Transcript: Udiverse X Stablekwon – Making a Bitcoin Gigachad

Udiverse Black
Udiverse Black

Finn 0:42
Hello and welcome to The Ether. Today is Friday, March 18th 2022. This episode of The Ether is brought to you by Orbital Command, a community validator on Terra dedicated to educating, expanding, and promoting the LUNAtic community. Follow Orbital Command on Twitter using the link in the show notes to receive regular threads on Terra protocols and yield strategies, news, resources, and Twitter Space discussions. You can also support their community efforts by considering them next time you’re delegating or redelegating your LUNA. Find out more at This episode of The Ether is also brought to you by Luart. Luart is the first gamified NFT platform built on the Terra network. Luart provides a seamless minting and trading experience all while earning you rewards just for being a user. Be sure to follow them on Twitter and join the community in the Discord server for the most up to date news and announcements regarding all the hot new NFT launches, platform upgrades, and new projects hitting the secondary marketplace. Are you ready to #PutYourHelmetOn and join the movement? Find out more at TerraSpaces appreciates the support from all our sponsors. Today on The Ether, Udiverse, Stablekwon, Making a Bitcoin Giga Chad. [chuckle] I can’t even say that seriously. This is a great chat though, let’s take a listen.

udiverse 2:00
Hello, hello. Hello everyone. I always forget. I always forget to prepare jokes for when people start joining. You would think that I have jokes, but I never do. It’s a shame, it really is. Let’s see, how do we do this? Just sharing a quick tweet. In the meanwhile, you can just throw some emojis just so that I know that you guys are alive. Nice. Nice. Lots of nice emojis. We’ll start in a moment. Yeah, I think Do is here. Hey, Do.

Do Kwon 2:32
Hey, Udi.

udiverse 2:33
What’s up?

Do Kwon 2:34
Oh, pretty good. It’s a happy Saturday morning in Singapore.

udiverse 2:37
Yeah, gm, gm. Good morning for you. Good night for everyone else. It’s literally a Friday night where I am. I’m sitting here in the Twitter Spaces with all of my virgin friends on Twitter. It’s a lot of fun. [chuckle]

Do Kwon 2:57
Well, if we showed up, we know who you are. [chuckle]

udiverse 3:01
Exactly. [chuckle] Exactly. Exactly. So okay, just in case somehow people don’t know… So Do Kwon… Am I pronouncing this right? Do Kwon?

Do Kwon 3:15

udiverse 3:16
Okay, so Do Kwon is the co-founder of Terra and Terraform Labs, and much more importantly than that he’s also a Bitcoin maximalist. I think trying to become the world’s biggest Bitcoin maximalist, maybe. Is that an accurate [chuckle] presentation?

Do Kwon 3:35
I do have some other coins, so I would say Bitcoin…

udiverse 3:39
Okay, yes. Yes. Bitcoin fan. Bitcoin fan. I’m just throwing on the top of the Space here, you can see a recent tweet from Do talking about how UST and Terra is planning to one day get $10 billion in Bitcoin reserves. And we’ll talk about that soon, but I think that’s roughly double what MicroStrategy owns these days. So that’s a big number, $10 billion, you actually mean that?

Do Kwon 4:11
Yeah, absolutely.

udiverse 4:13
Yeah. Okay. That’s cool. That’s cool. We’ll get there. Before we talk about Bitcoin, though. I want to talk a bit about Terra, because I suspect that a big part of my audience doesn’t know a lot about it. And I know that you definitely have the elevator pitch ready anyway. So how about you quickly tell us about Terra first, and then I’ll ask you some questions, and then we’ll move into how Bitcon fits in

Do Kwon 4:35
Got it. So Terra is largely two things, but at its core it’s the largest decentralized stablecoin protocol in the world. So if you look at the types of stablecoins that most people like to use, it’s a centralized variety, so USDT, USDC. And then there are stablecoins that are derived from leverage. So these are Maker DAO, I think there are a few others but fairly small, early stage, which is sort of constrained by how much leverage people are willing to take out on the various underlying assets, which ultimately, results in these assets turning into wrapped versions of USDC. Like Maker, for instance, which is 55%, 60%, minted from USDC. So Terra is different in the sense that it’s pegged to, let’s say, the US dollar, or the Korean won, or the Singapore dollar, is maintained through a set of algorithmic incentives. So the idea is that at any given time you can post a dollar’s worth of collateral and get a dollar’s worth of Terra USD in return. And then you can always redeem one Terra USD against the system for about a dollar’s worth of collateral. So today, in order to get to about $15 billion in market cap, UST was redeemable and mintable against LUNA. And I guess the big announcement that we’re starting to make is that that protocol is now shifting towards a mechanism whereby UST can be redeemed and minted against Bitcoin.

udiverse 6:05
Yeah, yeah, that’s a pretty big difference. But let’s first talk about what Terra was up until now, which was what people call an algorithmic stablecoin. And that’s before the addition of Bitcoin collateral. And I mean, if we look at something like UST, which we could call it, at least until a few weeks ago, an algorithmic stablecoin, it’s definitely been very successful, as you say, we’re talking about roughly $15 billion of market cap. But if you look at pretty much any other attempted algorithmic stablecoin so far, they all fail, or they’ve either failed, or they’re very, very small. So why do you think that is? What happened to the other ones, and why is Terra better?

Do Kwon 7:03
Okay, so quite simply put the issue with the existing algo stablecoins was that they blew their load too early. So allow me to explain. So for an algorithmic stablecoin, the most popular design choice is to have a secondary asset, so some endogenous collateral against which you mint to redeem the stablecoin. So, for example, if you… In order to mint one stablecoin, you can burn a dollar’s worth of… It could be LUNA, it could be the Titan token in the case of Iron Finance, or one FXS in the case of Frax, and you get one stablecoin in return. And vice versa, when you’re trying to redeem one stablecoin, you do it against a dollar’s worth of the endogenous collateral. So quite simply put when the monetary base is expanding, so when the stablecoin is at an expansionary phase, then in that case, the endogenous collateral tends to do very well in price. And vice versa. When there’s a contractionary phase, when there’s a lot of people that are looking to redeem, then the endogenous collateral tends to not do so well in price. So one of the really important variables are that whatever growth that initially you bootstrap for this algorithmic stablecoin needs to be sustainable and organic. Now, the issue is, most of the stablecoins were born during the DeFi summer phase, or a few months after that, when some people didn’t get the message that the by summer was over. And then they used to stack on incentives like 20,000% APR, and the premise here was simple. If you hold one stablecoin, a year later I’m going to give you 2,000 more stablecoins. So that led to a lot of unsustainable inorganic capital entering the ecosystem all at once.

Do Kwon 8:58
And when a… Happens, or when a slightly more attractive farm popped up in a different chain, a critical mass of that capital left and then basically that meant that too much contraction in the money supply was happening all at once. And basically everything collapsed like EST, Basis Cash, Iron Finance, and so on and so forth. So for Terra, it was a little bit different because Terra’s also a layer one blockchain. In fact, by TVL and usership, it’s one of the largest smart contract platforms in the world. And there are lots of different applications that are what I like to say normie-friendly on the Terra blockchain. So for example, there are very simple use cases where you can think about better use Terra stablecoins, you can use fiat, or other types of stablecoins. So the idea is that we have payments applications like Chai, Meme Pay, Alice, where Terra stablecoins are extremely easy to use. And we also have quite stable use cases where user churn and capital churn isn’t high for example, Anchor Protocol, which offers you a low double digit percentage on your stablecoin yields. So I think keeping that baseline demand quite stable on the monetary base meant that the money supply of UST didn’t fluctuate as much as the others, which allowed the algorithmic stability mechanism to be a lot more gently tested than some of the earlier efforts.

udiverse 10:36
Yeah, yeah. And while UST is relatively young, right, I’m guessing it’s around a year or two old, if I’m not mistaken. But it did get tested a few times, obviously, last summer we did have some short bear market and a lot of coins collapsed, but UST held up and held up again, and the more recent downturn of prices elsewhere, so it’s definitely proven itself to be doing better than the other algorithmic stablecoins that have been attempted. Of course I don’t know if that’s enough time to tell but so far it’s definitely been doing much better than the other algorithmic stablecoins. But then if we compare that to reserve based stablecoins, like actual Tether and Circle who claim to hold dollar reserves. And they’re almost in arguably safer in the sense that they will definitely have funds to use as redemptions, but of course they might be frozen. So I guess the question is, why do you think people would prefer algorithmic stablecoins like Terra over USDT and USDC? Hello? Did we lose you, Do?

Do Kwon 12:02
Is it okay now? Can you hear me?

udiverse 12:04
Yeah, yeah. Yeah.

Do Kwon 12:07
Okay. Yeah. So yeah, I think you’re definitely right. So if we’re thinking about a schema where you can just simply see hard collateral that is posted for these stablecoins, I think centralized stablecoins would have that edge. But the thesis that we put forward is that decentralized economies need decentralized model. And the reason for this is, is that I think with the passage of time, and we’re already starting to see evidence of this in multiple different jurisdictions, regulators are going to get ever more aggressive in regulating centralized stablecoins, and then running them essentially like banks. And I think this sort of compliance overhead is going to start to seep on-chain, right. So for example, I think centralized stablecoins might have to adopt some sort of KYC mechanism in order to service users, or freeze accounts through some arbitration process, which they’ve done already over hundreds of different occasions. So the thing is, there’s no point in building a DeFi stack on top of centralized money, because if the underlying money is centralized, then you can hold hostage everything that is built on top. So you know that famous saying, “Give me control the nation’s money supply, and I care not who makes its laws.” It’s entirely applicable here. Because if we continue to use centralized stablecoins for everything that we build in DeFi, then we must be prepared to accept the consequences of any regulator or any entrant with sufficient market power being able to dictate how our money is being used. So I think it’s going to have a place across boring retail payments, like paying for a movie ticket, and I think it’s going to have lots of use cases for institutional trading. But I think at the core of what makes the DeFi ecosystem interesting, lending markets across our AMMs, I think those liquidity pools and lending pools must be constituted in decentralized stablecoins.

udiverse 14:07
Right, because otherwise they’re vulnerable, and they can basically be censored, right?

Do Kwon 14:10

udiverse 14:10
Yeah, yeah. And yeah, we’ve definitely… Definitely in the last year or two there’s been a lot of kind of threats about that. But honestly, people who have been around for a while they must remember that Tether always had sketchy issues with law enforcement. And there have been multiple incidents where people thought that we’re months away from Tether implementing KYC or stuff like that, and happily, that didn’t happen but that’s obviously always a threat. It’s always something that might happen. But and I guess with something like UST it shouldn’t be possible. But I want to dig back into the mechanism of how UST works or worked before the addition of Bitcoin. And talk about the challenges there. Because of course, the two goals

udiverse 15:14
that you have with an algorithmic stablecoin is, I guess, you want to stabilize both the demand and the supply of that stable asset. And using the supply to stabilize the price is relatively easy, you can always create more of the supply and find some ways to distribute the supply that you create. So if the price of, let’s say, UST gets too high, obviously, it’s possible to create more of it and distribute it however, in UST’s case, LUNA holders will be able to buy some for one dollar’s worth and they stabilize the price that way. But of course, the challenge is the other direction, what happens when the demand isn’t balanced? And because you can’t just take people’s UST in order to reduce the demand… Sorry, in order to reduce the supply. So what do you do and of course, the solution in UST’s case is going to be, well, you can actually use the UST in order to mint new LUNA. And, of course, we know that the problem if that happens could be that as you mint more LUNA, there can be a lot of selling pressure on that LUNA, which will drive the price of LUNA down eventually getting to a point where it’s not enough to sustain UST at $1, right. That will be the scenario that people are concerned about, right?

Do Kwon 16:52
Yeah. So what I would say is that for algorithmic stablecoins, the depeg risk function resembles a sigmoid, right. So for reasonable falls in demand, and we’ve gone through a couple of cycles of this… So in May of 2021, when there was an overall crash in cryptomarkets, UST supply contracted by, I think, somewhere around 30%, 40% in the course of a week. So we’ve seen a monetary based contraction to that level. Recently, there was a… With a sequel crisis when Magic Internet Money and Wonderland blew up, we had Wonderland divest its UST holdings. And I think everything that we saw across most of the DEXes and centralized exchanges was about $1.5 billion in net UST sells, which back then at round $10 billion to $12 billion market cap, it was a little bit over 10%. So each time that these things happen, the size of the contractions are diminishing, right. So what I mean when I say that the depeg risk function is a sigmoid is that for reasonable contractions, I would say 30%, 40% is probably a pretty big contraction, that’s going to get harder to see as the UST economy grows. But for reasonable contractions, it’s very easy to absorb. So the risk there is relatively low, but there’s some points, where if the entire monetary base contracts all at the same time, then in that case, the risk goes up a lot.

udiverse 18:25
Yeah. Yeah. And of course, for that, and as you said before, there are ways to try to mitigate that. One is by offering utility to UST itself. Hopefully, that brings just somet native demand to UST. But also, that might not be enough if there’s too much sell pressure. And then we’re getting to, I guess, the time to talk about Bitcoin and how Bitcoin could really change the fundamentals of how Terra actually works. So if so far Terra was purely algorithmic, had no sort of collateral really backing it, you guys are actually talking about acquiring Bitcoin to have that used as at least a partial collateral for UST. So why did you guys choose Bitcoin specifically? Am I understanding correctly the reasoning for it?

Do Kwon 19:27
Yeah, so I mean, couple of reasons here, but put simply, Bitcoin is the only hard reserve asset that’s been proven out of the digital currencies. And what I mean is, if you start to… I mean, so I think there’s lots of different assets with potentially higher beta oxide, right. But the thing is, these things should be really be valued as things where there’s some technical innovation. So for example, proof-of-stake rules out Ethereum, and it turns out to be actually fast. Or, for example, if a certain blockchain that has been known to suffer a lot of outages did a mainnet upgrade, and there’s less outages than there were before, then in that case, that’s all going to have some sort of price momentum or usership upside. Now, Bitcoin may have less of that but that’s entirely the point. That’s kind of the point actually, Bitcoin code base doesn’t have too many changes. It’s the only asset with a provably calcified, and hard code base, and much more better distributed than all the other digital assets. So it makes sense to think about using Bitcoin as a hard currency. And also it helps to align the crypto communities around the UST as we start to expand into multiple different ecosystems. Because a skeptic may be able to question the resilience of LUNA as collateral for UST, it is very difficult for somebody in crypto to question Bitcoin.

udiverse 21:07
Yeah, well, I can agree with that. [chuckle] You had you had me there. You had me on hello, Do, but you also had me there. So what you saying actually, is that even though obviously Bitcoin is not as stable as USDC and USDT, it’s preferable to those if it’s used as a reserve for Terra stablecoin because it’s not going to change, you know no one’s gonna pull the rug under you, you know it’s always gonna be there, you can always use use it. So even though… Obviously, the times when people need stablecoins the most are probably the times when Bitcoin price and other crypto assets collapse in price, at least to a certain degree. That’s the time when people want stablecoins. And of course, that during that time, the size of the Bitcoin reserve in dollar terms is going to shrink. And even though that’s the case, you still think it’s preferable to holding, let’s say, USDC as the reserve asset?

Do Kwon 22:14
Absolutely. I think for a decentralized stablecoin, holding centralized collateral is just not in the option space. So if we’re going to hold a decentralized asset, there’s only one clear choice and that happens to be Bitcoin.

udiverse 22:27
Yeah. Okay, so how exactly… So you guys chose Bitcoin, and you’re gonna accumulate Bitcoin, maybe we’ll talk about amounts, and the schedule later. But how are you going to use that Bitcoin? So I get it, that’s the reserve, but how exactly is it going to be used? Let’s say, we’re in a situation where there’s some selling pressure on UST, how is Bitcoin going to be used in that case? What’s the strategy there?

Do Kwon 22:59
Sure. So we’re actually just a couple of days from publishing that spec to gather community feedback. But the basic schema is very simple. So we’re exploring a number of different bridges to be able to move Bitcoin into Terra in a trustless non-wrapped fashion. And let’s assume that Bitcoin is available in tokenized form on Terra, with the mechanics thereof still being researched. Then that case, what we will do is that we will put it into a smart contract whereby people can trade in UST to get roughly a dollar’s worth of Bitcoin. So we would say, let’s say minus 1% off, or minus 2% off, and people can mint UST by trading in Bitcoin against the reserve at par value. So at any given time, you can trade in a dollars worth of tokenized Bitcoin on Terra and then get one UST, and then you can trade in one USD for slightly less than a dollar’s worth of Bitcoin. So this preserves the property that this reserve would only be actively traded against when UST is off peg to the downside, but at the same time it also preserves the property that as UST supply grows, the size of the Bitcoin reserves will grow linearly with it.

udiverse 24:25
Yeah. So you’re actually saying that Bitcoin will serve a very similar role to what LUNA is serving right now in the Terra system. Of course, you wouldn’t be able to mint new Bitcoins but other than that, it’s going to be very similar. You expect that new Bitcoin will come into the system when the price of UST is too high. And there will be the possibility for people to redeem Bitcoin when the price of UST depegs and becomes too low. So It is actually going to be very similar to LUNA, right?

Do Kwon 25:04
Correct. So another way of thinking about it is that some portion of new UST that is being minted so some portion of UST seigniorage would go to market buy Bitcoin.

udiverse 25:15
Right, right. Yeah. Yeah, that makes sense. So let’s say that.. You actually said a bunch of interesting things there that I was gonna ask you about, you said that you guys are looking for a way to create trust minimized tokenized Bitcoin on the LUNA blockchain. And I know that you guys are going to talk about that probably in a few days, or some point in more detail, but I’ll still try to press you, how’s that going to work? We obviously know that with Bitcoin that’s a difficult thing to achieve. Bitcoin doesn’t really have the mechanics for semantics smart contracts right now. So how are you guys going to do that in a way that’s trust minimized? What’s the thinking there?

Do Kwon 26:01
Yeah, so I think the most realistic solution for the short term is to use multisig based at the Station. So in the sense that LFG, I think, is going to… And its set of governors that are led by top builders in the ecosystem, I think it’s going to play a short term role. But actually, there’s a number of different projects that are pretty close to achieving some level of trust minimized tokenization across different projects. So in the Cosmos ecosystem, there’s Nomic. And those guys have been researching ways to bring Bitcoin into the Cosmos ecosystem for a while. THORChain is… I think it needs a little bit more time to be battle tested. [chuckle] Right. Right. But they’ve done something. XLR also… They’re pretty close to getting to a proof-of-concept solution. So I mean, I think in terms of minimizing the trust of the bridges component, we’ll be looking into which solutions become usable over the next few months. But I think in the beginning, we’ll make do with the multisig with proper disclosures that this is a multisig, and with sufficient will, you could be rugged.

udiverse 27:27
Yeah, yeah. And obviously, that’s not ideal. I just want to know, to people who are listening in from the Bitcoin world, to me that sounds like it’s not particularly different than the kind of sidechain ideas that people used to have and what people do on stuff like Liquid and RSK on kind of the Bitcoin side, where you’ll have a multisig system that allows you to have Bitcoin pegged elsewhere. And that’s, I think, considered somewhat acceptable in the Bitcoin community. It’s also very similar to how wBTC works right now, and secures billions of dollars in value. So, obviously, a big portion of the market seems to trust that solution. I hope that you can come up with something more trust minimized than that. And yeah, there are the other bridges that, I think, something can happen there. In the end, it’s all multisig, right? But there are, I guess, different implementations of it. So, you guys are looking into doing this tokenized Bitcoin thing, and then you’re going to use it in those smart contracts to allow the redemptions of it and to allow creation of new UST and other stablecoins using Bitcoin. Do you see other usage for Bitcoin on Terra, other than that function as a reserve asset?

Do Kwon 29:02
Yeah, so I think once you are able to bring in Bitcoin into something that can be wrapped by smart contracts in an already active ecosystem, so by that I’m ruling out things like Lightning and some things that are not being used, but basically if you do that then in that case Bitcoin becomes a really attractive reserve asset for DAOs to tap into. Because a lot of these DAOs either through initial token distributions or through collecting revenues from things like yield farming and various other things, they hold some treasury, which they would like to be held in some sort of hard asset. So a lot of treasuries are denominated in Terra USD. But I think Bitcoin is going to play a valuable role as a reserve currency across the Terra ecosystem, especially if the base currency itself is rehypothecated Bitcoin.

udiverse 29:59
Yeah. Did we lose you the middle or was it just me?

Do Kwon 30:05
Oh, yeah. So I was saying that once Terra starts to use Bitcoin in earnest as a backing asset for Terra USD, which is the main asset in the Terra ecosystem, then in that case, I think that Bitcoin becomes a very attractive asset for various apps to hold a portion if not all their treasuries in.

udiverse 30:30
Yeah, so do you have any ideas or any examples for that, apps and protocols maybe in the Terra ecosystem, maybe outside of it, that could make use of Bitcoin directly?

Do Kwon 30:49
Yeah. So, for example, there’s a lot of… Due to events over the last few months, this category is not super hot right now. But there’s a number of DeFi protocols that have protocol owned liquidity or political owned assets. Or, I guess a better example could be there are some applications that have liquidity that is directed to some community pool or some community’s DAO. So for example, Astroport is a good example of this where some portion of the trading fees on the AMM DEX is accrued to community assets that are being used to buy back the ASTRO token. But over time the goal is to build up the protocol owned liquidity. And I think as it builds up that liquidity, one way to do it is to hold it purely in stablecoin. But stablecoins are like melting ice, so they lose value over the course of years. So I think it’s important to hold other reserve assets to diversify that inflation cost. And I think Bitcoin could be a really attractive way to get there.

udiverse 31:59
Yeah, yeah, I agree. Of course, when you talk about protocol owned liquidity, [chuckle] the recent… That you didn’t name but allude to, then it kind of triggers me and I’m sure it triggers a lot of people in the audience. And that brings me to how… I think there’s definitely in at least portions of the Bitcoin community, this entire idea of… I mean, some people are really even against stablecoins of themselves, right. I’m not one of those people, but some people are. And definitely, there’s a lot of people in the Bitcoin community who think that experiments, I’m being favorable here, experiments like the protocol owned liquidity stuff that all of them blew up to, I think, for obvious reasons. I’m trying not to use the P word, but so do you think there’s a chance, Do? Because I am listening to you talk, I’m listening to how UST works, how Terra works, and regardless… People don’t have to, if they want to they can use the UST stablecoin, if they don’t want to they don’t have to, that’s the beauty of it, right. That’s the big difference between that and the dollar in the Federal Reserve system. You don’t have to use it, if you trust the mechanism you can use it, if you don’t trust it you don’t need to use it. And I’m listening to you explaining how it works, and I’m saying, “Yeah, Bitcoin makes total sense as a reserve asset for people who want to use this service and product.” That makes total sense. So do you think that we will see more acceptance of this idea of Bitcoin use for those more experimental thing? I’m sure you’ll agree with me that Terra is more experimental compared to many other things. Do you think we’ll see that move from between being used in the more traditional contexts into those more experimental things in the next few years, let’s say?

Do Kwon 34:10
I think so. So I think one of the reasons why Ether has gained a lot of ground as sort of like a reserve asset or a lot of treasuries, or ICOs, or protocols have been denominated in Ether, a lot of crypto funds at one point were denominated in Ether and that’s because it was sort of easy to program into the heart of all the DeFi systems that were happening on Ethereum. Because Ethereum was dominant as a smart contract platform throughout time, and it still is, but that dominance is shrinking rapidly over time. So by TVL, actually, Ethereum is only about 55% of the total. And I think especially as chain liquidity starts to fragment into different blockchains, and different cultures, and different user bases, and different developer experiences start to manifest in each of these chains, I think Bitcoin becomes very attractive as a reserve asset, because it has two properties that are key to that. Number one, it’s it’s a, it’s the hardest currency in the digital asset space. And number two, it is the only non-tribal asset. So one thing that you can… What’s kind of interesting about the Ethereum community is that if you use Ethereum to do something related to your chain, they come out and say, “Oh, it’s funny that you created your own chain, but the interesting things are happening when Ethereum,” or something like that, which, I mean, we’re all human beings, right. So it makes it very difficult to be appreciative of sentiments like that. So basically, all the different smart contracts assets tribal to that local chain. Bitcoin is not. It’s respected by every person that holds crypto, works in crypto, is married to somebody in crypto, and I think it is that sort of neutrality that makes it a very attractive reserve currency to be used across a multitude of different applications.

udiverse 36:23
Yeah, yeah, that totally hits the nail for me, too. I’ve been you know, I’ve been thinking about this a lot in the last few months or a year. And I think exactly as you see, more and more of the smart contract use case is migrating from Ethereum to many other options. Because today we have so many other options, it’s almost obvious if you’re starting a new DeFi app, or NFT, or whatever it may be, it’s almost obvious that you’re probably better off not doing it on Ethereum, because it’s going to be more accessible and approachable. And that wasn’t the case a year ago and definitely, obviously, when you did use Ethereum it made a lot of sense to use ETH as the asset that will be used in your app, whatever your app and/or protocol was. But as we move to more and more networks, and we actually have more and more apps, like Terra itself, there are multi-chain in nature, that you have assets that you’re moving them between chains all the time, then you want an asset that is easily understood across all of these networks. And that isn’t, like you said, a tribal asset of that chain, but it is something that everyone can accept and everyone understands. I think that makes total sense and I definitely see… I think it’s going to be much easier for Bitcoin to kind of retake this position than it could be for something like ETH.

udiverse 38:01
For ETH, I think, it’s going to be much more difficult, because ETH is seen as the Ethereum canonical asset. And for that Ethereum has to be the biggest one, and we’re not sure that’s going to happen. So yeah, I think it makes a lot of sense. To me it looks like yeah, it’s pretty obvious. What are people going to use cross-chain? They’re going to use two types of assets cross-chain, one is stablecoins because that’s what everyone understands on the planet, and the second is Bitcoin, because that’s the one that’s neutral. I think that makes total sense. And I don’t know if everyone in the Bitcoin community is ready for it. But I hope we get there and so I think we’re kind of covering here why… We talked before about why this is a good move for Terra. But I think this is also a good news for Bitcoin and kind of encouraging the use of Bitcoin across chains is good for Bitcoin itself even if you aren’t necessarily a fan of what people are doing with it on those chains. It’s very similar to how I am not necessarily a fan of how people use Bitcoin on dark markets, but I think they should have the option to do it. I think Bitcoin is the classic example of being useful for every use case, I think we kind of lost that in maybe the few last years, but I think this is kind of where it was always going. I’m hoping we’ll see it going in that direction again. So, I guess on that note, another question I have for you is, what do you think the Bitcoin community could do to make Bitcoin easier to adopt for these kind of use cases?

Do Kwon 39:06
Hmm. Well…

udiverse 39:47
Big one, big one, you weren’t ready for this.

Do Kwon 39:49
Yeah. [chuckle] So I mean, I think one of the best things and one of the best things about the Bitcoin community is how difficult it is to organize around a common direction, right. It’s distributed, it’s diversified, it’s loud, and it has lots of opinions. But I think, it’s important to think about two things. Number one, it’s just the reality that if you’re going to bring lots of people into crypto and doing lots of things, you need stablecoins, right. Even today, 80% of all trading volume is done with stablecoins as the co-currency, almost 100% of DeFi uses, at least on the transactional or market quote end uses stablecoins as the base pair of liquidity pools and lending markets. And I think what Bitcoin needs is a stablecoin partner to expand its use case to things that was not previously approachable before. And what Terra intends to do, what the Terra community intends to do over the next couple of years is to reinforce that relationship, to give Bitcoin first citizen rights on the various types of systems and applications that are built on top of the Terra blockchain, as well as encourage different types of use cases on Bitcoin on different chains. And that it’d be great if some people that are feeling adventurous could try some of those things out.

udiverse 41:33
Yeah. Yeah. I keep seeing those examples, there was recently kind of a big uproar in the Bitcoin community was about one of the CoinJoin services that had to start… Or announced that they’re going to start censoring some of the transactions that attempt to go through the service, presumably because there wasn’t legal pressure there, or regulatory pressure there. And I think things like that are an obvious example for something that would be better off done with some sort of a blockchain, with some sort of smart contract, it’s not going to be the Bitcoin main chain itself because it’s not built for that. That’s what’s great about it, it’s not a bad thing, right. But what’s great about the Bitcoin chain is that it’s doing one thing, and that’s allowing the Bitcoin asset to exist and to stay neutral. That’s the only thing it does, and does that really well. We don’t want it to do other things. So I think this is one of the obvious use cases that a lot of hardcore Bitcoiners really care about. And you could do it right now today in CoinJoin or Ethereum with wBTC. Of course, there’s the issue of it being wrapped Bitcoin, which has its custody issues there. But I think it shows the clear benefit that should fit pretty much everyone cross-ideology, and I hope we’ll see more of that, for sure. That was my speech, by the way [chuckle]. I think I’m going to open this up for questions. So if anyone wants to ask anything, feel free to kind of request, I’ll let you jump in. We have Sunny here. I’m sure you know, Sunny well. Hey, Sunny.

Sunny Aggarwal ₿ 43:30
Hey, guys.

udiverse 43:32
What’s up. Sunny, you wanted to say something earlier, right?

Sunny Aggarwal ₿ 43:35
Yeah, and it actually kind of related to the recent question as well. And I was going to say, when you were talking about the bridges as well, I think the one thing that I would say that would really help this mission of making Bitcoin more usable on more decentralized applications like Terra, and other things as well is, there’s proposals on how to get more decentralized and trustless bridges on to Bitcoin. So I would say the biggest thing that would be how the Bitcoin community can support the widespread adoption of Bitcoin would be to push for some of these things to get in. So the one that I’m pretty familiar with is BIP-119. It’s called OP_CTV and that’s basically… It’ll help enable much more trustless bridges and so that will enable Bitcoin to go out onto more chains and in a more trustless way, which will allow more Bitcoin to be used in Bitcoin DeFi which I think is the goal here.

udiverse 44:42
Yeah. I hope so. [chuckle] I hope so. There are a lot of cool things going on and I think yeah, on the Bitcoin side of things too. We’re talking about stuff like OP_CTV which could help being one side of those bridges and remove some of the trust requirements there. But then again, I’m not sure it’s getting a ton of support. So I think the way I’m looking at it is I think, well, actually maybe if we get more and more applications using Bitcoin in a way that isn’t really super trust minimized yet, and we demonstrate the use case, and we show how much the TVL is big for those, and how much the usage is big for those, then may be it will be easier to get changes or small changes into Bitcoin, to allow that, to allow to remove some trust from those. So I’m optimistic about it myself. But obviously, like everything else with Bitcoin, it will take time, and it’s good that it will take time, I think, because that’s what make it stable. I’m gonna let more people up on stage to ask questions, so do request. But before I do that, I remember that Do, I didn’t ask you the biggest question, which is, how many Bitcoins did you already buy? And how many are you going to buy?

Do Kwon 46:08
So, not shitting, haven’t been following up with the exact numbers, because transactions we generally do this over OTC. But the current click that we have to buy Bitcoin is about $3 billion, and we’ll add to that, but out of that $3 billion, most of it we haven’t bought yet.

udiverse 46:29
Right. Right. And that’s interesting. Why do you choose to say that you’re going to buy $3 billion of Bitcoin instead of buying it first, and then saying that you did, which is what I would have done if I had $3 billion.

Do Kwon 46:40
Yeah, I mean, we’re not trying to just stop at $3 billion, right, we plan to be buying for a long time. And then this wasn’t sort of like a corporate treasury management decision. This was money that was already donated to a nonprofit foundation that exists to further and better web3 and the Terra community. So as it belongs to the Terra community, we felt like as we were passing a board decision to acquire assets, we needed to disclose that decision.

udiverse 47:11
Fair enough.

Do Kwon 47:13
Yeah, I don’t think my decision to announce it or… The board’s decision to purchase these assets move the markets in any way, so [chuckle]…

udiverse 47:28
Well, yeah. I mean, empirically, it doesn’t seem to have moved the markets too much. But my Twitter feed would not stop being filled with predictions and announcements about how this is going to take us to the moon next week. Probably not yet.

Do Kwon 47:50
Yeah, I gotta say, though, for my personal funds, when I buy Bitcoin, I tell no one, so… Unfortunately, this is not personal funds.

udiverse 48:00
Yeah. Yeah. That’s the way to do it, not to tell anyone is the ideal way. Okay, I’ve got a question from Obi.

Obi Nwosu 48:08

udiverse 48:09
Yo, what’s up?

Obi Nwosu 48:10
Hey, so very interesting idea, Do. One question, hopefully hasn’t been asked already, is what is this going to do to the Terra token, if you actually achieve the level of usage of Bitcoin that you’re expecting? What’s your projections for the value for the Terra token?

Do Kwon 48:35
So Terra is a stablecoin. So it maintains parity to the dollar. Now, what…

Obi Nwosu 48:43
Sorry, I meant the LUNA token, sorry.

Do Kwon 48:47
Right. Well, so it’s still going to have similar dynamics to… It’s still going to be the same. It’s just that some portion of the new monetary base growth is going to lead to Bitcoin being bought as secondary reserves. So I think that’s gonna be the same. But I think the main thing that we accomplish here is by making UST protected by the most neutral and the hardest asset in crypto, it’s going to get a lot more ecosystems to embrace UST. So it’s going to be a lot less tribal. Because if UST is protected by LUNA alone, then in that case it’s going to have skeptics especially as we evangelize and drive the adoption of UST on different chains like Ethereum, Solana, Avalanche, Polygon, so on and so forth, and I think having third party collateral such that UST’s growth is directly tied to the growth of crypto itself is the winning strategy instead of benefiting just one ecosystem.

Obi Nwosu 49:58
No, I think the strategy for UST… Excuse my ignorance of the tokens, I’m much more in the Bitcoin camp. But the strategy for UST seems to make sense, and the benefits for Bitcoin is clear. But is there not a risk that this can be very popular and therefore have a negative effect on the value of LUNA, for your initial LUNA investors. Is that a risk or you said it’s not a risk?

Do Kwon 50:34
Well, so I think in terms of… So for example, for every dollar of UST that’s minted, some portion of that is going to go to building Bitcoin reserves and some portion of it is going to go to burning LUNA collateral, right. Whereas I think the proportion of the net buy back pressure is going to be less, I think UST could be much, much bigger by using Bitcoin as a reserve asset, than had we not chosen to do so. So I think overall, the entire pie would be so much bigger so I think it’s well worth the trade off.

Obi Nwosu 51:17
Okay, I agree that this could make it much bigger. But it’s the hope that it gets so much bigger that even though LUNA is a smaller percentage of the pie, it’s still is accretive to LUNA because the pie has grown so much bigger, you get 10% of over 100 times bigger market is the hope for LUNA. I’m not a LUNA holder, I’m just trying to understand the logic for your existing token.

Do Kwon 51:45

Obi Nwosu 51:47

udiverse 51:48
Thanks for the question, Obi. And for the next question, let’s get Brad. What’s up Brad?

Brad Mills 51:55
Hey man, thanks for…

udiverse 51:56
Brad is the Bitcoin Maxi’s Bitcoin Maxi. [chuckle]

Brad Mills 51:59
Thanks for having me. Do, I had a question about if you’re planning to use Bitcoin, right, as a neutral asset to give confidence to the UST coin. Why don’t you invest a little bit of money in the RGB sort of like second layer, third layer stuff on the Lightning Network so that you can get UST on Lightning Network as a stablecoin?

Do Kwon 52:29
I’m just not as educated. But if toss some deals my way I’ll probably do it.

Brad Mills 52:33
Yeah, there’s there’s quite a bit. Alex Weinstein’s in the audience there. His Human Rights Foundation has a bounty right now or anybody that can get a stablecoin on Lightning Network for dissidents that want to kind of hedge some volatility out of Bitcoin. Not a lot of Bitcoiners will probably use it, but some people will probably use it, I think it’s important if you’re going to be working with Bitcoin you should maybe invest a little bit of money into the token layer stuff on Lightning because it will be used.

Do Kwon 53:07
Cool. Yeah. Thanks for the tip.

Brad Mills 53:08
Happy to connect you to some of the developers working on that stuff later if you want.

Do Kwon 53:12
Yeah, yes please, please do.

udiverse 53:14
I think I’ll offer some translation services here. Because I think two of you are speaking somewhat different languages. I think that historically in the Bitcoin space, a lot of the development has been either very voluntary, so literally volunteers building stuff because it’s kind of their passion, or very donation based and that’s great. It’s gotten us to where we are which is phenomenal, but I think maybe Brad, for things like stablecoins that maybe use Lightning in one way or another, I think that’s maybe something we haven’t really explored yet but maybe there’s room for a commercial offering there, like company that that starts up and says, “Okay, we’re going to build this thing as a commercial service just like LUNA holders are hoping to generate a profit off of their holdings.” And maybe that’s a good way to start building Bitcoin related topologies in Bitcoin age, just a thought. Just a controversial thought. And I don’t think I don’t think it will be very difficult to fund them in the current climate, but we’ll see. I’m going to invite more people. Let’s get Mariano. The Twitter Spaces connections always take time. Mariano, are you here?

MarianoDiVaio 54:49
Yeah, bro, I’m here.

udiverse 54:51
Did you want to ask a question or…

MarianoDiVaio 54:53
Yeah, bro, just give me a sec. I have my kid in my hands. Just give me a sec.

udiverse 54:57
Oh, yeah. Yeah. [chuckle] I can sing some lullaby if you want. We’ll keep you around.

Do Kwon 55:04
[chuckle] Oh, the terror.

udiverse 55:07
Yeah. [chuckle] There are like 1,400 people in this Space and imagine me started singing right now. But let’s move on to Matt for now and then we’ll go back to Mariano.

Matt C 55:18
Oh, and Jack’s here too, maybe Jack has a question. Thanks, udi, for having me on. And thanks, Do Kwon, for taking the time with this. My biggest question, and this isn’t your fault because different outlets were writing up these articles, you weren’t writing these articles up, but they made it sound like… They didn’t touch on this being a paradigm shift. I remember from 2019, 2020, the excitement of Terra LUNA and UST was at the flip of the switch this could all go automated and human control if needed to could step away. But this sounds like a tacit admission that over time, it’s going to take future deals, let’s just say. Is this just a recognition that it’s just going to be more complicated from now on or what’s your thoughts, Do? Thank you.

Do Kwon 56:21
Yeah, so I actually think this is going to lead to things being more automated, right. So the idea is that… Well, to get down to the implementation details, and I think only people that have been in the Terra community for a while are going to be able to follow up with this. But prior to our most recent mainnet upgrade, Colombus-5, we parameterize the blockchain such that some portion of new LUNA being minted in the form of seigniorage was being routed to a community pool, which is a smart contract based wallet that is controlled by votes of people that are staking LUNA. So previously, this community pool went to fund public good efforts, like for example providing liquidity to UST on other blockchains, or to fund insurance protocols and various different types of things. But the idea is that we are looking to make a proposal to revive that seigniorage mechanism. And this would only happen once we have the smart contract infrastructure for Bitcoin to be minted, so for Bitcoin reserve to be on a smart contract on the Terra blockchain, but the idea is that we will direct some percentage of that seigniorage to the community pool, and periodically those funds in the community pool would be swapped to UST and then used to fund the UST side of the reserves. So from that standpoint, it’s going to be automated, the smart contract itself governing the reserves is going to be governed by a smart contract on the Terra blockchain. So I don’t think this is a compromise of the trust minimization or the minimization of human involvement in stabilizing the Terra protocol.

Do Kwon 58:11
Secondly, I sort of think about this not as something that’s necessarily going to make UST more stable. But I think about this as a valuable investment to be able to onboard more communities and get them more comfortable with using Terra USD. I would say the key admission here is that in order for Terra to be the largest stablecoin, and I have a lot of confidence that it will eventually get there, then in that case it needs to build relationships and bridges to different communities. And in order to do that, I would say the principal asset that’s going to help us get there is Bitcoin. Because it is the most neutral, it is the hardest.

udiverse 58:57
Yeah. Yeah. Well, obviously I love that. And thanks for the question, Matt. Let’s see, is Mariana back? I don’t want to do the whole sound thing is pretty famous on Twitter Spaces so I wouldn’t ask Mariano 10 times. Let’s see, is Usman here?

Usman Barnawi 59:16
Yes, ser. I’m here.

udiverse 59:19
Awesome. You had a question?

Usman Barnawi 59:20
Yeah, sure. Yeah. Thanks for taking my request. I don’t have signal issues, but I don’t know if you can… Can you hear me now, well?

udiverse 59:28
Yeah, yeah.

Do Kwon 59:28

udiverse 59:28
You sound great.

Usman Barnawi 59:29
All right. Yeah. Thanks so much. Yeah. So I have a question. Now. I know you know the stablecoins that are right now is mainly used in the blockchain, inside the blockchain. So I’m advocate to lots of countries and located places and also some individuals as well, where a lot of people actually been denied to access to their funds, right, either it’s in Africa or just in the Middle East or elsewhere. Is there any plan, basically, to have this stablecoins to be more accepted actually in online trading, or online… Actually just for people to in general use it to buy their goods and be reliable as possible for people to access to their funds. Especially that being a huge problem right now in lot of places

Do Kwon 1:00:32
Got it. So there are a number of different neobanks… So actually, one of the fastest growing categories of applications on Terra are neobanks that use stablecoin rails to make transactions easier, and to expose people to DeFi structured yields. So, for example, I think I’ve looked at almost 20 different neobanks that follow roughly similar paradigms. So the idea is that there will be some onramp that makes it easier for users to onboard assets into some wallet. And then it’s stored in the form of Terra stablecoins. Generally, those Terra stablecoins are used to earn yield from Anchor or other structured DeFi protocols on Terra, like Apollo, for instance. And then so it’s earning yield that sits in that wallet. And then accordingly, there are out points where you can spend these stablecoins. So in the form of a debit card, where it might be linked to different types of DeFi services in a discovery funnel that people can use for other types of investment opportunities, or microtransactions. So, this is definitely something that is popping up all across the world. Like in an earlier point in my career, I would say about two and a half years ago, we did make a payment service in Mongolia called Meme Pay. So that was extremely difficult, because the point of sale infrastructure and the ability to get money into people’s wallets are very, very difficult. But I think it’s definitely progress that’s happening without as much fanfare and publicity, because these are solving the hard problems, not as flashy as doing a $50 million raise for a DeFi protocol. But there are developers that are fighting the good fight. And I think we’ll start to see more things over the next 6-12 months.

Usman Barnawi 1:02:35
Nice. Thanks so much.

udiverse 1:02:36
Thanks for the question, Usman. Do, I’m contemplating whether or not I should ask you about Anchor now. But I know Anchor is kind of complicated like opening a new topic here, but let’s say… You probably have the numbers, I don’t, but I would assume a very substantial amount of UST is currently used on Anchor Protocol to earn… It’s about 20% yield right now, right. And, obviously, there’s been a lot of questions about how sustainable that is, right. Like how sustainable it is to offer 20% yield, and wouldn’t the demand for UST go down dramatically once it becomes less practical to offer those kinds of yields on UST? What do you think?

Do Kwon 1:03:36
Yeah. Well, so I mean, one thing that doesn’t change is that over a sufficiently long time horizon, all yields converge to plus or minus some risk premium, right. So 20% is not something that is expected to be held for years, irrespective of what’s happening in different markets, right. But I don’t think the fact that Anchor is offering a 20% yield is something that is a bad capital spent just yet, because Anchor has played a major role. It’s not the only player, but it has played a major role in UST’s massive growth over the last year. And it’s not just the amount of capital that’s coming into Anchor and the Terra ecosystem it’s helping, this massive cross-pollination where people that come into the Terra ecosystem for the first time using Anchor learn about all the different opportunities and things that you can do in Terra. And then they either build companies or they start to be users of these different applications. So I would say the effect has been net positive. And in fact, actually, we’ve never gotten as much attention as all these people talking about Anchor and then find out unsustainable.

Do Kwon 1:04:45
Let me just point out one thing that is a massive hypocrisy of the DeFi space because when we first started Anchor, the main criticism that we got was, “20% is not enough,” because you had all these so called DeFi OGs saying, “Oh, Wall Street is over because DeFi is offering these 100% APRs and WellsFargo is giving me nothing. So traditional banks are going to die.” And now they’re doing the opposite, right, now that DeFi yields have compressed because the massive leverage has gone down. Now they’re saying, “Oh, 20% is too much, it’s gonna blow up,” right. And Anchor’s goal is quite simple, right, it’s supposed to modulate and flatten the volatility of demand for yield over a longer period of time than what short term lending markets like Aave and Compound are willing to do. So over time, it’s going to go down. But the idea is that it’s going to go down slower, and it’s going to go up slower than what short term lending markets are giving you. And in exchange, the trade off that you’re making is, yes, it’s going to be slower changes in yields and it’s going to take a hit in the yield reserves and the short term. But in the mid to long term, the thing that you gain is reliability and trust from your users. Because if you’re an average user that is looking to park your savings in a smart contract, you’re not going to contend with a system that has volatile yields, ranging from like 0.1% in one second, and 7% the other. Tou need to be able to extrapolate and think about how your savings are going to change over time, because you need to plan your life. And I think Anchor is designed to do just that. It’s supposed to be a reliable savings protocol that everyday users can use instead of some frogs on the internet.

udiverse 1:06:43
Yeah, yeah. So basically what you’re saying is, it’s obviously at the current rates it’s a tool for growth. But you don’t think this is a bad way to get growth? It’s a good way and it’s a reasonable way when compared to the rest of the space. I guess that’s kind of what you said, right?

Do Kwon 1:07:01

udiverse 1:07:03
Yeah. Fair enough. Fair enough. Okay, let’s see what’s next. We do have Mike here. Mike, did you have a question or did I just invite you for no reason?

Mike Alfred 1:07:13
You probably invited me because you want to make sure we were getting together in Miami. But I do have a question. So, Do, I really appreciate your time and thanks for sharing all the time. I was fascinated by your comments as a Bitcoiner. You mentioned choosing Bitcoin over any other sort of reserve asset, and you’re going to buy $3 billion worth of Bitcoin, maybe a lot more over time. And you mentioned some reasons why you didn’t choose Ethereum, even though a lot of other foundations have chosen Ethereum. I was hoping you could just elaborate a little bit on what those reasons were. And then also just the overlay of the geopolitical situation where Russia has essentially had their currency reserve seized recently. That’s prove, I think, that USD and treasuries, US Treasuries broadly, are not good reserve assets. Do you think there are any implications for governments geopolitically that hadn’t really been widely discussed as you were thinking through your strategy for how to hold reserves in Terra LUNA?

Do Kwon 1:08:10
Yeah, absolutely. Well, I mean, basically, I think the history of monetary policy over the last 20 years has been a history of overreach, right. So the entire reason why we don’t think it’s tenable to use centralized reserve assets, is because they can, precisely for this reason, be ceased, right. And I think decentralized stablecoins that have made a trade off of holding reserve assets and USBC and USDT, essentially wrapped versions of these very same centralized stablecoins are making an existential mistake, because the same centralization risk that manifests the centralized stablecoins, the same thing is going to happen to DAI, the same thing has happened to other stablecoins that hold centralized assets. For Bitcoin, I think… So the only options that you really have when you’re choosing to build reserves for a stablecoin are decentralized assets. And out of those decentralized assets, Bitcoin is the most attractive because it is the most neutral, the least tribal, and the soundest when it comes to its monetary policy. I think it’s not so much that ETH is a bad asset per se, but it doesn’t exhibit the same neutrality, right, in the sense that you… Yeah, I don’t think I need to go into that particularly.

udiverse 1:09:43
Fair enough. [chuckle] No, but yeah, I think it’s true, Mike, the current… I don’t like to talk about geopolitical events because I’m just not that much of a geopolitical expert myself personally, but I think you’re right. And if it makes sense for Terra, it should make sense to countries too. Obviously, as Bitcoiners we talk about it a lot. And it also applies I think in the reverse direction, if we as Bitcoiners have been talking for years about how Bitcoin is the perfect reserve asset for nation states, I think it makes a lot of sense that it’s going to be the perfect reserved asset for stablecoins too and for many other types of experiments in the crypto space. I think it’s literally the most obvious fit for those things. So thanks for the question, Mike. And next question, let’s go to Jordi. What’s up, Jordi?

Jordi Alexander 1:09:47
Hey, guys, how are you doing? My question is a bit more long term. So 3-5 years out, a lot of us here obviously are kind of Bitcoin believers, we think the price is gonna go up. When you think about the percentage ratio that’s collateralized, it might start at 10% now, is it kind of in your mind that as you buy Bitcoin, and potentially the Bitcoin price triples, 5x-es, you kind of think of this equilibrium or long term world where you might end up over-collateralized? Because obviously the ratio can move just because of the price, how much do you think about that kind of aspect?

Do Kwon 1:10:43
I am supremely confident that will happen. Well, maybe not over-collateralization, but I am confident that over a long enough time horizon, Bitcoin will go up. So the reserve ratio would be higher than the price that we paid for.

Jordi Alexander 1:11:36
And do you see it as a sort of being path to sustainability in a way where crypto as a whole, with Bitcoin having this sort of key component of the entire crypto world ends up making the entire Terra ecosystem much stronger, I guess more sustainable. Is that sort of the path?

Do Kwon 1:12:00
So, as I said, this strategy doesn’t really come from a position of sustainability per se, but really about looking forward to where we can get our growth. So, from that perspective, I think adding Bitcoin as a reserve asset is great because over the long term, given Bitcoin’s scarcity, I think price is going to go up, especially as monetary overreach sort of escalates in every corner of the world. So if that’s the thesis, let’s say that we end up seeing about 50 billion UST in a year’s time. And let’s say that as a result of that, we ended up buying 15, 20 billion Bitcoin over the course of the year as new UST is being minted. I think there’s a version of the world where Bitcoin price does well, so the reserve ratio is higher than that 20%, 30% that we paid for initially.

Jordi Alexander 1:13:03
And last question, yeah, if you ever end up in this world, let’s say in X years, where Bitcoin does really well, obviously stablecoin’s stablecoin. So versus $1, you end up 120%, 130%, where would that accrue, do you think? Will that accrue to LUNA holders? Will that just be used as seigniorage to support the ecosystem? Just theoretically, where would that go?

Do Kwon 1:13:31
It would be capital inefficiency, right, because I definitely don’t think UST in the worst case scenario requires more than 100% in Bitcoin collateral. So there wouldn’t be anything accrued with it, it would just sit there.

Jordi Alexander 1:13:46
Okay. Thank you. Appreciate it.

udiverse 1:13:49
Thanks for the question, Jordi. And Do, I think I’ll challenge you with two more random questions from the audience. And then I’ll stop throwing questions at you. Before that, I wanted to… I threw this tweet on the Space, there’s a screenshot of a quote from Hal Finney in 2010. So 12 years ago on the Bitcointalk forums, where Hal Finney says, there was this conversation about how Bitcoin is going to be used in the future. And Hal Finney says this, he says, “I believe this will be the ultimate fate of Bitcoin, to be high powered money, serves as a reserve currency for banks that issue their own digital cash. And most of Bitcoin’s transactions will occur between banks to settle net transfers. Bitcoin transactions by private individual will be,” he says, “As rare as Bitcoin transactions are today in 2010.” And it’s very interesting that Hal Finney said that back then is when Bitcoin was probably as small as a few hundred people I assume. And it was actually obvious to him that the final goal for Bitcoin is to be a reserve asset, and not necessarily to be an asset that is used day to day by regular people. And I’m seeing you, Do, make similar remarks to that. How do you view Bitcoin’s role for individuals, as opposed to as a treasury asset or as a reserve currency? And how do you think stablecoins fit into that?

Do Kwon 1:15:36
Well, so as a retail technology, I… So there’s two different things here. So as a store of value, or as a treasury asset, Bitcoin is perfect. But as retail technology, there are some components of Bitcoin that don’t make it quite suitable. And the reason for this is that for retail technology, it needs to change frequently, as in the user experience paradigms of the things that people want to change over time, similar to how the forms of money that we’ve used to do day to day transactions have changed, the types of applications that we use on a day to day basis to do peer-to-peer transactions, like in web2, like for example, Venmo, or PayPal, those paradigms change over time, right. So it’s more of a… The retail technology business is characterized by rapid innovation and rapid change to meet consumer preferences. Now Bitcoin is great, because it has the opposite characteristics, in the sense that it’s hard to change, that it’s not expected to change over time, and that, fundamentally, is what gives it it’s value. But that also means that you don’t want a Venmo type of experience that runs over Bitcoin, because it is not what it is particularly well designed to do. And the Bitcoin protocol will not evolve at a speed that matches fickle retail consumer interests in a short enough period of time.

Do Kwon 1:17:04
So I feel like the winning strategy here is to find a way where assets that are derived from Bitcoin, or are backed by Bitcoin, can build other layers on top that are able to build those retail technologies. And it’s going to be quite competitive. So with UST starting to hold Bitcoin as a reserve asset, it’s coming with its full suite of applications, right. So there’s smart contract execution layer, a large community of people and users that are transacting using Terra stablecoins. So I think over time, the use of Bitcoin as a reserve asset to back different types of financial products and stablecoins, that is indeed going to increase. I wouldn’t say that these are private banks, but I would say that the number of protocols that leverage Bitcoin’s hard-moneyness into their protocols is going to increase over time and we’re happy to be the first. So I think it’s really interesting that we’ve sort of transitioned in and out of different monetary paradigms, right. So we transitioned out of the gold standard, and then we went into a fiat money system, and in the stage of regulatory overreach, I think it’s appropriate that we are starting to see the first experiment of the Bitcoin standard come into play, where you have a digital currency, a stablecoin, that is backed and supported by Bitcoin.

udiverse 1:18:40
Yeah. Yeah, that makes sense. That makes sense. I mean, I hope we also get some retail Lightning usage. And I think we do with Bitcoin directly. I think it especially makes sense when people who are already Bitcoin or crypto native, and they made the transition. And there may be by far the most… The majority of their funds are in Bitcoin and similar assets, and I think for them it might even make sense, but I do agree with you in terms of for the general retail audience, it’s probably not it, not in the near future at least. So let’s get a couple more questions. And I’ll reluctantly let you go. Let’s see, we have Akin in the audience. I hope I’m pronouncing your name, right.

Akin SAWYΞRR 1:19:30
Yeah, that’s right. So I had a pretty straightforward question. I noticed, Do, when you were talking about, and listing a number of cross-chain bridges, that you didn’t mention Ren Protocol and RenVM. And I just wanted to know if it’s something on a consideration since RenVM already bridges LUNA across multiple chains, has done over $10 billion worth of transactions without being compromised. Is that a solution that you guys are considering? And if not, why?

Do Kwon 1:20:06
Does Ren support Bitcoin?

Akin SAWYΞRR 1:20:08
Yes, renBTC was the first asset on RenVM. And since then a number of other assets have been incorporated, including LUNA.

Do Kwon 1:20:19
Got it. We’ll look into it. [chuckle]

udiverse 1:20:23
I think that renBTC is probably the second biggest tokenized Bitcoin asset after wrapped Bitcoin. I think I’m not wrong there. Yeah.

Akin SAWYΞRR 1:20:38
That’s correct.

Do Kwon 1:20:40
Yeah, I remember this. So not that we’ve done thorough analysis on Ren, or we’ve sifted through a list of candidates or anything, but my impression with Ren is that the entire thesis is that the market cap of the REN token needs to be at least some multiplier to the outstanding amount of tokens that it has bridged. And I feel like if that’s the case, that guarantee is already broken.

udiverse 1:21:12
Yeah. Yeah. There’s definitely an issue there. Yeah, I think right now what they do is they kind of have training wheels on and some layer of centralization of authority on top. There’s definitely an issue they’re. Probably not going to turn this into a Ren conversation but yeah. But thanks for the question Akin. And let’s take the last one from Dennis.

Dennis 1:21:38
Hey, everybody. Hey, Do, thanks so much for talking with us. I know you touched on this a bit earlier, but for those of us who are slower to understand or came late, can you help us understand once more the relationship between Bitcoin and UST, for example if the UST supply expands or contracts or if the peg goes above or below $1? How does that affect the relationship between UST, LUNA and especially Bitcoin?

Do Kwon 1:22:08
Yeah, so removing all the technical complexity aside, quite simply, if money supply increases, some portion of that needs to increase Bitcoin reserves on the Terra protocol, and some portion of that results in a diminution of LUNA supply. And vice versa, if the money supply decreases, i.e., UST supply needs to be absorbed, then in that case, some portion will redeem against Bitcoin reserves, and some portion would lead to LUNA supply increasing to absorb that supply.

Dennis 1:22:47
Awesome. Thank you so much.

Sunny Aggarwal ₿ 1:22:48
Do will users have the option to pick whether they want to redeem Bitcoin or LUNA? Or will it have a preference for one over the other? Or will it always be in some split?

Do Kwon 1:23:00
Yeah, so the idea is that it’s just like a smart contract holding Bitcoin reserves, right. So if you want to trade Bitcoin against the reserve to get out of UST, you can do that. Or if you just want to use the traditional mechanism of… But the amount of UST that you can mint using Bitcoin is bounded by some percentage of seigniorage from the previous cycle, right. So in the sense that Bitcoin doesn’t print UST, necessarily, but it’s as if the seigniorage from the previous cycle gets added to some pool against which you can use Bitcoin to take out that UST, if that makes sense.

Mike Alfred 1:23:37
Hey, udi, do you mind if I ask one more quick question.

udiverse 1:23:40

Mike Alfred 1:23:42
So, Do, you mentioned earlier that you don’t tell anyone when you buy Bitcoin personally, but you’re happy to announce it when you buy it, was sort of more from the Foundation level. Could you share a little bit more about your personal views on the development of the crypto space right now? What areas you’re most excited about outside of what you’re working on and areas you suggest people dig into for more research?

Do Kwon 1:24:08
Well, I mean, I think I will be supremely biased in whatever I talk about. But…

Mike Alfred 1:24:14
That’s exactly what I’m looking for. I want to hear your bias. I want to know what you actually are interested in. And you can obviously preface it by saying it’s not investment advice.

Do Kwon 1:24:24
Yeah, so from very broad brushstrokes of the interesting things that I see happening in crypto is I feel like there’s going to be a lot of money that accrues to the bridging layer. So as fragmentation continues in smart contract platforms, I think there’s going to be a lot of value that can be percolated to the bridges that connect these ecosystems together, right. And that’s already starting to be reflected in private funding valuations. And I think given that this area so early, there’s a lot of technical contribution that somebody that’s willing could make to the space as well, as a lot of user attention and funds flowing through the bridging infrastructure. I’m more supremely interested in the things that I’m working on personally. So, for example, now I’m tinkering with this system. It’s basically fungible labor markets. So in my perspective, I think DeFi has sort of slowed down in its innovation since last year, or maybe two years ago. And I think the reason for that is because everything that’s been built on DeFi is essentially leverage on leverage, right. So when that demand for leverage goes down, then there’s nothing left. So DeFi needs to transition from a speculative vehicle to something that by using the speculation can allocate capital to the most productive use cases. And I think in order to do that you need fungible labor markets. And there’s two reasons why.

Do Kwon 1:26:01
So first, you have a lot of DAOs in crypto that are holding significant assets, right, but they’re not really deploying them efficiently, and a lot of the core teams that are working behind some of these protocols are really operating at the skill of seed or series A companies. And I think you can change this by creating fungible labor markets, i.e., so I can post some number of my future productive hours for sale as an open source developer on-chain. And then a DAO can go out and say, “Hey, look, I want to buy a million hours of developer time. And I’m going to give the redemption keys for these time tokens to you know, these 30 different apps.” So in that case, you create a totally new paradigm for employment, whereby ecosystems can, in a purely decentralized way, hire a ton of different open source developers to freely flow from one application to another making code contributions across the entire ecosystem. Now, an interesting byproduct of this is that once you have fungible time tokens for developers, they can use them as collateral to take out loans against their future cash flow. And this is eminently interesting, because you allow the most productive labor class in crypto to be able to take out credit without any notion of digital identity or KYC. So thinking through different ways in which you can segregate different types of risk and price time tokens and curate reputation is one area that I’m actively looking into.

Do Kwon 1:27:46
The second is how do you create distribution platforms for crypto that are fair, and are interesting. So I wasn’t planning on talking about this but one interesting idea that I had was we could create an AR app. And then initially, we can start to distribute some tokens to people that point it at the night sky and take a picture of the moon. And there would be an AR camera, where the moon would be overlaid with, let’s say, it could be the LUNA logo or something. And then randomly, people have a chance to win tokens. So initially, it could be some sort of token burn that the Terra community pool can fund in the beginning, but what this becomes eventually once you get enough eyeballs on it, it becomes an eminently interesting distribution platform for a lot of different applications. So for example, an NFT project can target a certain subset of people that fit a certain age, demographic, or geographic distribution, to give away the assets, like a defy protocol could incentivize a set of users to perform a number of tasks before they give out a portion of their airdrop. Or ledgerstatus can just post a short YouTube video with him shaking his booty on YouTube, and then he gives away nothing at all. Yeah, so

udiverse 1:29:19
that’s the one I want.

Do Kwon 1:29:22
That’s the one you want? Well, you already got it, fren. [chuckle] It’s on Tik Tok.

udiverse 1:29:26
I want more

Do Kwon 1:29:29
Yeah. [chuckle[ Anyways, so in part I sort of think of myself as a toymaker. So some percentage of my time I spend on thinking about what new protocols will be interesting for web3, and then try to put resources together to make it happen.

udiverse 1:29:47
Awesome. That’s a lot of alpha in there and also a lot of AR. I don’t know if you know this, Do, but I’m a big AR nerd for some reason, not sure why but I am. Yeah, actually Mike, that was a good question. That was a good closing question. I like it, thank you.

Mike Alfred 1:30:06
You’re gonna buy me the first round of Miami, buddy, ’cause somebody had to show up and ask a good question. That’s one of the rules.

Sunny Aggarwal ₿ 1:30:11
Can I add one more quick thing that people should be pretty excited about? Given that there’s a lot of Bitcoiners in the audience here, there’s this cool project that I have, not related at all, but I’m just uber excited for. So for people who may not know, I was one of the core developers of Tendermint, which is like the proof-of-stake consensus protocol that Terra and a bunch of chains are built on. But there’s this really cool project called Babylon, which is basically working on checkpointing Tendermint blocks into the Bitcoin Blockchain. So, you know, I’ve worked on proof-of-stake for five years now, but I recognize its shortcomings where you potentially have a world in which… Basically, the trade off between proof-of-work and proof-of-stake is proof-of-work is insecure in the short timeframes, but very secure in long time frames, while proof-of-stake has almost the opposite property, where proof-of-stake is very secure in the short timeframe, but insecure in the long timeframe, in a way. People might be familiar with the whole, you know, long range attacks kind of stuff. And so I think by checkpointing blocks into the Bitcoin blockchain that will basically allow Terra to inherit a lot of the security properties of Bitcoin as well. And that will also hopefully help alleviate a lot of the bridge risks and security concerns that Bitcoiners might have as Bitcoin flows into these other chains.

udiverse 1:31:59
Yeah, it’s actually pretty cool. You said it was called Babylon? I think it does… Yes. But either way, thanks for the question, or the suggestion. And, Do, thank you so much for the time and for sharing your insights from this. This is really interesting. Also, thank you 2,000 listeners for taking time on your Friday night, which I know you had no plans anyway, but still, thank you for joining us. And yeah, hey, let’s do it again sometimes after you buy $3 billion of Bitcoin, before the next one.

Do Kwon 1:32:35
[chuckle] Let’s do it.

Finn 1:32:36
Thanks for checking out another episode of The Ether. That was the udiverse stablekwon, Making a Bitcoin Giga Chad Space. Recorded on Friday, March 18th 2022. This episode of The Ether was brought to you by WeFund. WeFund is a community crowdfunding cross-chain incubator on Terra and it’s the first launchpad that implements a milestone funding release system to protect investors. All money raised for projects is deposited in Anchor Protocol and it’s refundable, and all decisions are based on community voting power. WeFund is community focused and designed to be a user friendly experience for both project creators and investors. Be sure to follow them on Twitter and join the Telegram for more information. Links are in the show notes and check them out online at This episode of The Ether was also brought to you by Glow Yield. Glow Yield is the ecosystem of Terra decentralized apps like Lotto and Creators all powered by DeFi yields. Glow Creators helps artists and influencers give their fans exclusive perks through membership NFTs and more. Glow Lotto is a price link savings account with a weekly chance to win the big jackpot. Tickets are free and perpetual which means there’s zero chance to lose money. Be sure to follow Glow Yield on Twitter and join the Discord community to stay up to date with all the glowing projects and check them out online at This episode of The Ether was also brought to you by Talis. Talis Protocol is the NFT platform for independent artists on Terra. Talis helps to provide artists with the tools and resources needed to transition from traditional arts into the NFT world. With their V1 launch coming soon, Talis will be the place to see real world art reflected on Terra. Be sure to join their Telegram and follow Talis on Twitter for updates on their roadmap, validator, and other Talis news. Find your next favorite artist on TerraSpaces appreciates the support from all our sponsors. For, I’m Finn. Thanks for listening.