The Fragility of Algorithmic Stablecoins

Nic Carter, general partner at Castle Island Venture, Eric Wall, former Chief Investment Officer of Arcane Assets, and Erik Voorhees, founder of ShapeShift, discuss what happened with the TerraUSD (UST) and LUNA fiasco, Do Kwon’s responsibility, the impact on the crypto ecosystem, and much more. Show highlights: 

• how Erik used to feel that algo stablecoins were impossible and why he changed his mind
• why Eric considers that the demand for UST was tied to a sh*tcoin
• why Nic didn’t think LUNA would work
• how a stablecoin could theoretically be decentralized
• whether Nic, Eric, and Erik think this was a deliberate attack
• why they think whether or not there was a deliberate attack is not even relevant
• how the de-peg started with a liquidity issue on Curve
• why Nic thinks that Terra’s biggest mistake was the 19.5% APY on Anchor
• whether pursuing a decentralized stablecoin is a worthy goal
• what aspects of UST were decentralized, according to Erik
• whether algo stablecoins are dead or whether in the future, death spirals of algo stablecoins can be avoided
• why Erik believes that everything in the crypto space is an experiment, even BTC
• what it says that the VCs behind Terra knew were so reputable
• why Do Kwon's arrogance and inexperience might have caused this chaos
• whether Terra can be rebuilt
• whether this collapse imposes risks on other blockchains and other assets
• why the Luna Foundation Guard’s purchase of Bitcoin might have made the UST collapse even worse
• what Erik thinks about the global financial system and the US dollar
• how this event could trigger more regulation in the crypto space and why it might hurt the entire ecosystem
• how regulators might use the Terra case to impose CBDCs.

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Episode Links

Erik Vorhees 

• Twitter: https://twitter.com/ErikVoorhees

Eric Wall

• Twitter: https://twitter.com/ercwl

Nic Carter

• Twitter: https://twitter.com/nic__carter

Previous Unchained Coverage of Terra

• Do Kwon on backing UST with BTC
• • ​​https://unchainedpodcast.com/do-kwon-is-backing-ust-with-bitcoin-and-heres-what-else-he-is-building/
• Kevin Zhou on the risk of UST’s death spiral
• • https://unchainedpodcast.com/heres-why-usdn-de-pegged-from-the-dollar-and-why-ust-might-too/ 
• Jon Wu on how Terra got de-pegged:
• • https://unchainedpodcast.com/did-someone-deliberately-attack-terra-luna-to-kick-off-a-death-spiral/

Terra

• Twitter: https://twitter.com/terra_money 
• UST Mechanics: https://angelprotocol.medium.com/how-does-ust-work-ec7b2f6e2c2c
• Luna Foundation Guard: https://lfg.org/team/
• UST Bank Run: https://www.wsj.com/articles/crash-of-terrausd-shakes-crypto-there-was-a-run-on-the-bank-11652371839
• Speculation of a deliberate attack: https://onchainwizard.substack.com/p/how-to-make-800m-in-crypto-soros?s=r
• Do Kwon’s Proposed Terra’s Revival: https://www.coindesk.com/tech/2022/05/13/do-kwon-proposes-restart-of-terra-blockchain-as-ust-luna-plummet/
• Terra Blockchain Halted: https://www.coindesk.com/business/2022/05/12/luna-issuer-terra-halts-blockchain-after-week-of-losses/

Upcoming Regulation

• https://www.protocol.com/bulletins/terra-stablecoin-loses-peg
• https://www.theblockcrypto.com/linked/146583/yellen-says-the-stablecoin-market-is-still-too-small-to-pose-systemic-risk

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