Tech Brew Ride Home - Tue. 05/10 – UST Stablecoin Not So Stable

Episode Date: May 10, 2022

A major algorithmic stablecoin has lost its peg to the dollar. More concerns of a slowdown as Tiger Global has racked up massive paper losses. Match Group sues Google. Has GDPR crushed the European app economy? Amazon engages mom and pop stores to deliver packages. And an interesting raise that is building the GitHub of machine learning. Sponsors: ConstantContact.com Links: UST Stablecoin Loses Dollar Peg for Second Time in 48 Hours, LUNA Market Cap Falls Below UST's (CoinDesk) Crypto’s Audacious Algorithmic Stablecoin Experiment Crumbles (Bloomberg) Tiger Global hit by $17bn losses in tech rout (FT) Europe's GDPR coincides with dramatic drop in Android apps (The Register) Match Sues Google Over App Store Billing Rules (Bloomberg) Amazon’s surprising new delivery partners: Rural mom-and-pop shops (Recode) Hugging Face reaches $2 billion valuation to build the GitHub of machine learning (TechCrunch) Watch iconic Broadway theatre rise 30 feet above the ground (Borat voice: MY WIFE!) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Tech meme right home for Tuesday, May 10th, 2020. I'm Brian McCullough today. A major algorithmic stable coin has lost its peg to the dollar. More concerns of a slowdown as Tiger Global has racked up massive paper losses.

Match group sues Google has GDPR crushed the European app economy. Amazon engages mom and pop stores to deliver packages and an interesting raise that is building the GitHub of machine learning. Here's what you miss today in the world of tech. The U.S.T. Stablecoin lost its U.S.D. peg, falling as low as 60 cents on the dollar after the Luna Foundation Guard pledged $1.5 billion of its Bitcoin reserves to bolster and support U.S.T. Quoting Coin Desk. As U.S.T has depegged, the price of Luna, its sister token, has dropped over 44% to $35 in the past 24 hours, according to coin market cap. a so-called algorithmic stablecoin works with Luna to maintain a price of $1 using a set of on-chain mint and burn mechanics. In theory, these mechanics work to ensure traders can always swap $1 worth of U.S.T for $1 worth of Luna, which has a floating price

and is meant to serve as a kind of shock absorber for U.S.T's price. Luna's price decline puts its market cap below that of U.S.T's. That potentially throws the foundation of U.S.T's entire stabilizing mechanism into jeopardy, because it means a terra-bank run could lead to some users no longer being able to redeem their $1. $1 worth of U.S.T for $1 worth of Luna. Today's DPEG comes after the Luna Foundation Guard, or LFG, announced Sunday night that $1.5 billion of its massive Bitcoin reserves would be loaned out to professional market makers to proactively defend UST's dollar peg.

Monday's events were, quote, the biggest stress test the system has ever faced. Jose Maria Makato, a partner at Delphi Digital and an LFG council member who helps manage the group's reserves, told CoinDesk. But he added that the UST Luna market cap flip is not a cause for concern because of LFG's reserves. Shortly after McAdo's call with CoinDesk, Terra appeared to empty out all of the funds around $1.3 billion worth from its confirmed Bitcoin address, end quote. All of this led Binance to temporarily suspend withdrawals of both Luna and U.S. tokens due to a high volume of pending withdrawals and network slowness and congestion in their words. Now, I believe I mentioned recently my learning that these algorithmic stable coins existed and how

they worried me vis-a-vis systemic risk to the whole crypto ecosystem. But what specifically is the UST project? Bloomberg has us covered. Quote, what caused Terra's coin to become untethered is a topic of intense internet debate. The disconnect happened alongside a sharp sell-off in crypto assets, including a plunge in Bitcoin to below $30,000, and a broader retreat from risk assets, including stocks. Whatever the catalyst, it's no small thing. There are around $18.5 billion of U.S.T. in circulation, according to coin market cap,

a big enough presence that its swings could have systemic implications for other coins and protocols. And Du Kwan, the crypto upstart behind U.S.T, has previously committed to buying as much as $10 billion worth of Bitcoin, as part of his support of the coin, further entwining the project with the core of the digital asset market. It's fairly clear that there is a crisis of confidence, said Kyle Samani of Multi-Coin Capital. He added that it was not certain whether UST would survive. That raises the prospect of the current turbulence snowballing into one of the biggest crypto blowups in recent memory. Issuers of conventional stable coins like Tether's USDT or Circles USDC maintain that their tokens are backed by, quote, real assets like cash or highly

bonds on a one-to-one basis. These coins hold their peg because the theory goes, they can be readily exchanged for cash or highly liquid cash equivalence. By contrast, algorithmic stablecoins attempt to hold their value through a combination of instructions encoded in software programs and active treasury management. UST, which functions in tandem with a related token, Luna, is the most popular and controversial of these kinds of tokens. In the case of Terra's stablecoin, if its price falls below $1,000, traders are incentivized to swap units of U.S. for Luna, which removes the former from circulation. Similarly, software programs are triggered to do the same.

