Do Kwon Interview: UST Depeg and why Terra Luna stablecoin mechanism went into death spiral

Описание: ✨ About Terra ✨

Terra's UST stablecoin is the most liquid stablecoin in the Cosmos ecosystem. With IBC enabled, Osmosis will be the first IBC-enabled DEX Terra will be launching UST pools on, alongside juicy liquidity mining rewards. Terra's Columbus-5 upgrade includes the latest version of Stargate.

Guest speaker:
Do Kwon, Founder of Terraform Labs

TIMESTAMPS
0:00 Intro
1:36 Dog coins on Terra
2:53 UST—Terra's stability mechanism
6:44 Motivations behind launching an algorithmic stablecoin
7:50 Countercyclical measures during market contractions
1a. To make UST counter-cyclical, LUNA becomes cyclical. When market expands, LUNA expands. During contraction, opposite happens. Luna falling faster than other assets.
1b. The bet = over time, demand of UST becomes stronger and more counter-cyclical, therefore UST becomes a safe haven asset during bear markets.
9:22 Risks with algostables: the dreaded Death Spiral
2. Loss in faith = death spiral. May '21-July '21 short-term bear market falling knife.
10:33 System bailouts
3a. Did bagholders bail out the system? $500M UST sold off during the spiral, depegged by about 7-8% for ~1 week.
3b. The reason it did is because when you're swapping UST to LUNA, you can't do it infinitely, it operates over a virtual AMM where the exchange rate increases as the amount of trades is happening within a given time period.
3c. As a lot of people were trading to exit UST or arb it back, the cost of exchanging increased until it was trading at exactly the depeg of the UST. For e.g., in open markets, UST was trading at 93 cents so that's where the on-chain spread was because if the on-chain spread was lower, there was an arb opp for people to buy up UST from the open market, swap it to LUNA, and sell it. People bidding on LUNA as contractions happened were therefore providing a backstop to the system.
13:24 UST-OSMO pool on Osmosis
4a. Osmosis has a large market opportunity to be the Interchain DEX of Cosmos. These DEXs have two quote currencies: a) $OSMO as the native asset of the eco, and b) $UST as the stable quote currency.
4b. $OSMO would find price discovery as it accesses the quote currency of crossing as Bitcoin, Solana, all the coins in the Cosmos. For UST, it would be stableswaps.
17:30 What makes the moneyness of "money"—Stripper Dollars metaphor
5. Liquidity leads to faith in the currency. As UST grows and becomes safer, it's no longer Stripper Dollars. The difference between US dollars and monopoly dollars is that there are more people who choose to use US dollars. It's about confidence in the backing. Once a stablecoin has reached a state of being "real money", it enters a virtuous cycle similar to Bitcoin where faith in the system is backed and there's no returning.
20:20 What can regulators do about algostables
6a. It's easier to use a stable if it's on a lot of desks, exchanges, and custodians. Hard for new stables to reach parity with deep liquidity. Regulators can pressure custodians and agents to stop dealing with that particular type of currency like it has done with privacy currencies. Do doesn't think it'll happen and even if it does, the goal is to get to a state with no centralized party.
6b. Do has no intion of running TFL for the next 10 years. The goal is to make sure UST becomes a major cornerstone as a stablecoin then quit working on it.
21:58 UST roadmap
7a. Do thinks UST will flip DAI before end of 2021. A couple billion UST is already earmarked to bootstrap Ozone, an insurance protocol.
7b. ALPHA: Creating $1B in reserves in Bitcoin, held in smart contract governed by Luna governance to add stability augmentation to the core mechanism where you can not only swap UST for LUNA for also for BTC.
31:05 Columbus-5 upgrade—Ozone & IBC inclusion, Wormhole bridge
33:13 $MIM & Abracadabra $aUST
40:30 Is UST fair? Cantillon Effect
51:21 Centralized stablecoins will be main street while decentralized stablecoins will be wall street
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