really really got me thinking about this one in particular. And this is also why I've never really called down any projects in the past. You know, if

you if you look at my Twitter. Um, first of all, I rarely tweet, and most of the times when I do tweet, it's about some new obscure play that I found. I generally share Alpha and you know, you know, we found FTT, we found WiFi in the very early days. Um, you know, I think, you know, I think you'll find some you know, interesting eleph and mostly on the positive side. But I think this one and I maybe just to

take a step back. One of the reasons that I don't like calling out projects is because in some ways I don't believe you can stop human nature. Right, if people want to gamble, if people want to play these money games. Um, I think if you if, even if if you can't really suppress it, and even if you did,

it would come out in other ways, right. But I think for this one in particularly, it was just so bad that I felt I had to say something because you know, this is just gonna be devastating for the space. I mean, regulators are going to use this as an excuse to basically put on more regulation, and this is going to stifle innovation. You know, it's gonna be It's just gonna be a rough ride. What are the chances that someone comes to the rescue here and pours more

money into it and gets the machine going again. Well, what I would say is that there probably is going to be some residual value in Luna and Ust, but not until all of the bad debt on wines. Right, So I think it's better to wait for the dust to clear out, and then you know, if you want to, you can just have you know, you can bid up Luna. Uh, you know, you can have some price discovery. But what I would say is that until that bad debt winds down,

you're just gonna have hyperinflation. You're just gonna have massive selling pressure, crushing the price to a tick and then to note ticks. Right, So until that happens, you know, and and who who knows what the actual intrinsic value of an l one without the stable coin really is. You know, it could be actually well higher than like three cents or wherever it's training two cents right now. It could be well well higher than that, but we won't know that. We can't really have that price discovery

until all the bad debt winds out. So you know, for now, you know, I'm really no bid on Luna. I think UST itself is going to go down. I think three or eight cents on dollars. It's still too expensive to be honest, And then at some point bad debt clears out and then people bid up Luna and then it'll settle at its true fair value. But I do think that they're doing the right things. I do think that survive as a chain. Will it ever be

top ten again? Very unlikely. I think something like this is so damaging to the reputation that I don't think it will ever happen again. Kevin So of Gila Capital, fascinating conversation. We could talk with you over three hours. You're so clear, you're such a such a so good at explaining things. So glad we had you on odd Lash And yeah, likewise, really glad to be on. Thanks for inviting me. Absolutely, Thanks Kevin. That was so good. Yeah,

that was great. Thank you, Kevin Tracy. Just in terms of how crypto defy these markets work, I think Kevin is the best guest we've had on that. I think he was really good and really clear. He obviously has a lot of credibility on this one as well, because he was such a big vocal critic of Luna Terra. But at the same time, you know, you can't just say, oh,

he's an anti crypto guy. He doesn't get it. It's all fun like he's actually invested in the space and called this one out as a bad actor, and he's clearly into the space because you know he you know, he's on he's clearly of the view that you know, it doesn't want like massive regulatory response to this, and also that if crypto is going to avoid big regulatory responses in the future, whichever one in the industry wanted to avoid, presumably there has to be like a greater

willingness to call out projects that are unsustainable. I also really like the description of the self reflexivity of the way Luna terror works. And you know, this is something that I know we've spoken about before, but this idea of you know, the ultimate sort of momentum play, but the whole system is predicated that at some point people will want exposure that starts falling away because people start doubting the way the entire thing is working. Then it

just feels like there's almost a limited downside. And you asked the key question, and I still think that, like it's it seems like shades of great to me, the difference between Tara Luna or some of these other DeFi things, because with the stock, when the stock goes down, where're like, yeah, but the company is still selling a bunch of paint and they're getting a lot of right, and so there's this cash flow that people want. But with a lot of DeFi stuff where it's like token trading all the

way down. There is not like some natural other source of cash other than you know is he put it great, He said, if you get if you're getting a yield, you're often just getting money from future bag holders. But if there's no more future bag holders. And I think that still is the case with many coins, even if they're not quite as convoluted or not quite as blatant about how the box were. Yeah, and I mean the other thing I would say is this kind of arbitrage mechanism.

It is not unknown in the world of traditional finance, and I think a few people have drawn analogies with the way that Exchange traded his work and market making for those. But the difference is, you know, you're trading a basket of stocks, and the stocks kind of have some sort of value, they're tied to some sort of cash flow. For this one, the arbitrage is all about the crypto, and if you don't think the crypto has

any value anymore, then it kind of collapses very quickly. Well, we can talk about this a long time, and I'm sure we will. Yeah, our producer is kicking us out of the studio. All right, shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't though. You can follow me on Twitter at the Stalwart. Follow our guest Kevin So on Twitter. He's at Gail

law Capital. Follow our producer Kerman Rodriguez at Kerman Arman. Follow the Bloomberg head of podcast Francesco Leavi at Francesco Today. And check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening to