Unchained - Do Kwon of Terra: 'It Was Never Really About Money or Fame or Success' - Ep. 408

Episode Date: October 18, 2022

Do Kwon, cofounder of Terraform Labs, discusses the charges against him, gives a message to Terra victims, answers allegations about potential fraud and non-transparent business practices, and much more. Show highlights: whether Do finds the charges based on the Capital Markets Act legitimate  why he doesn’t want to discuss his location whether the South Korean government is lying about the accusations against him what happened with the BTC held by the Luna Foundation Guard whether Do regrets being so arrogant in his tweets what he would say to the people who lost huge amounts of money in Terra or family members of people who committed suicide due to its collapse the decision to set Anchor’s yield near 20%  why Terra had a large SDT pre-mine that was not proactively disclosed whether Do’s actions show he didn’t think that the algorithmic mechanism was sufficient to keep UST pegged to the dollar whether Terraform Labs cashed out $2.7 billion using Degenbox why there were no disclosures about Chai terminating its agreement with Terra why the Terra blockchain went through a hard fork without a public discussion the failure of the basis cash stablecoin, also worked on by Do Kwon whether an algorithmic stablecoin can work the week of the UST depeg and what happened to the funds held by LFG where the 3 million Luna unlocked per month by Project Dawn went when the LFG will return funds to UST holders what Do would do differently if he had the chance to go back    * Quick correction*  At 7min 18sec, I misspoke, the Korean government posted a pdf for Do Kwon’s passport revocation, not his arrest warrant.    Thank you to our sponsors! Crypto.com Chainalysis web3 with a16z   Episode Links Do Kwon: Twitter   Previous Coverage of Unchained on Do Kwon and Terra: How Will the Legal Case Against Do Kwon Play Out in South Korea? Do Kwon Is Backing UST With Bitcoin – And Here’s What Else He Is Building The Legal and Regulatory Fallout From Terra’s Collapse: Who Will Pay? The Chopping Block: Does the New Terra Have Any Chance? Hester Peirce’s Former Counsel on Terra 2.0, XRP and a Bitcoin Spot ETF Why Terra Collapsed and Whether an Algo Stablecoin Can Ever Succeed   Devastating Stories One man commits suicide Fat Man Terra’s thread with several stories   SDT pre-mine CoinDesk Korea article Anchor yield JTBC article reporting core devs wanted a lower yield   Chai  WSJ article Do’s tweets about Chai: 2.5 million users Tweet in May 2021 Tweet in May 2021 #2 Tweet in January 2021   Abracadabra Degenbox $2.7 billion cash out TFL Exit Liquidity dashboard on Dune   Project Dawn Launch The Defiant article   Basis Cash CoinDesk article   Luna Foundation Guard Ergo-BTC on-chain evidence of more than 313 BTC Dumps BTC LFG postpones compensation   Allegations against Do Kwon SBS news reporting Do moved funds to the Virgin Islands. Seoul Police Probe Allegation of Embezzlement by Terraform Staff South Korea Launches Investigation into Company Behind Luna Crypto Crash Class action against Do Kwon Was LUNA a Security? Korean prosecutors are looking into Terra Red Notice “Not on the run” Kwon’s Passport   SEC Actions Against Terra SEC Investigating UST Stablecoin Blowup in Fresh Threat to Terra Terraform Labs Loses US Appeal over SEC Subpoena Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, all, ever since Tara Luna collapsed in the spring, there have been a number of questions about what happened exactly and how much culpability Terraform Labs co-founder Doe Kwan has. Interest in his case ratcheted up in September when South Korea issued a warrant for his arrest. Doe at the time did not turn himself in and the former Singapore resident was reported to no longer be in the city-state. Even Interpol may now be on the hunt for him. I had assumed Doe wouldn't talk to the media due to his court case, but he surprised me last week when he agreed to come on the show. I approached the interview with an open mind on whether Tara had been or fraud or not, meaning I tried to keep an open mind to both possibilities. My main intention was to reveal more information

that could let legal experts decide those questions. I divided the interview into a few main categories, starting with his legal case, then probing him about various allegations that could potentially point to fraud, and then finally wrapping up with some questions for users and also about his personal situation. Given the time constraints I had on the investigative portion, I did the best I could, and during the interview, I tried to push back if I felt he hadn't answered my question. As Doe himself said in the interview, transparency and information are important, and I hope that this interview helps in the effort to understand exactly what happened with Tara Luna. Now here's my conversation with Doe.

Hi everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor, Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the October 18th, 2022 episode of Unchained. The Cryptopians, the TV series? I'm excited to announce that I'm working with Playground Entertainment, who've optioned the rights to adapt my book for the small screen. For more info, check out the show notes and stay tuned. Chainalysis demystifies cryptocurrency by providing industry-leading compliance, market intelligence, and investigation support for all crypto assets for organizations like Gemini, Crypto.com,

and BlockFi. Maximize your potential with the leading blockchain data platform by visiting Chainalysis.com slash unchained. With the crypto.com app, you can buy or earn. and spend crypto in one place. Download and get $25 with the code Laura, link in the description. Whether you're crypto-curious or a C-suite decision-maker, you have to check out Web3 with A16Z, the chart-topping technology podcast about the future of the next internet.

Listen to Web3 with A16Z on Apple Podcasts, Spotify, or wherever you get your podcasts. Today's guest is Doe Kwan, co-founder of Terraform Labs. Welcome, Doe. Hi, Laura. Thanks for having me. Thanks for agreeing to do this. You were one of the creators of Tara, the algorithmic stable coin that collapsed in May, wiping out $60 billion in value between Tara and its sister coin Luna. A South Korean court has issued a warrant for your arrest and even said that Interpol issued a red notice for you, which is a request for law enforcement worldwide to arrest you. Why have you not returned to Korea?

Well, so just to set the facts straight, we are currently requesting, made a request to check on the status of the red notice. But as far as I understand, it is not an international rest warrant and it states so explicitly in this website. So, you know, every sovereign nation can interpret a red notice the way that it sees fit. A second point of clarification is since the end of last year, I haven't been living in. in South Korea. So it wouldn't be accurate to say returning to South Korea, the more accurate point would be would I travel to South Korea. Yes. And I agree with you that I reached out to Interpol twice to request confirmation about the Red Notice and have not heard anything. So did you similarly not hear anything back? So as you can imagine, this isn't like an area. So first of all,

I'm not a lawyer or like a law enforcement official. And specifically, even within that, like how red notices work is something that I don't really understand very well. But we haven't heard anything back yet. There is an appeals process to contest even if it has been granted. So we'll do everything that we can to make clarifications and make sure that this comes to a better result. And so as we mentioned, this South Korean court did issue this warrant for your arrest. the charges are based on the Capital Markets Act in Korea, what do you think of those charges? So the thing about, you know, like the Capital Markets Act is sort of the financial regulatory

authority in Korea is something called the FSC, the Financial Services Commission, which is, I think from a U.S. analog, it's an amalgamation of the SEC and the CFTC, but more from like a, you know, devising financial regulation perspective rather than the enforcement part. So there's a separate subsidiary organization that is civilian that handles the enforcement portions, but generally the FSC sets policy. And the consistent stance of, you know, the Korean government has been that, and even from the Financial Services Commission directly, is that cryptocurrencies are not securities. And securities as the way that they're defined in Korea is different from the way that it's defined in, you know, the U.S., for instance, and that it is not

within the ambits of their jurisdiction to regulate cryptocurrency for that reason. More specifically, right now, the South Korean National Legislature is in the process of devising a specific regulation for cryptocurrency. So we are a little bit disappointed in the way that prosecutors are attempting to, you know, create new regulation through criminal enforcement proceedings, whereas that really should be within the job description of the legislature, or at the very least, the financial regulators. Yeah, I would say your comments here are in accord with a crypto lawyer that I had on the show a South Korean crypto lawyer, Zhang Beck Park, who talked about how the reasoning behind the

prosecutor's charges, they're not something that, you know, is explicitly stated by the FSC. and in fact wasn't even detailed in the charges. But I was curious, so it appears, am I wrong in thinking that the reason you have not answered the arrest warrant? Or tell me, have you not answered the arrest warrant because you disagree with these charges or don't find them to be legitimate? We haven't seen a copy of the arrest warrant. So every piece of data that we're consuming regarding this is from the media, which, as you can imagine, imagine in a situation like this, it's kind of hectic and there's a lot of contradictory information.

But I thought that there was a PDF posted for you because they couldn't physically deliver it to you? Right. Yeah. So I haven't seen a copy of this PDF. So besides application of the Capital Markets Act, we haven't been able to see what specific charges that we might be facing. We don't think that any of the charges pertaining to, you know, the Capital Markets Act is

applicable because the government stance has been that, you know, cryptocurrencies shouldn't be governed by Capital Markets Act, if you're not securities, that new regulation, which several people in government have already indicated should be favorable to encourage the growth of the digital assets in the country. We don't believe that those are legitimate charges and are politically motivated. And so is that why I noticed that in August, you told the Korea Times you would cooperate with the investigation, but is that essentially what changed, that once the charges came out, that you felt these are not legitimate? No, we are cooperating. So for instance, like the South Korean prosecutors have asked for, you know, clarifications or supporting documents for various different

types of things. I'm not at a liberty to disclose what exact documents that we have been producing, but we've been cooperating with all the document requests in the capacity. Okay. So you were living in Singapore at the time of the collapse, and Zach Guzman of coinage said that he interviewed you in Singapore in August. However, on September 17th, Reuters reported that the Singaporean police said that you were no longer in the city state. And within the hour after that report came out, you tweeted that you were not on the run. And roughly a week later, you also tweeted, yeah, as I said, I'm making zero effort to hide. So these tweets would say, would say, seem to imply that you're still in Singapore. Are you in Singapore or are you not? Well, so just to clarify, from the media reports that we've read, the main allegation regarding as to whether I'm on the run has been that I left to Singapore in premeditation of the crash that would happen in May. But that is absolutely not true. So there's been reports as to how we shut down a Korean subsidiary. I think it was like in April or something like that. And, you know, like, very, very, you know, very,

various different team members from TFL similarly moved to Singapore to set up headquarters around that time. But that is simply not true. So we had... Right. I mean, well, you were still in Singapore in August, so obviously it's not. But what happened in September? Did you move out of Singapore? The main reason why I don't want to talk about my location to the media is because when the crash happened in May, there were lots of situations where personal security was threatened.

Right. And so for instance, people broke into, you know, my apartment building, even multiple cases in which that was televised across, you know, my home in South Korea as well as my home in Singapore. Several of these people were reporters. And several of these people were just regular people against whom I felt like a fair degree of threats to personal security and privacy. So it's not in the interest of, let's say, being on the run or something like that that, that I don't want to disclose where I live. It's just that every time the location where I live becomes known, it becomes almost impossible for me to live there. But can you at least answer whether or not you're in Singapore? No, I mean, so I could answer that, but the problem is that I don't want there to be a bunch of guest work in terms of like which country and like which city or, or like where I happen to be living in. And these things are fairly easy to find.

Right. I have businesses. I have people that I meet. So the easier that I make it for people to figure out my location, the harder it is for me to continue regular life. When it was reported that the South Korean government said that Interpol had issued this red notice for you, you tweeted for something that has notice in the name,

it sure gives no notice. And you talked about how you tried to search for the red notice and found nothing. And obviously you just mentioned that you've tried to. tried to verify this. But similarly, after it was reported that the Korean authorities had frozen $67 million of your own funds, you tweeted, what has been probably the most surprising in all this is the amount of misinformation that gets spread. There is no cash out as alleged. I haven't used QCOIN or OKX at least the last year and no funds of TFL, LFT, or any other entities have been frozen. So with these tweets, are you basically accusing the South Korean government of lying about

these things? Saying that the reports aren't true, right? I don't know if their intentions were to mislead. I don't know if it was a simple mistake, but there's just simply too many things that are not true that are coming creoside for that I think, you know, across the board, given how high profile this is, does not serve in the interest of clarifying truth to everyone. So for instance, we would read media reports like Doquan is on the run, which is absolutely not true. We went through proper procedures to pay all residual taxes and applying for employment visas in Singapore and things like that to go. So obviously, there's no reason why any government official would think that we fled to Singapore,

even though it was the year prior when we made the move. or for instance, to say that our funds were frozen, that my funds were frozen, I really have not used, you know, Qcoin or OKX or done any trading in those platforms, at least as far as I can remember. And I definitely don't have any funds there. And if they froze, I don't remember the amount, but if it's like $67 million, I think I definitely would have noticed. We're just uncomfortable with the amount of, you know, misinformation that is coming out.

And we think it's been consistent throughout, you know, the last few months. You said in that recent interview with Coinage that the Luna Foundation Guard only has 313 Bitcoin. But ergo BTC, which is this on-chain sleuth, who is actually like really, really good, tracked the Bitcoin wallets of the LFG and concludes that actually LFG has more than 313 Bitcoin. and also that since September 15th, wallets associated with LFG have been depositing roughly $65 million worth of Bitcoin into Kukoin and OKX. And the Argo BTC said that they were able to confirm the identity associated with these wallets because actually they've been used by LFT back in 2021. And at the conclusion, he says, if this analysis were incorrect, we would expect to, see a large whale or OTC complaining of unjustly seized funds. And obviously there have been no report to that. So what do you say to this evidence that your or LFG's funds are actually frozen at

these exchanges? Well, so I think one of the things that people don't understand at, you know, trade agreements of this scale is that just because, you know, Bitcoin is being transferred doesn't mean that that naked Bitcoin has to be sold on a spot exchange. So, for example, just because Bitcoin is being used to defend USPeg does not mean that somebody would put it into, let's say, like a BTC against UST pair and buy that asset directly. There can be intermediary steps. So for instance, there's been allegations that we move the LFG funds into a Gemini custody wallet. And then it's, you know, sitting there or something like that. But all we did was to confirm a trade with a market maker and transferred the Bitcoin to an address at the market maker's instruction. So likely what would

happen in situations like this because the market was crashing, the market maker could simply take custody of that Bitcoin and use an equivalent amount in other assets that they might have ready at the exchanges. So it could be like USVT or USC. whichever trading pair would exist in the exchanges that they want to trade. And they would use those funds to acquire the UST. But I feel like you're not answering this direct question, which really is about some. So, you know, as you mentioned earlier we were talking about the South Korean government, saying that these funds were frozen.

But now I'm presenting you with more like on-chain evidence that shows a similar amount of money that was at these exchanges. Are you asking the question as to whether the funds were actually frozen? But I'm also asking what do you say to this analysis that shows that these wallets are associated with LFG and have much more than the 313 Bitcoin that you claimed? So that's that's not true. So LFG, the only Bitcoin that it holds is 313. And what about like TFL or you personally, any entity associated with TRLuna?

So are you asking whether TFL or myself has Bitcoin? Well, this $65 million worth that was deposited into Ku KCOIN and OKX. Like over a video call, I wouldn't be able to identify like an on-chain audit trail or something to that effect. But what would be helpful is we've hired a sort of an on-chain analysis company and we've worked with them to provide all the trading data at LFG. So they should be publishing a report shortly, which I think is going to provide a lot more clarity. So there isn't any embezzlement or theft of funds or anything to that effect that seems to be cycling through the media. And when do you expect that report to be released? I think we're in the closing phases.

So they've gone through all the data. I think they're just writing the report. So I think it should be over the next couple weeks. Okay. A lot of people have talked about the hubris and arrogance of your tweets during the time that Tara was on the upswing. And you later said of these tweets that you had developed an entertaining alter ego. Do you feel any remorse for your cocky tone during that time?

So I think I got carried, you know, too much carried away with interacting with other people on crypto Twitter. So like the industry lingo for this is called shit posting, right? So I think in retrospect, I should have held myself to a sort of a, more stringent standard. So, you know, just because there's anonymous cartoon characters that are, shall we say, more liberal with the words that they're using, does not mean that I should have followed suit. So I think sort of the trigger that led me to be quite active on Twitter or something like that is, you know, in personal life, I am quite a bit of an introvert. So when I first started, Tara, you know, there was not that much communication with media or Twitter, which wasn't necessarily a big problem because there weren't too many people wanting to talk to us anyway. But then over time, you know, as Tara grew, there was more of a pull from the community to be more open and frank about my thoughts and opinions and be more transparent about the things that we're working on. So over time, you know,

Twitter became the medium by which I started to deliver those news, either over, you know, Twitter spaces or, you know, Twitter threads and engaging with other people on Twitter. And I think sort of like how I developed that persona over time is, I do think it was largely for entertainment value because it was fun, you know, joking and share posting with other individuals on Twitter while I was doing it. But even for myself personally, when I go back in time and then when I'm presented with a tweet that I would have written a couple of years ago, it is quite cringe. And people have told me to take them down, but I do think it's worthwhile just keeping them on there, you know, just for record keeping and posterity purposes. Fat Man Tara posted some stories of people who had lost a lot of money in Tara. There was one man who said he had a malignant tumor and he'd received $50,000 from insurance for therapy, but then he lost 90% of it in anchor. Someone else lost a quarter of a million dollars. A lot of these people had young children.

Taiwan News reported that a man in Taiwan who had $2 million in Tara had that value plunged to about $1,000 and committed suicide. Here's your opportunity to say something to the people who lost what in many cases was their life saving. savings, here's your opportunity to say something to family who lost members to suicide. What do you want to say to them? So whatever issues existed with Tara's design, it's weakness to respond to, you know, sort of the cruelty of the markets, it's my responsibility and my responsibility alone. So for the community that engaged with the Terra ecosystem, used its apps, you know, sent tokens and coins into its many protocols, the downfall of the companies that chose to build on Terra for the people that, you know, chose to work on the ecosystem. And for, you know, the hundreds of thousands, if not millions of people that used, you know, terra currency, you know, the Terra ecosystem, which was all built on the stability of UST, I have.

own up to that responsibility fully. And it's, it's not easy. I think the hardest thing about the current situation is having to contend with, you know, so much astronomical loss, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, it's, of the sort of the financial and emotional and economic damage that happened here is not easy to live with. I want to ask one follow-up question to that, which is, so you said that you take full responsibility. I didn't hear words like, I'm sorry or I apologize, but do you want to offer an apology?

Oh, yes, I am sorry. I think and it could seem with the way that we've been responding to allegations and use reports and things like that, that we're being defensive or something like that, but that is absolutely not the case.

I believe in the stability of UST and I do understand that my beliefs and statements about how stable and safe UST would be led a lot of, you know, traders and, you know, holders without the tools to understand the complex economic mechanisms underpinning UST, to gain confidence in a system that ultimately failed. And I do apologize and I do own up to the full responsibility of that. The only thing that we are attempting to do is that in the process

of people dealing with this grief, there's been a lot of people making allegations like, you know, it was a fraud or doquan probably shorted UST or there was theft or embezzlement going on. And I just want to, I think it's like, not even from like my personal perspective, but there are people that are still in the terror ecosystem and continuing to build things. And there are lots, even for the people in grief, I think it is important for their closure for them to have a correct representation of what. exactly happened. Right?

And while it is easy to think this entire thing crashed because it was a scam or to point fingers to somebody and just assumed there was some theft going on or something like that, that was absolutely not the case. It's probably really hard for this to resonate in this current time. But I've been a founder in crypto for the last five years. I hold the transparency, openness and the integrity of this industry. quite highly. And even to this day,

I am proud of the way, the integrity by which we sort of tried to create our protocols, the work that we did and the values that we tried to defend. So it's in the interest of providing transparency and the truth of the things as they happened, not to say that we ultimately created a protocol that ended up. of failing and destroyed billions of dollars in value.

Seoul Broadcasting System, or SBS News, one of the biggest broadcasters in Korea, reported that the National Tax Service in Korea confirmed that you had moved the profits from your coin trading from your Singapore Corporation to the Virgin Islands, and that also you donated coins to your family to purchase an apartment. How do you feel about you and your family making off well financially when so many Tara users lost large sums of money? or even family members to suicide? So my family members or like my wife, for instance, doesn't own any real estate. I do own an apartment in Seoul.

We didn't move funds from Singapore to the British Virgin Islands. Just the corporate structure is set up such that there's a Singapore holding company and there's a BDI subsidiary that performs most of the crypto operations. And if you look at many crypto companies that were established during the same time period, so TFL was created during a time where there wasn't a clear accounting standard for how to account for crypto tokens. Whereas BVI came up with the framework much earlier than the common accounting standards did. So a lot of companies that were created in Singapore during that time were structured exactly the same way. So we didn't move any crypto to the British Virgin Islands.

any crypto that was created by TFL originated in the British Virgin Islands, and there was no movement of funds the other way, if that makes sense. Okay. So in a moment, we're going to talk a little bit more about certain business decisions, which will give you the opportunity to be transparent as you discussed. But first a quick word from the sponsors who make this show possible. Join over 10 million people using crypto.com, The easiest place to buy, earn, and spend over 150 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 8% cash back instantly, plus 100% rebates for your Netflix, Spotify, and Amazon Prime subscriptions.

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along with frequent guest appearances and hosting by Chris Dixon. Listen to Web3 with A16Z today on Apple Podcasts, Spotify, or wherever you get your podcasts. Back to my conversation with Doe. Korean news outlet JTBC reported that one of the core developers of Anchor recommended that the interest rate on Anchor be 3.6%. But that a week before launch, they found out the yield would be 20% determined by you. And when they suggested that it be lowered, you refused. Why did you refuse? So that's absolutely not true. So one of the interesting things is like the people that came on some of the crane shows and claimed to be core developers of TFL or Anchor literally just interns. And if you look through GitHub or any of the documentation or anything that we would have published in open source or anything to that effect, not a single line of code came from their contribution.

So I struggled to see how they can claim themselves core developers of Anchor. So to contextualize how Anchor came about, it was, you know, it was being contemplated throughout 2020, and it launched in the early days of 2021. And during those days, if you took a look at what was happening in Defi, 20% was actually not extremely high yield. So you remember during Defi summer when a lot of the yields across Defi were three digit, four digit percentage type of yield. In fact, when we were raising venture capital around the ANC token for the first time, the most common feedback that we heard was looking at the comparables of FIFA yields at such a high rate, like, do you think Anchor could actually get any users? And that was the primary concern around the time that Anchor launched.

Now, the issue was Anchor's main value proposition was that the yields would change more slowly over time, like over something called the anchor rate, which is governance determined. So one of the main problems that it sought out to solve in the beginning was that it would take what was previously very volatile yields that were coming from crypto money markets like compound or ABE, and then attempt to stabilize it over time so that it would be easier to use in other protocols and for average users. And that's, I think, been one of the biggest problems with Anchor, right?

because defy yields, as you know, crashed to almost zero as crypto markets started to sew down over time and liquidity became farmed out very quickly. And then Anchor wasn't able to change its rates in line with the rest of the market such that there became a lot of, let's say, trading funds or market makers that were buying UST at very large sizes to be able to farm by yield. But in the beginning, like even internally, a lot of the questions came down to, is this yield going to be attracted enough such that people and other protocols would choose to integrate with anchor? Coin dust Korea confirmed that Terra had a pre-mine of $1 billion SDT, which was a Terra stable coin that was pegged to the value of the IMF's special drawing rights basket or SDR. And at that time, SDRs were worth about $1.40, meaning that Terraform Labs had essentially been

able to print $1.4 billion out of thin air. Now, this fact actually wasn't explicitly or officially disclosed for the public to easily see or know about in a way you could sort of say it was hidden in plain sight. Additionally, it looks like investor decks and the Tara white paper did not mention this. And conversions that were being made of these SDTs to Korean Wan Terra or KRT were actually being censored on the Terra Station block explorer and they were only visible on independent block explorers. So why not be upfront about the minting of the SDTs from the start? With the SDT issue, I think the major confusion that people have is, so like if you went to Terra Station, which is the main wallet of the Terra ecosystem, there's a dashboard page.

And the amount of STT that existed in issuance was visible there the whole time. So in the beginning, when the Terra blockchain launched, there was, the main block explorers were, you know, TerraState or Terra.com. And in both of those things, the existence of SDP was very clearly disclosed. At the Genesis events, we had a conversation with validators as to why SDP needs to exist. And there's a pretty clear reason. So the way that UST operates, or, you know, back in those days, I guess, you know, KRT or some other stable coins like MNT, is that there's a market swap mechanism to create UST by burning Luna and vice versa, redeeming UST into Luna.

And how these swaps work is that there's a virtual AMM pool such that when a certain side of the trade is being favored, the exchange rate changes quadratically, similar to how you would see prices change in places like uniswap or sushi swap and so on and so forth. Now, the issue was that for an AMM like this, the amount of stable coins that you can effectively mint or redeem would depend very strongly on the amount of liquidity that would exist for Luna on off-chain exchanges. So, which meant that, like, in the very beginning, it was very hard for us to estimate how much liquidity for Luna would exist because it's impossible to predict such a thing. But at the same time, in the very beginning, when there was no Luna liquidity, there needed to be a way to be able to create Terra stable coins. Because the entire point of Terra as a project was to be able to create stable coins. And if you needed to pay, let's say, a 10% fee to create like a thousand dollars worth of stable coins, for instance, the system wouldn't function very well.

So it was a whole different system to make sure the various different apps that were being created on Terra, which in the beginning was largely being driven by, the efforts of TFL would be able to gain access to stable coins without having to pay some ridiculous fees or pass those fees onto consumers. So you mentioned that it was visible that these STTs existed. But as I mentioned, this wasn't something that was talked about in the white paper or the investment decks. And the conversions of SDT to KRT were, as I mentioned, they were censored on the Terrace Station Block Explorer.

So again, you know, this is like what I said in the question that it was sort of hidden in plain sight. Like if you knew where to look, you could find it. But like other than that, it wasn't kind of more proactively disclosed. So why not? Well, so for example, if you look at Tara's white paper, it doesn't actually describe anything like tokenomics. So it's written in a high level way that describes how UST can be created and minted and why a decentralized algorithm make stable coin is an important thing for the industry. So it didn't go into token supplies or how the genesis token event would be distributed or anything to that effect. We intended for it

to be written in the format of more of an academic white paper as to why this particular algorithm for creating decentralized currency was important and exciting. In terms of, let's say, investor decks that we used in the pre-sale, we had multiple. versions of this, right? So we hadn't contemplated on the need for a stable coin reserve at the very beginning because we hadn't fully worked out how everything would work when we first started doing, let's say, pre-sales of Runa. So in the later versions of how we socialize this, the need to create a stable coin reserve, the tune of about a billion dollars is clearly stated. And why were the SDT conversions to KRT not visible on the Terra Station Block Explorer?

I don't think we blocked any conversions of SDT to KRT or anything like that. In fact, I've seen Block Explorer links to finder circulating when people wanted to ask us questions for what exactly SDT was, for instance. So I'm guessing it was visible. we made no effort to censor any type of transaction on the Finder block explore whatsoever. And it's open source, right? So how the Finder codebase is managed is that everything is open source, and then it's pushed into Finder about Terra than money reversal.

So even the deployment is handled through GitHub. So whatever censorship that we would have done would have been very apparent for other people to see because everything that was worked on by TFL post-launch has been open source and other people could view and audit it. Right. And as I mentioned, I did see a block explorer showing no transactions, you know, for that conversion. And then for the same from a different block explorer, an independent one, I was able to see that. So obviously, and well, as you described, you were using these SDTs to obtain some different stable coins, you know, to, you were talking about like liquidity.

But so what did you do with the stable coins that you were obtaining with the SDT? So the needs changed throughout time, right? So for instance, I think when UST first started to take off and the on-chain liquidity for Luna wasn't sufficient yet. I think the all-time high for UST was about $1.9. So during times in which the on-chain UST creation mechanism would not be sufficient to be able to, let's say, bring down. the price of UST to the dollar peg. In the early days, we used those SDT reserves to bring down UST price. In the very beginning of the process, a part of the SDP reserves were used to allow try to gain access to CAROT. You know, like the idea there being that huge SIP is costs on an exchange for a payment system to run wouldn't make sense. So it was making stable coins available for the apps as well as making sure that UST was pegged. So if you're saying that you needed these stable coins to keep the peg, you know, at parity with the dollar, then is that an admission that you knew that the algorithm was insufficient to maintain the peg?

No, that's not what I mean. So what I mean is if you look at how like the virtual AMM, like the UST creation mechanism works, it's bounded by how liquid LUNA happens to be. And that's because how this virtual AMM works is that there is an Oracle that is reading in the price of Luna denominated in various different currency pegs. So the price of Luna in KRW, US dollar, SDR, and so on and so forth. And then how the slots work is that around that Oracle reference price, the price actually moves up and down quadratically, depending on which side of the trade is being favored by the AMA. Now, the issue is, like, when the blockchain is first launched in the initial phases, you can't create a lot of stablecoins because Luna, as a new young asset, is not liquid. And over time, as Luna becomes more liquid, the minting and the redemption capabilities

of paris stable coins goes up. But in the very beginning, like, in order to, you know, allow apps and other types of things to be able to gain access to stable coins, like, it's important. for the entire system to not be bounded to a few hundred dollars or a few thousand dollars of minting capacity because of what the liquidity conditions looks like for the lunar token right and later down the line when luna became extremely liquid i think i've seen daily trading volumes of like four billion dollars six billion dollars uh in certain situations like the minting capacity was able to be raised significantly through governance to the tune of i think maybe like 120 million dollars a day um something

to that effect. So the system scaled well throughout time. Initially, it needed help bootstrapping. And so I guess like the one thing is that I feel that this sort of shows you were using market operations at least at the beginning. And maybe could you put a time frame on that? Like when did you stop using market operations to maintain the peg? Well, so for something like Chai, it's not a market operation, right? It's just basic. No, yeah, no, I'm talking about UST. Right. So it just gradually became not a market operation. So what I mean by this is like over time, the trading volumes for UST and Luna grew so much that whatever trading that we did from time to time was a negligible percentage of like overall volume. Decentralization didn't happen because we stopped doing a particular thing.

It just happened because the ecosystem grew very, very large. And I think one of the things that people are forgetting, you know, in the light of recent events is that like UST was one of the largest and the most liquid stable coins. And Luna was one of the largest proof of stake networks in the world. Right. So as a function of doing that, our interest in terms of, you know, trading UST and Luna, you know, shifted from, let's say, you know, wanting to maintain pegs or making sure that enough liquidity was available and things like that. they shifted more towards investing in various different types of projects that would launch on Terra. So we might take like an interest in acquiring something like, you know, Astroport, for instance. But I guess, you know, the one thing is, so here we are talking about how you were using these SDTs to obtain stable coins,

which would help you maintain the peg. And then, you know, so maybe at a certain point you stopped that. But then later on with the new plan, you know, last year to maintain the peg through this BTC backstop, Isn't that sort of the same thing? And isn't that, again, this notion that through market operations you need to maintain the peg because the algorithm would not do it on its own? Oh, so one of the things that people misunderstand about LFG is that a lot of people think that LFG's role would be an active market maker. So that's not how it was designed at all.

So the initial goal was LFG to raise large amounts of BTC by selling Luna to, you know, venture capital or, you know, other people. And then the idea would be that this BTC would be bridged over to the Terra blockchain such that it would be a secondary way of minting and redeeming UST, not just soon. So the goal was that we would have BTC. So you could you could mint UST by putting in more BTC into this on-chain reserve. And vice versa, you would be able to take out BTC by redeeming UST against it. And the goal was to set this up for multiple currencies. So for instance, we had acquired like a $100 million position in Avalanche to be able to do the same thing with AVAX token.

So the eventual goal was to get to a state where UST would be backed by every large and promising cryptocurrency. Now, the issue was that while the BTC bridge and the reserve, mechanism was being worked on by various teams, the crisis struck in May. So we had a choice. So we had the choice of either not deploying the BTC, right, because that's not what we originally intended to do with it. Or we could try to deploy it to, you know, absorb what we thought then would be a short-term market volatility. I think given in the light of things that actually happen. People think that Paira was designed to be a system where LFCH would just act as a market maker to defend USTPEG. And that is absolutely not the way that it was designed at all.

Evidence shows that you or TFL or LFG used Abra-Dabra's D-Gen box to cash up billions of dollars worth of USTs into harder stable coins such as USDT. With D-GEN box, you could state collateral to buy UST, then you could put that into anchor for the yield, and then use the AUST to borrow war UST, which you could then again put back into anchor and et cetera, et cetera, thereby amassing a ton of UST. And then when it came to the DGEN box, there were liquidity providers that were incentivized by spell rewards to provide a ton of liquidity in the curve pole. And that then made it easier for you or anyone to cash out of UST for a stable coin called MIM, magic internet money, without it having harm the UST peg. So there are multiple people that have showed that these wallets associated

with you or TFL or LFG cashed out $2.7 billion worth of UST for MIM, the vast majority of which were turned into USDT, as some into USCC, and that money was then sent to exchanges such as Binance, Ku Koi, Huobi, OKX, and others. What do you have to say about this evidence, which is available on Dune Analytics and this notion that you cashed out $2.7 billion worth of UST in a short period. Okay. So I think what people misunderstand is TFL cannot create UST out of thin air. So I think the primary question that they should be asking is, where did the U.S.T come from? The SDT reserve was already decommissioned by the point that magic internet money came around.

So basically, in terms of DGEN box, the only thing that we did was DSTPERS, Dijembox was actually quite destructive to UST because when DGM box was going up, essentially when crypto markets were on the up and up, it would make it more difficult to mint UST because there were a lot of people trying to mint it. And then on the downside, Magic Internet Money kind of operated like a multi-sig-based hedge fund. So during, I think, the MIM crisis of, let's say, February this year, I think the Abercadabra team just basically sold down all of their, UST on, I think, a companion app called Popsicle or something to that effect.

I think hundreds of millions of dollars in like a couple of transactions. So I think in terms of that volatility, it's not something that helped the pair ecosystem at all. But whatever transactions that we did against MIM, selling UST into USDT and then acquire Luna with that USDT, mint more UST, and then so on and so forth against, you know, DJ And the way that Dijunbox worked was quite insane. So like you would allow minting capabilities on Dijun Box. And then there would be so many people that were coming in from places like TikTok and

things like that and buying out that entire capacity in a matter of seconds. And really, UST doesn't handle those situations particularly well, as you can imagine, because its minting mechanism is based on A&M pricing. So it's not that I think people confuse trading volatility. volume with cashing out money. And TFL did supply, you know, UST into DGN box so that UST wouldn't be peg. But it was definitely not a situation where we cashed out $2.7 billion or anything to that effect. And did you cash out any amount of money? Are you disputing the $2.7 billion or that you cashed at all using DGEN box? If you're asking the question, whether TFL ever sold

any UST or Luna, yes, we definitely did. But I think people, people are sort of drawing conclusions based on incomplete on-chain data. We definitely did sell Luna and UST over time to be able to fund operations. But you sold them for MIM, which you then turned into USDT? Generally how we would sell something like Luna or USDT would be either by using OTC, or if we needed funds quickly, just sell it on a centralized exchange. So you never use this mechanism that I described with MIM. No, we did use MIM, but that was an arbitrage mechanism, right?

So like $2.7 billion or anything to that effect was not something that TFL used to cash up money or anything like that. So one of your defenses in the coinage interview was that failure is not fraud. I think I also saw this in a Wall Street Journal article about you. However, Tech and Asia reported that in May, right after Tara's collapse, Chai claimed that its partnership, the one in which it was using Tara for its backend operations, had been discontinued. However, it actually turned out, as Tekkenasia discovered, that this relationship had actually been terminated all the way back in 2020. And Tekin Asia asserted that in the intervening years, Tara and Chi kept users in the dark about this. In fact, in 2021, you tweeted multiple times about one of Tara's use cases being Chi. For instance, you said that Chai and meme pay contributed 2.5 million users to Terra.

That same year, you claimed on the Defiant Podcast, that 2.6 million Koreans were using Terra stablecoins for payments. And in March of 22, which is just half a year ago, you noted that Chai used Terra stablecoins on the POMP podcast. And it turns out, so Chai and Tara did have some kind of marketing partnership in 2021, but there was so little volume, nowhere near millions of people, that eventually this was discontinued just up for a few months. So why did you continue to claim that Chai brought millions of users to Tara during a time when not only that that wasn't true, but that it even couldn't be true because that initial arrangement with Chai had ended? Okay, so in terms of Chai terminating its support for the Tera blockchain,

it's actually something a notice that they put out in March 19th of 2022. So they put out the post then that they would be terminating TAR support because of lack of usership, right? So what is true is that in 2020, Daniel left TFL. So Daniel Shen, my ex-co-co-founder, left TFL to focus on Chai full-time. And then I stepped away from Chai, which was a company that I also co-founded, to focus on TFL. In terms of usership, Chai did, you know, get to 2.5 million users or something in that range. But it is true that in 2021 and I think in 2022, usership had papered off as it had

you know, started to focus on other business signs, like a payment gateway, which had nothing to do with crypto. It was called IMPORT, as well as like a new, more, you know, crypto-based business sign that they had been contemplating. So it, so I did mention from time to time that, you know, for example, Daniel Shin was no longer, you know, working at TFL and is focusing on child. it's not something that we advertised loudly, right? Because a lot of it didn't really seem like one of those things that, you know, really mattered all that much.

I considered myself to have been the more active co-founder in building both of those companies. So in terms of day-to-day operations, it didn't really have that much of an impact. So why did you continue in 2021 multiple times to say that Chai was bringing 2.5 million users to Terra or that 2.6 million Koreans used Terra stable coins for payment. Even in March of this year, you were saying similar things. Why did you continue to do that? Well, so in terms of CHI usership, I had limited visibility into how exactly many users would be able to do it. So there was a service called CHI scan that tracked exactly how many number of wallets were actually using CHI. So by 2021, I think that number had fallen to something like, you know, 700,000 or 800,000 or something

to that effect. It's like a top line number that I remembered from the days in which I was using Chai. And I think I should have been more consistent with the way that if, you know, fact check numbers, because generally, like the idea is that for a payments company, like, you don't think that users are going to, you know, decline over time. Like, generally, they go up up or at least they stay stable. And even when they go down, it happens over a really long period of time. I think that's more of a function of me, you know, having stepped away from Chai and not being part of day-to-day active management or like even really being invited to board meetings. It's definitely, you know, shortfalls on my part there. And so was Chai transaction data visible on a Terra Block

Explorer? Yes. Yes. So people have noticed that the transaction volume didn't really change over that period despite the ending of these relationships. So was Terraform laws faking that Chi transaction data on the blockchain? Whatever transactions are written to the Terra blockchain is written by CHI. So there's been like allegations like for instance, you know, there's been statements that were made to the Korean media about like how Daniel and I have like a personal fallout or like Chai and Tara have no relationship and even like statements that contradict facts of announcements that

were made to users. So it's definitely true that Chai put out a notice in March of 2022 that they would be terminating the usage of, you know, like the Terra blockchain. I think that's more like in the interest of, I mean, like, as you can understand, like, after everything that's happened, people would want to distance themselves away from terror, especially if you're in Korea, because you want to minimize, you know, attention and, you know, liability. And I think a lot of those statements are more in that interest rather than, like, of what actually transpired. And while I wish things would have been different, like, I can't fault people for wanting to minimize personal risk during times like this.

For this question, I would like to credit the stellar reporting of Coin Desk's Sam Kessler. In a June 2019 hard fork of Terra, there was no public discussion, but a line in the code for the new blockchain essentially amended the blockchain's Genesis file to change the wallet address of a Terra investor, TransLink Capital, perhaps because it had lost the private keys to its address. So this is a very similar move to the one that occurred with the Dow Hard Fork on Ethereum, where people now call that an irregular state change. Essentially, the money was moved in this irregular fashion from one place to another.

However, as I'm sure you're well aware, the Ethereum community had extensive conversations about this on the Internet. I mean, it really was kind of a moment to moment, just people were, constantly online discussing this. And the decision was one that was very clearly communicated to the community. However, when Tara did this essentially, you know, very similar move with this June 2019 hard fork, it appears that Terraform Labs sort of unilaterally decided to allocate these new coins to TransLink Capital and didn't have the community weigh in on it. Why did TFL make this decision without having a public discussion? Well, so I do remember.

a public discussion. But like, you have to remember that in 2019, when Perth first launched, there was no meaningful community to the size of Ethereum when the Dow hack happened. So like, it's not so much that there was a lack of discussion. It's just that the community was just a handful of people, you know, back in those days. Like 2019 was. No, I mean, you, you, I don't think you were in crypto in 2016, but Ethereum was not even a year old at that time. you know, the Dow hack happened basically 10 months into Ethereum's life. So I don't think it's that dissimilar. I keep going. Yeah, but I think it was even smaller than that. Like if you went into, you know, TAS telegram room, it was mostly bots and maybe there were like, you know,

five or six people that were talking. And then everybody else was just lurking. So for instance, So basically, with respect to Transcendant Capital, we created sort of a web interface that asked, you know, pre-sell participants to create a new wallet using station and to supply the wallet address to that web interface. Now, what we, you know, couldn't verify was whether a wrong address had been inputted because of an issue with the software or because, like, you know, Transcendant Capital lost the keys or something to that effect. But the way that the TfL can't unilaterally decide to do an upgrade. Each of the validators would read through the code. It's basically a migration scripts that upgrades the blockchain for one state to the other. And then they decide as to whether they're going to upgrade software at a given block time or not. There are cases in which validators refuse to upgrade software,

especially in the case of, let's say, an emergency software update, where only the binaries provided that the source code is updated later in order to prevent the hacker of misusing that information prior to the upgrade having completed. So it's essentially a validator-driven process. And when we made this decision, because we weren't sure whose fault it was in the very early days of the network to provide a fresh address,

it did come up in validator discussions. There were some people that were uncomfortable with it. But general consensus during that time was, yeah, I mean, it's not a big deal, especially if you don't know whose fault it is, we should just go ahead and do it. And that's how the network update happened. The validators in cosmos can be quite stubborn. Just because you tell them to do something doesn't mean that they do it. After Tara crashed, it was revealed that you were part of another algorithmic stable coin basis cash, which failed to reach dollar parity and eventually fell to a value below a penny.

Why were you so confident and frankly arrogant about Tara when you had this other experience with an algorithmic stable coin? that failed spectacularly. So I think I discussed in the coinage interview, but basically the way that Cap4 Labs did work is it sort of became kind of an accelerator that would create lots of different apps. And that's sort of like the mental model by which I operate. So for example, out of TFL came, you know,

apps like, you know, pylon, which used to be like a yield-based, I forget what they're called, but you buy tokens through yield. and we also created things like, you know, anchor, we created a mirror, we created, you know, from our alumni network came things like Alice and Sutton and things like that. So generally speaking, if somebody becomes entrepreneurial and then wants to do something, we throw full support and just let them. So the context around Basis Cash is that when we first brought in, like, the initial team that would start to build anchor, it was actually like,

like maybe a five or six-person team. But we found that only one person had the interest and sort of the mechanism design skills to be able to work on anchor. Whereas the other people were sort of unmotivated and not really excited about the things that were going on. What they did is they were spending a lot of time, you know, like yield farming, defy around that time,

which is not something that I had too much experience doing. So the lucky thing is that these guys, brought in data points about how, you know, this thing called like Yam Finance or, you know, yearn and those things would work. And that's sort of how I first became an active user and became acclimated to PFI. And then over time, they said, we would like to take a protocol that had never launched something called Basis, which I think shut down in 2018 or something like that. and then said they wanted to do an implementation of the basis protocol and then to launch him anonymously.

During that time, anonymous launches were all the rage. I'm not even sure if those guys actually wanted to hide their identity because it didn't have a pre-mine. So basis cash didn't have any sort of a pre-mine or something like that. I think they just wanted to get the experience of being an anonymous founder. And then they started pranking out the code and writing things. And then they assumed a persona of, you know, like from the Rick and Morty series, like, you know, there's like death and summer and all these different characters. Given that they, each of the members there were too comfortable with English, they asked whether I could be Rick and then speak to people so that they can get, you know, attention and users for basis cash.

Right. But, so, Joe, I don't know if you like heard my very specific question, which was like when you went to launch Tara, why were you so confident? seemingly arrogant about it when you had this other experience with the stable coin that failed? Well, so Terra predates basis cash number one. And number two, I don't, I don't think algorithmic stable coins fail because of algorithms. I think it fails because of the stability of the economies that are backing them. What I mean is, like, an algorithmic stable coin and a national currency are actually very similar constructs. It's all based on the quantity theory of money. And the idea is that you should be able to absorb

contractions and expansions and currency and the best way to do that is to build a robust economy surrounding it. For instance, when there's a currency failure of a small developing nation, it doesn't fail because of the monetary policy of the central bank has failed or because they don't know

how to use mechanisms like bonds or things like that to pick up the slack in currency demand. It's because the underlying economy is weaker. So I don't think there was any fundamental problem with iron finance or basis cash mechanism-wise that led these things to fail, it's because there was no solid economy that was being built on top of them in such a way that wouldn't make currency demand volatile. But do you feel that the investors in Terra would have had an interest in knowing that you

had this other experience working on a similar stable coin that had failed? So in terms of basis cash, I mean, sorry to use this word again, essentially all I did was to joined telegram rooms and shippost. So right after they launched BASISCash, they spun out of TFL. So they handed it into resignation, I think, on that day or maybe the day after. And then they hired community managers and other developers and things like that. And then ran that for, I think, a few weeks until BASISC cash deep pegged and they had to look for other jobs.

But in terms of like how exactly BASISC cash was implemented or like what they plan to do with basis cash to encourage the use of the stable coin, I had no involvement in those things. Like in retrospect, should I have assumed like Rick's character and then ship posted on telegram? Maybe not. It was an educational experience. I learned a lot about Defi and why, like,

pseudonymous foundership makes sense in crypto. I saw the energy of the communities that were interested in Defi at that time. And I think without basis cash, it would have been much harder to get that learning experience earlier on. But I just want to say that basis cash is not something that I designed or operated. It's something that I encourage. And have you ever anonymously founded other projects? No. So let's talk about the week of the DPEgging. What happened to the LFG funds during that week? It's actually stated in like a tweet

thread that LHG put out, or maybe it was like a PDF or a doxend or something like that. So basically, I think it was morning Singapore time of, I think, May 7th or May 8th or something like that. So I got up and there was a bunch of notifications on my phone. And I think UST had deepagged about 2.5% at that time. And then there were some very large trades that had been made against the curve, the liquidity pool of UST versus 3 CRV. that led the curve finance pool to be almost depleted,

and there were also very large sell orders on exchanges like finance on the UST to pepper pair. So we saw that, didn't really think it was a serious problem, because UST went through several cycles of, you know, site-de-pegs, both in the upwards direction and the downwards direction. So we, like, initially thought this was something that time would solve. But then again, like, over time, that disparity seemed to get,

worse and worse. And there were, you know, patterns of very specific orders doing very large cells against UST. And I think it was like maybe like the day later when we decided to use LFG funds to buy UST because not only were there very large cells happening, but on social media like Twitter, the sentiment was starting to catch on and rumors about like UST be pegging and things like that, just in general, like in these runaway situations, that's never a good thing. In the initial clip of capital, we deployed a few hundred million dollars to a market maker. I think we deployed some residual amounts of USDC and PEPR that LFC had, like, maybe $100 million in total. The market maker, like, went in, bought like a bunch of UST, but then like UST

re-pegged for a brief moment in time, and then just the sell started to get worse. So we repeated that over the next couple of days, trying to bring the UST peg to parity. The price of Luna was falling, both because people were dumping, but also because shorts were piling up. And then that happened to both currencies. So sometime during the middle, we sort of had a warm room of various different, you know, OGs from the terror community. and then we decided that it might be worthwhile to raise fresh capital to bring back confidence in the USD markets, as well, just be able to buy more UST. So we started to put together like a midnight fundraising round, which very quickly got leaked.

During that time, I think even more shorts started to pile up against Luna. And we were planning to sell Luna to investors to be able to raise that capital. to be able to buy back UST. So when the total value of Luna fell below like a certain market cap, the raise became untenable. And so now it's been about five months later. Why hasn't the LFG released an accounting or treating logs of how that money was used or even mentioned which market makers executed the PEC defense?

Well, so in terms of the market maker, I think, I mean, I am bound to some confidentiality, technically. But I think there's been pretty accurate assumptions in the market of who the market maker was and things like that. So I don't think there's too much need to clarify who the market maker was. In terms of the accounting of LFG funds, like honestly, like in the beginning, like a lot of firms just didn't want to touch this. And then it took us some time to secure somebody that was willing to work on the report. And there's a lot of transactions, right?

So it took a little bit of time for them to parse that data as well as tried to work with the market makers so that they would produce their data. I think finally when they're closing phases of that. And that on top of, like, we've had a lot of people quit with the Deepak, as you can understand,

there's, when something fails this spectacularly, even the most ardent supporter finds it very difficult to stake their career on like a new version of something that is quite different from what they initially believed in. So it's been challenging just across the time, just across the board at TFL, like wanting to do even basic things. Since you made the LFG to increase Terra's decentralization, why did you unilaterally pull out that last tranche of Bitcoin for deployment by yourself without executing a boat? Okay, so basically, like in terms of LFG directorship, the way that we structured it is that initially we had two directors, so which is myself and Nick Pladius, who used to work at TFL a couple years ago, and was one of the authors of the wide paper.

And then the idea was that we would gather paperwork from each of the other soon-to-be directors. Yeah, so we were in the middle of that paperwork when the deep-pegging happened. So the timing was just terrible for almost everything. By the time that we were executing the last clip, there was pretty strong market sentiment that this wasn't going to recover. The LFG council at that point was kind of like in shadows, right? So there were people not engaging. I think there were some side chatter about resigning or like potential threat to risk and things like that.

So we were in a situation where we had to execute the last tranches of the trade against sort of like an industry that it's sort of turned their backs against us at that point. I want to ask one more question about the money. So on September 9th, 2021, you announced Project Don, which would unlock 3 million Luna a month for TFL for operating costs. So there were times in the following months when this basically meant that $300 million worth of money was being seen. spent on TFL's operating expenses per month. Where did that money go? Okay. So if you look at like the Project Dawn announcement, it says that five million Luna would be used to establish like a separate pocket of capital that could fund general cosmos development. And the three million a month, we clearly stated in that announcement, is that in addition to Project Don, we would not be withdrawing more than $3 million from the

Genesis wallet to be able to fund, you know, TFL operations. Wait, even three million Lula, not $3 million. Sorry, three million Luna. And during certain times, the amount of Luna that was being, the dollar value of the Luna that was being withdrawn was extremely high, right? But, like, and I think a lot of the employees, you know, that work the TFL by dollar value

in the Luna that, they got would have been massive amounts of money. But the thing is, like, when you bring on somebody to and then sign a contract with them, generally they're going to want upside in tokens, right? And, you know, there was discussion as to whether we should like bring down the amount of tokens that were being distributed or something to that effect. But it seemed inappropriate to try to take away the upside that people had earned, despite the career risk that they took to join an early cryptocurrency developer company,

in fact, when the opposite would happen, we wouldn't necessarily raise the amount of tokens that we were promised because the idea is that you shoulder the risk and then get upside the other way. But one of the things that we did because we were sensitive to that emission was that I personally haven't taken any tokens from TFL from, from May of 2020. In terms of the total token distribution, we did make an active attempt

to try to make sure that as few tokens end up in the open markets as possible, as sensitive to the interests of the community. So you are saying that those tokens that were being unlocked every month were basically going to pay these contracts with the employees, and so the employees were largely getting that money. Well, that and, like, for example,

an OTC sale that we did with, you know, let's say Galaxy and Pantera and several other players. So in essence, like token purchasers were vested over many months. A lot of them went to like meet, you know, things like contract obligations and things to that effect. Okay. So it essentially wasn't for operating expenses in the way that most people think of that, but it was for these agreements. Yeah. So what I meant by like operating expenses is like stuff that we need. need to, like disbursements we need to make out while operating TFL.

And one other thing about this, in the blog post, you said that the details around each unlock would be transparently relayed to the community. Did you have like regular reports about this? So that, that's something that we weren't able to do because, for instance, like any sort of purchase contract has confidentiality obligations, right? So we wouldn't be able to say this person purchased this much. And that, even in cases where it becomes very easy to guess, that would create liability for us. And just as like an HR practice,

I was advised that it would become very difficult if you make it transparent for how many tokens each employee was getting. And the disparities, admittedly, were quite high because people joined at different points in time. So, for example, somebody that joined when Luna was like 15 cents would be getting a lot more tokens from TFL than somebody, that joined when Luna was $100, right? And while theoretically people can understand why that happens,

it's kind of like demotivating in some sense to have to work with that amount of disparity. But, you know, people talk and they found out, you know, hints of who had many tokens and things like that over time. So that had been one of the consistent problems in terms of HR policy at TFO. And I would assume many other crypto development verbs. I want to ask you some questions about your situation. And you mentioned your finances a minute or two ago. What was your total net worth before you started Tara? And what's your current net worth? Yeah, I'm not sure if I'm comfortable answering that question.

All right. In the next several days, it looks like your South Korean passport will be invalidated. What do you plan to do at that point? I'm not using it anyway. So I can't see how that makes a difference to me. meaning you don't intend to travel from where you are now? No, that's not what I meant. Do you have another passport that you can use to travel? Yeah, so just in general, like with personal travel plans or location or things like that, it does get pretty horrible for me, given the amount of publicity around this. So I just don't feel comfortable talking about, you know, location or how I plan to travel

and things like that. I also wanted to ask some questions on behalf of some of these token holders on May 21st, you tweeted that pre-DPEG UST holders would receive either USDT or USDC. And the Luna Foundation Guard tweeted something similar in the 16th, saying that Foundation would return remaining assets to compensate the remaining users of UST, prioritizing the smallest holders. When will this occur? So right now, the Luna Foundation Guard is not at a state where it can make clear disposal of its assets.

there is pending civil litigation against LFG. So until those are resolved, we just are not able to distribute tokens at our discretion. So I don't have a lot of clarity on how long that process would take, but it's, yeah, hopefully soon. Will you pay interest for this delay in the refunds? Well, it's not a refund, right? It's not a, it's, I mean, so a refund is only established if people bought something from us it's not a system whereby we are a vendor of cryptocurrency

and that people give us money and then we give them stable coins so it's it is not that model right so it's not a situation where and I think a lot of the misconception comes from like people think that all stablecoins are the same so the idea is that okay I just use a stable coin I don't care how it worked

but given you were the face of you know tarot stable coin it didn't work I want my money back. But we weren't the counterparty to stablecoin acquisitions, right? So it's more of a like a goodwill effort, us realizing that using this 313 Bitcoin is not going to repug UST. So we're going to distribute it to USTC holders. But it's definitely not a refund. Right. So this compensation, but will you pay interest? No, I don't think we're making any like yield on the underlying tokens now. So we're not generating interest.

So there will be no interest. And would you ever contribute your own personal funds to these reimbursements or to this compensation? My personal funds are not significant enough to make a difference to any of these distributions. You've been through some extreme highs and extreme lows in your young life. You went to Stanford undergrad,

which obviously is something seen as an education, achievement in and of itself, you became, I think, the biggest crypto star in Korea. Now you're probably one of the most notorious men in Korea. The South Korean government wants to arrest you. How do you feel about the direction that your life has taken? So, Laura, to be honest, I think it's going to take a couple years and some sobriety of retrospect for me to fully internalize everything that has happened. But one of the things that I want to clarify is given some of the jokes that I made on Twitter or anything like that, but it was never really about, you know, money or, you know, fame or success quite in those

terms. I'm sort of like a person that like likes making toys, right? So what I mean is I derive a lot of enjoyment from from just simply tinkering with things. So for instance, like even outside of programming, I enjoy building furniture, for instance, or these days, I guess, sometimes to cook. So, like, from that perspective, like, I think one of the things that I hope the next few years would clarify is what happened with Terra was, it wasn't a scam, like, it wasn't a fraud, right? It was a massive market failure. But I think one of the things I want to clarify is I believe. in the need and the viability for decentralized algorithmic stablecoins more than anyone else.

And as founders, we are, we sometimes have a bias. And in some cases, Aaron is biased for being bullish, right? So a lot of people say that I'm an idiot for buying Bitcoin right before it was about to crash or something like that. But dispositional speaking, like isn't crypto made better or any industry may make? better. If there are people that just just a little bit, like, believe in things and is more optimistic than other people about how things are going to pan out and how things are going to work. I think the most important thing is, like, we really did try to hold ourselves to a pretty high standard of integrity. And I think now we're starting to make some attempts to

make sure that we provide the right kind of information out there so that people can understand what happened better. We are a pretty small organization at this point. So there's sometimes going to be things that we won't be able to answer everything, right? Because there's just too much accusations coming out and some without like any factual basis or something like that. But we are trying our best. Like in terms of when it comes to my life, I think like the way that I think about it is I am but 31 and I would still love to contribute. So it is going to be an exciting time because I think, you know, more of the work that I'm going to be doing is going to be in the cold. I get to do a lot more engineering, which I didn't get to do in 2021 when terror was just exploding.

So a lot of my time was just spent in calls and meetings and podcasts. While this is definitely probably the hardest time in my life, in terms of the work that I do and the challenges that we are having to work through, it is a refreshing change of pace. So, you know, here we are in this sort of reflective mode. And I was curious, if you were to go back, is there anything that you would do differently? And if so, what? I think the sort of the changes that I would make is from like a lot of the discussions that we covered for today. You know, I think there would have been things like maybe deciding to, you know, build that PTC on-chain reserve a little bit earlier so that the reserve would have been more significant before the bull market crashed.

That could be one of those things. For example, being less aggressive and less joking on Twitter, I think definitely would have been one of it. Yeah, spending less time on social media and talking to people, I think definitely would have helped probably that make a lot more work done. But I think, look, so I think the next attempt at creating, like, decentralized money is going to look a lot different. So it might not even be a stable coin, right? So it might not even be dollar pegged.

There could be different types of reserve dynamics in play. But I do really think that building decentralized money is one of the most important problems that crypto has to solve. Because without it, what are we even doing here? And I think in terms of the recent sort of regulatory clampdown on censoring transactions and arresting developers from Tornator Cash and things like that is indicative of how we need. to work towards that decentralized future. And while I am deeply regretful of how everything penned out with UST, I do think it's important for new developers to learn from what happened here and to keep attempting to create decentralized money

that is not just censorship resistant, but more robust, more transparent, and resistant to failure. And I think if some of the work that we've done at theFL because it's not really all about the failure. We did some interesting work. We built interesting apps. If some of the history of the work that we've done in sort of creating UST and seeing it scale and grow for three years is valuable for other people to be able to create that decentralized currency, I think that would make me very happy. Well, is there anything that I didn't

ask you that you would want to say? Just generally speaking, I plan to be, I am working on like lots of different things. Like I'm not going to talk about them. I'm not necessarily going to, you know, some of these necessarily are not even going to launch. Are you working on Luna Classic at all? No, not at all. But Terrastational Wallet, I think,

still supports Luna Classic, but we don't really have a relationship with the original classic blockchain anymore. So I'm just in general, like, I plan to be working on things that are, you know, exciting to me. Once again, I am but 31. I still want to contribute. Definitely all of these are going to be highly experimental.

So as in like just for like my fun in building them, if it's useful, feel free to contribute, ask me questions, you know, to build on them. And if you don't like them, just don't use them. But, you know, yeah, I plan to continue building and report to working with several of you in the future. All right. Well, I really thank you for agreeing to this interview.

You know, as you mentioned, that you find transparency and, like, revealing the facts to be important. And I, you know, really appreciate that you took the time to answer what were some tough questions and helping that effort. So thank you so much for coming on Unchained. Thank you, Laura. Bye-bye. Thanks so much for joining us today. To learn more about Doe and the collapse of Tara, check out the show notes for this episode. Every other week, Unchained hosts the Chopping Block, where Crypto Insider, Susiehersi,

Tom Schmidt, Robert Lester, and Turun Chitra, chop up the latest news and digital assets. Subscribe on YouTube at YouTube.com slash C slash Unchained podcast. Unchained is produced by me, Laura Shin, from Anthony Youen, Matt Pilchard,

Fonder Vannevich, Pamajumdar, Shashank, and CLK transcription. Thanks for listening.