If the price rallies above $1, the mechanism applies in reverse, remove Luna tokens from circulation to create equivalent new units of U.S.T. Traders seeking to profit from arbitrage opportunities regularly swap U.S.T. for Luna and vice versa, thus ensuring the price stays at or very close to $1. Another contributor to U.S.T.'s price stability was crypto's equivalent of above-market interest rate, offered through Anchor Protocol, a decentralized lender built on Terra's blockchain. Anchor offers rates of around 20% on deposits of UST, which offered a significant demand incentive for the token. But over the weekend, all of those mechanisms stopped working, and UST lost

its dollar peg while Luna also slid in value. That led to a series of crypto market interventions from Kwan and the so-called Council of the Luna Foundation Guard, LFG, a consortium of crypto players that includes Canav Karia of Jump Crypto. Jump crypto declined to comment. Near midnight, New York time on Monday, UST remained under pressure. Luna was trading around $29, down 52% from a day earlier, according to coin market cap, end quote. Meanwhile, more chaos in the tech sector and the startup sector. Analysts believe that Tiger Global has lost about $17 billion, at least on paper, in 2022 during the tech sell-off, erasing around two-thirds of its gains, made since all the way back in 2001. This has been a race in about four months. Remember, Tiger, via its venture capital arm, was the one who took a page out of Masassan's book and was in the last

18 months or so, just going crazy, leading just about every absolutely massive round that was announced. Their reputation was for moving fast, maybe not doing a ton of due diligence, just cutting whatever size check would get them into deals. So, more signs than investments, at least on the high end of the startup universe could be under pressure, quoting the Financial Times. The fund lost 43.7% in the first four months of this year. The Financial Times reported earlier this month, more than double the 21% decline posted by Wall Street's tech-heavy NASDAQ composite share gauge. The magnitude of the loss is breathtaking, especially for a fund with hedge in its name, said Andrew Beer, managing member at investment firm Dynamic Beta. This shows how even the most talented

and plugged in, tech investors failed to see the train coming down the tracks, end quote. New York-based Tiger, which recently managed about $90 billion in assets, was founded 21 years ago by Chase Coleman, a so-called Tiger Cub, who worked at legendary investor Julian Robertson's Heads Fund Tiger Management. Coleman's fund has in the past made huge gains for investors, helped by punchy bets on tech stocks. By the start of 2021, he was ranked by LCH as the 14th Best Performing Hedge Fund Manager of all time, having made $10.4 billion of gains or a return of 48% for investors the previous year, and a total of $26.5 billion since launch, end quote.

A new study claims the implementation of the European Union's GDPR has reduced the number of apps on Google Play by a third. It's also increased cost and reduced revenues for app developers, quoting the register. At the start of our sample period in July 2016, Our data contain 2.1 million apps in the Google Play Store, while App Brain reported 2.2 million. The number of Play Store apps in our sample then rises to 2.8 million in the fourth quarter of 2017, then falls by almost 1 million, about 32% by the end of 2018. Available apps in App Brain saw a similar decline by 31% between the beginning of 2018 and the end of that year. The paper distributed via the U.S.-based National Bureau of Economic Research finds, quote,

whatever the benefits of GDPR's privacy protection, it appears to have been accompanied by substantial costs to consumers from a diminished choice set and to producers from depressed revenue and increased costs, end quote. Under GDPR, app developers face the cost of complying with rules that require consent for data gathering, transparent data processing, purpose limitation, accuracy, limited retention, confidentiality, and accountability. The research paper, which has been presented at various economics conferences and is going to be submitted for journal public finds that the Android app market has been transformed by GDPR. The number of Android apps fell by about a third in the quarters following the implementation

of the law according to the paper. And under GDPR, fewer new apps were created. New app entries fell by 47.2%. And usage of those remaining fell by 45.3%. What's more, average users per app increased by about 25%. Users migrated toward quality apps, and apps became, quote, somewhat less intrusive after GDPR, the paper said, though, that was already a pre-existing trend, end quote. Match Group is suing Google, alleging they abuse their power with a requirement that developers use Google's billing system for Android apps in the Play Store, quoting Bloomberg.

Match Group, which operates dating apps such as Tinder and OKCupid, alleged that Google breaks federal and state laws and abuses its power with a requirement that app developers use its billing system on Android devices. 10 years ago, Match Group was Google's partner. We are now, it's hostage, matchgroup said in a complaint filed Monday in Northern California federal court. Blinded by the possibility of getting an ever greater cut of the billions of dollars users spend each year on Android apps, Google set out to monopolize the market for how users pay for their Android apps, end quote. In March, Google announced it was letting select apps offer their own billing service in addition to Google's on Android devices, Spotify. Another App Store critic said it was using this option, and, Google suggested more companies would follow. But not Match Group, apparently. Quote, this lawsuit is a measure of last resort, chief executive officer Char DuBé said in a statement.

The executive said her company tried, quote, in good faith to resolve its concerns with Google, but was left with, quote, no choice but to take legal action. In the filing, Match Group said that it asked Google to adopt this new user billing feature, but Google refused. A Google spokesperson said in a statement that match would still be able to reach consumers through other app stores available on Android devices or the web. This is just a continuation of Match Group's self-interested campaign to avoid paying for the significant value they receive from the mobile platforms they've built their business on, the spokesperson said. Like any business, we charge for our services and, like any responsible platform, we protect users against fraud and abuse in apps, end quote.

Match is forecasting $42 million in additional costs for Google's Play Store during 2022, chief financial officer Gary Swindler told analysts last week. That's on top. top of the $100 million in payments to Google the company expects to make. Swindler said that matched customers use the company's in-app billing system three times as often as they use Google's own service, end quote. Amazon is testing, paying rural mom and pop shops a per package fee to deliver orders within a 10-mile radius to neighbors in Nebraska, Mississippi, and Alabama for now, quoting Recode. The local businesses Amazon is recruiting range from florists to restaurants to IT shops, and none of them are required to have prior delivery experience. Just a commitment to

deliver Amazon packages seven days a week, around 360 days a year, and a physical location to receive parcels each morning. As Amazon's ambitions to speed up delivery times and handle more of its own deliveries has grown, rural America has posed the thorniest logistical and financial challenge. While delivery drivers in cities and suburbs might be able to deliver two dozen packages per hour or more, the distance between homes in rural and other remote communities means drivers can only handle half that amount or less, making deliveries to these locales more costly. As a result, Amazon has handed off these deliveries to partners, including UPS, and most notably the U.S. Postal Service to handle the so-called last mile in small-town

America. The new local business delivery beta test seems aimed at perhaps one day replacing its existing partners as Amazon's sales grow and the Postal Service navigates its own financial and operational challenges. Amazon hopes the new program could help it take more control. over customer deliveries in sparsely populated areas and improve the delivery speed to these customers' doors. The company has already tried versions of the program in a few international markets, including India since 2015, but the testing in the United States is more recent, end quote. Let's end with an interesting raise today. New York-based Hugging Face, which is building an open-source library of machine learning models, has raised a $100 million

Series C at a $2 billion valuation led by Lux Capital and with participation from Sequoia and Co2. Quoting TechCrunch, despite a short life, Hugging Face has had an interesting evolution. When I first covered the company in 2017, the startup was focused on a consumer app. It looked like yet another messaging app, and yet there was no one on the other side of the conversation as it was a chatbot app for bored teenagers. That consumer bet hasn't paid off, but the company kept iterating on its natural language processing technology. Hugging Face released the Transformers library on GitHub and instantly attracted a ton of attention. It currently has 62,000 stars and 14,000 forks on the platform. With Transformers, you can leverage popular NLP models such as BERT,

GPT2, T5, or Distilbert, and use those models to manipulate text in one way or another. For instance, you can classify text, extract information, automatically answer questions, summarize text, generate text, etc. Due to the success of this library, Hugging Face quickly became the main repository for all things related to machine learning models, not just natural language processing. On the company's website,

you can browse thousands of pre-trained machine learning models, participate in the developer community with your own model, download datasets, and more. Essentially, HuggingFace is building the GitHub of machine learning. It's a community-driven platform with a ton of repositories. Developers can create, discover, and collaborate on machine learning models, data sets, and ML apps, end quote.

All right, so as I told you, tomorrow is Google I.O. It starts at 1 p.m. Eastern time, and so tomorrow is going to be one of those days where the show can't come out on time, because I have to wait for the announcements to actually occur before I can tell you about them. And look, I.O. is maybe the craziest thing I have to cover all year. Google likes to announce basically everything all at once. The only event with more announces is that weird thing Amazon does every year, where they announce everything from things you might actually be interested in buying to, you know, an Alexa connected waffle iron or something like that. So expect the show later in the

afternoon than usual tomorrow and also right after that, like maybe an hour or two after the episode drops. We're going to do a space at 5.45 p.m. Eastern, 245 Pacific on Twitter. We're going to be talking about Google I.O., I'm sure. But first up, we're going to talk to Eric Newcomer about the whole tech downturn, which he's been covering extensively in his newsletter, so look for that. But also, the final link in the show notes today is to a video from CNN about an iconic Broadway theater, which was raised 30 feet off the ground using hydraulics. Kind of tech, but kind of not. However, as I've mentioned before, my wife is an architect, and this is the project she's been working on for the last three years. So, this is 100% me posting a link to brag,

about what a badass my wife is. Talk to you tomorrow whenever I can get the show done.