Unchained - Here’s Why USDN De-Pegged From the Dollar – And Why UST Might Too - Ep.339

Starting point is 00:00:00 Hi everyone. Welcome to Unchained. You're a no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto six years ago, and as a senior editor of Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the April 8th, 2022 episode of Unchained. If you're frustrated that your bank account isn't crypto-friendly, it's time to make a change. On June, is a powerful new checking account that lets you buy, spend, and earn in crypto. It's free to open an account and even comes with a metal card. Download the On Juno app today. With the Crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code Laura. Link in the description.

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Starting point is 00:01:28 That's try defy.cc slash unc. Today's guest is Kevin Zoe, co-founder of Galois Capital. Welcome, Kevin. Hey, Laura, how's it going? Thanks for having me on. This was a pretty dramatic week in stable coins. On Monday, a stable coin called neutrino dollar, or USDN, lost its peg, falling to a low of 68 cents. Why don't you begin by telling the last?

Starting point is 00:01:58 listeners, what USDN is and how it works? Yeah, so USDN is neutrino dollar. It's basically a stable coin that's pegged to the US dollar and it's an integral part of the waves ecosystem. The way it works is that the creation, the minting or redeeming of USDN is done through burning. So if you want to create USDN, you burn waves. You know, you burn an equivalent dollar amount of waves to get an equivalent dollar amount of USDAN. And the reverse is true. When you want to redeem USDN, then you redeem it for waves. So for every X amount of USDN that you burn, you get X dollars amount of waves back. This is what we would call an algorithmic stable coin. And algorithmic stable coins have historically had trouble. So in this case, how and why did USDN depeg?

Starting point is 00:02:51 Yes, it was for a number of reasons. But the main reason is that people found that on chain, was a really large address that was doing what we call recycling, right, or leveraging. And the way that that works is that, and many people think that this is the Waves team themselves that was doing this. And the way that works is, you know, you first, you start with USDN, you put it into VIRES. And VIRAS is basically like the AVEE of Waves. So it's a borrow lending platform. You can deposit, you know, USDN over there, get some yield. You can borrow other types of assets like USDC, Tether, Viras itself, waves, a lot of different assets. So the way that this loop works is that USDN is first put into Veras as deposit, and then from

Starting point is 00:03:35 that they're able to borrow hard assets like USDC and USDT. They use that then to buy waves, and then use the waves to convert it to USDN through the mechanism that we talked about right before, and then redeposit that USDA back into VIRAs completing the cycle and continuously do this until basically all the deposits for USDC or USDT are depleted because then the cycle can't continue anymore. So basically there was a lot of this recycling going on, and that's what's been causing this huge pump in the price of waves. And then afterwards, at some point, you know, there are a lot of people on Twitter, for example, like X-Hams, for example. A lot of people have pointed this out, which is that, you know, this whole thing is unsustainable because at some point the whole thing

Starting point is 00:04:18 has to come back down once this cycle stops because of the running out of. of the deposits of USDC and USTT. And also on top of that, you know, there's more of the story because, you know, Sasha comes out, you know, who's the founder of Ways, and he starts, you know, putting together this conspiracy theory

Starting point is 00:04:37 that it's actually like Alameda that's causing a lot of like problems for the, for the Waves ecosystem and saying that, oh, you know, these guys are really short, you know, and he put out a proposal for a governance vote, which was basically, you know, without getting into like all the nitty gritty, the idea of it is that it would make it harder for shorts,

Starting point is 00:04:56 and it would be more possible for them to get liquidated because he wanted to liquidate the shorts. Unfortunately, it's kind of backfired because Alameda responded in saying, we're not actually just naked short on waves or USDN. Really, they have this hedge play that's going on where they're taking out a borrow of waves to short it, but at the same time, they're long the purse. And the reason that they're doing that is that there's some bases to collect in between.

Starting point is 00:05:20 In other words, like the funding rate was very high. favorable in this kind of hedge trade, right? So they're not actually having any net kind of exposure on waves. They're really just doing this kind of hedge play. And then on top of that, then the community also had a backlash against Sasha saying that, you know, we can't just willy-nilly, you know, liquidate shorts just because they're short, right? I mean, it's just a, you know, it's a fair short. I mean, they want to express that bet, whether it's, you know, an actual short or whether it's a hedged bet, you know, regardless, that's their, that's their right to do that. and we shouldn't just change up the protocol rules just so that we can squeeze the price higher.

Starting point is 00:05:53 So I think overall ended up backfrying on them. And then from sort of the revelations of this recycling, which is unhealthy, generally considered unhealthy and generally considered, you know, these kinds of prices that were waves pumped to was considered generally inorganic. Then basically all this stuff had to get sold down. And then on top of that, there's some unwinding effects where, you know, as waves starts collapsing in price, you know, trust in the same. system, you know, starts to get depleted. There's a lot of circular effects. Just overall trust, you know, trust kind of erodes and a lot of other people start selling too. So that kind of compresses the price. So that's how it got deep pegged? Yeah. So that's the reason that waves ran up and then crashed. And then the depagging itself is that, you know, at some point, if you're looking

Starting point is 00:06:44 for an exit from this sort of like spiraling or failing system, there's two ways to do. it if you have USDN, right? One is to convert it to waves and sell the waves, and the other is just to sell the USDA. So depending on whether the mechanism is gated or not, and, you know, we can talk about like Luna and Terra later, but depending on whether it's gated or not, if there are very strict restrictions on just how much USDN you can get out into waves, then the USDN itself defects. As long, so that's sort of like the end state. The end state is where there's not enough liquidity in waves itself or the convertibility between USDN and waves gets short-circuited somehow, and then the coin itself, the state-point itself, defects. Otherwise, people would just convert it,

Starting point is 00:07:29 convert the stable coin to waves and then get out through that angle. So essentially, though, like people wanted to sell out of USDN and they couldn't, and so then they were willing to sell it at lower and lower prices. Is that basically what caused the depig? Yeah, exactly. It's basically there's two outflows for capital in that kind of system, either through waves or through USDA. So the DPEG happens because there was not enough bandwidth to go through waves. Okay. Yeah. I mean, such a fascinating story.

Starting point is 00:08:05 Yeah, I was looking at the comments on the proposal. So, by the way, the wave CEO is Sasha Ivanov and Alameda research is the market maker associated with FTX, founded by the CEO of FDX Sam Bickman-Fraid. And I saw that the comments on the Veyer's proposal was like this would basically mean, because it's supposed to be borrowing and lending protocol and people were like, okay, if this goes through, nobody's going to use this. So, I mean, it was fascinating. But in general, you know, we've, as I mentioned earlier, we've seen so many of these algorithmic stablecoins depeg. So why is that so common? Yeah. So I think I think the idea is that that, you know, in crypto, there's a lot of different ways to make money. And I think what people

Starting point is 00:08:52 have found is that running sort of like grifts or scams generally is a good way, at least in the short term, for these founders and these very short-term-oriented investors to make money. And at least historically, even though almost every single algorithmic stable coin, which was not backed by collateral, has so far failed, you know, maybe with the exception of Luna so far, you know, it's still like in the process of doing that because of these like giant pump and dump cycles, a lot of the founders and the investors are able to make a lot of money. So even though there's a lot of failure and even though everybody kind of understands the risk, with sort of like the advent of new capital coming into the space and a lot of new people coming

Starting point is 00:09:31 into the space, you know, I think there's always like, you know, a greater fool to sell this kind of product to a repackaged version of this product tool. And as long as I think these founders and these investors continue to make money, I think that'll continue to happen. So I think it has to do with, you know, building a mechanism, which is basically an obfuscation of basically trying to mint money out of thin air, right, through like the very, very complicated contraption or mechanism or some kind of Rube Goldberg machine at the end of the day, you can't really generate value from nothing, right? And I think that's one of the reasons why, you know, ultimately these things fail.

Starting point is 00:10:11 Now, each one has a different mechanism, right? So if you look at, like, for example, basis in the past, you know, Ample 4, ESD, DSD, Ome to some extent, and time, and now, like, Lunarra and waves, you know, all of these have slightly different mechanisms, but I think, in my opinion, they all reduced down to kind of the same thing, which is that you're trying to get this weird flywheel going while basically minting money out of dinner. So you basically, it sounds like you feel that UST then runs the same red. that eventually it will depeg.

Starting point is 00:10:43 Like the way you're talking, it sounds like you feel like all of these algorithmic stable coins will fail and just none of them will ever succeed. Yeah, I think at least all of these types of designs, right? So like this senior age-based kind of like supply contraction, supply expansion type of designs that don't have any external backing underneath it or any kind of external collateral, I think pretty much those will all fail. that could be wrong. I mean, maybe somebody comes up with some genius design and some kind of like skyhook thing that actually works. But for the most part, it's all basically variations of the same theme. Right. So because of that, yeah. But then so UST since it now is going to be partially backed by Bitcoin, are you saying that then you don't think that UST is likely to fall into the same trap? Yeah, I think the risks are still there. I actually think the risks are much bigger than waves just because of the size of it. You know, there's like, 16.6 billion UST in circulation. I think 12.2 or 4 billion is now stuck in anchor. So I think it's a

Starting point is 00:11:48 much bigger problem. But I will say that I think the backing of having some kind of Bitcoin hard collateral or even just like other types of stable coins or even like avalanches they just did, basically any kind of backing, which is not circular, I think would be helpful. So I think they're going in the right direction. I just disagree about the size. I don't think a $3 billion amount of Bitcoin is enough of a cushion on this kind of unwind on Anchor. And Anchor is basically the barn lending protocols, the AVE of the Terra chain. Yeah. Yeah. And the yield on that right now is about 20%. So, okay. So in a moment, we're going to talk about a potential plan to try to make these kinds of stable coins stronger. But first a quick word from the sponsors who make this show possible.

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Starting point is 00:14:59 So as we've been talking about, Tara might be feeling the heat given what has been happening with these other stable coins. And this week we did see a proposal from someone on the Terraform Labs team, someone named EZAN, who proposed something called Forpool. What is Forpole? And also since it uses curve, why don't you explain what curve is as well? Yeah. So Curve is basically an AMM. And it was originally used for stable swaps. And what stable swaps are is, you know, it's a way to basically transform one stable coin to another with a fairly low slippage. So generally, you know, I think it depends on sort of like the context that that your viewers have. But, you know, assuming some understanding of uniswap, it's basically like uniswap,

Starting point is 00:15:48 but there's a lot of flatness on the bonding curve where it's, you know, kind of close to balance, when the pool is kind of close to balance. Hence, allowing for really large sizes of stable coins to be swapped against each other at very minimal slippage and minimum fees. So that's sort of what what the curve model is. And, you know, the idea behind four pool, I think before that we should, we should talk about what three pool is, because it's sort of like the game plan there is that they want to try and replace three pool, right? So three pool is a curve pool with the assets of USDT, USDC, and die, right? And it's one of the most liquid pools on curve. And it generally, not only is it itself very liquid, but it also

Starting point is 00:16:29 functions as a counter asset to some of these other stable coins. So, for example, right now, if you wanted to trade UST on curve, you could go to the UST three pool pool. So that's basically a meta pool. It's a pool that consists of on one side, an asset UST, and on the other side, this three pool, which is itself a pool, right? So that's what makes it a metapool. So because of three pools use, first as a pool itself, and second, as,

Starting point is 00:16:59 one of the pairs in a metapool, you know, it has a lot of use and it has a lot of liquidity. And the idea behind four pool, and this is a proposal and basically a partnership between, you know, between the Terra, Luna guys, and FRAX and USTC and UST, as well as redacted cartel. And the idea behind this is that they want to have these four assets, right? So the two kind of centralized stable coins that are big, USDC and U.S.D, FRAX, a new Algo stable coin, and then UST, Luna's, I'll go stablecoin. And they want to overtake three pool. They want to make this sort of the de facto, you know, pool where, you know,

Starting point is 00:17:37 everybody goes to, everybody uses as a pair in their own metapool for any new kind of stable coins that come out. And the plan on doing that, and I think it has some merit, which is that they're going to point, well, I guess we should talk a little bit about how convex works. So both of these groups, Fracks and Terraluna, have a lot of convex, right, CVX. spraying. And what that allows them to do is it allows them, we're shortcutting a little bit, but basically allows them to point a lot of the rewards of Curve, right? So if we're using Curve or staking to Curve, Curve itself gives out CRV tokens, right, as an incentive to provide

Starting point is 00:18:15 liquidity. But in order to decide which pool gets how much, there is basically a gauge, which is voted on based on, you know, the Stake CRV or the VECRB, vote escrowed CRB, that people hold. So convicts is basically a layer on top of that. You know, I mean, long story short, basically governs this kind of voting scheme and can basically increase the yields of certain pools to the detriment of other pools. So in that they hold a lot of convex, you know, both the frax guys and the lunatic guys, they have a lot of voting power on making their, you know, their four pool when it comes out, making it have a very high yield. They think that by having that, by having that they'll be able to attract a lot of capital from other curve pools to stake into their

Starting point is 00:19:02 pool, hence drawing liquidity away from three pool and introducing it to four pool. And in that way, you know, this is basically what's called the curve wars in that way, you know, promote the success of, you know, increasing liquidity for their individual tokens. Yeah, they say that this follows the ethos of stable coin pegs are stronger together than competing against each other. but you've been very vocal against Fourpool and also UST, as we've sort of hinted at previously in the discussion. Why is that? Yes, I think I should just qualify that and say,

Starting point is 00:19:37 I have been very vocal against Luna and UST, but not actually against Forpool. I think that is actually a good idea. And I think certainly the buying of Bitcoin collateral, even though it's too meager right now, $3 billion, I don't think is enough, I think it's a step in the right direction. So I'm actually fully in support of those two proposals.

Starting point is 00:19:55 I think they're trying to, you know, I don't know if I could say that they're basically trying to cover their asses because things have gotten a little bit too big right now. So I think it's a step in the right direction, but I still don't think that the entire system is solvent. I think that right now on Anchor, which is the Avey of the terror ecosystem, there's a reserve and that's basically bleeding out, you know, millions or tens of millions per day. and it's basically subsidizing depositors to anchor, right? So if you deposit UST to anchor, you're getting a 19.5% yield,

Starting point is 00:20:28 which is a very high yield given that, you know, currently there's not many quote unquote safe ways to farm reasonable like double-digit yields. You know, it's basically a subsidy given out to people who bring capital, you know, and basically lock up UST. And in the hopes that, you know, they think that with this marketing spend, they're actually able to get people to actually use UST. And it's just a way to kind of like bring the customer in first,

Starting point is 00:20:56 you know, which I don't particularly have a problem with. It's just that they are bleeding a lot of money. And then at some point, that yield has to come down, right? Like the borrow rate is like, you know, 13%, something like that. The lending rate is, is 19.5%. So, you know, there's literally free money there, right?

Starting point is 00:21:11 Like, you could just, you could bond, you bond Luna. There's another problem, which is the bonded Luna. You can bond Luna. you basically pay 13% and you can reinvest the UST that you get from bonding the Luna and staking it to anchor and you can reinvest it into the deposit to just get that extra juice, right?

Starting point is 00:21:29 So anytime the deposit yield is higher than the barring yield is generally unsustainable. So that has to come down at some point. I think they're going to gradually do it, probably the correct choice to gradually do it. But it's just won't be enough. I think somewhere between, I think the equilibrium yield will be,

Starting point is 00:21:45 I think they did, They did some analysis on this. It's going to be somewhere between like 7 and 12% on the deposit yield. And the question now is basically how much of that UST that's currently locked up at 19.5% is going to leave that ecosystem once it drops to 7 to 12%. Right. So what I think is that generously, and I think it could be my actual advocacy is way worse, as much worse than this. But I think generously, 9 billion Luna has to leave the ecosystem. So if nine billion leaves and what are the avenues for it to leave?

Starting point is 00:22:20 Well, you know, people can, you know, dump some of it on curve. I mean, but how much can you really do there? Maybe half a yard, you know, 500 mil. Maybe some of it, you know, is just not dumped, right? Maybe people find some other uses of it because the marketing campaign works, right? So, you know, there might be like a bill over there. But, you know, overall, it's just like a lot of these avenues for exiting out of UST, there's just not much liquidity there. Right.

Starting point is 00:22:45 So you're still stuck with. multiple billions that need to exit, and they can either exit through the Bitcoin that they bought is three billion, or they can exit through Luna. The three bill is covered by by Bitcoin at 98 cents of a dollar. You're still left with a lot of, you know, UST, still multiple billions, maybe four, maybe, you know, five billion of UST left to unwind. Generally, you know, whenever, you know, and I think we should, we should take a step back and talk about this. Generally, when you buy an asset, for every dollar that you use to buy it, the market cap goes up by some multiple, right? It's not one for one, basically, right?

Starting point is 00:23:22 If you buy an Apple stock, if you put like $100 in Apple, Apple's market cap jumps by more than $100, right? So what exactly is this multiplier value? Well, they've done historical analysis on stonks, and it's basically three to eight X, depending on the elasticity. For crypto, I think it tends to be on the higher side and maybe even, higher than that. And then for something as reflexive as the design of this alga stable coin, I think it might be even beyond that, right? But even on the conservative side, let's say maybe like an 8x, right? So 5 billion leaving UST through Luna would probably compress the Luna market price by eight times $5 billion, which is maybe like $40 billion. So like I see that there

Starting point is 00:24:08 could be, in my opinion, you know, when all of this thing, all of this stuff unwinds, you know, I see that there could be some very serious compression on the Luna price. Now, that depends also on the gating mechanism for how much UST can be minted or burned per day for a Luna. If they release all the gates, then basically it's Luna itself that takes on the brunt of all this selling pressure. You know, market cap tanks, you could see huge drawdowns on the price there. Now, if they gate it and they say, okay, only 100 million UST can exit through Luna, per day, well, then if more wants to exit per day, then you start to see UST depegging. So, you know, it's really kind of like a pick your poison. If you gate it, then the deep pegs,

Starting point is 00:24:53 if you don't gate it, then the price tanks, right? And in the most extreme cases where the solvency of the system itself comes to, you know, comes to question, there might not be enough Luna market cap to be solvent for the entire amount of the UST to exit, right? Because in the absolute worst case, right? Let's say that all of the boroughs are, all of the deposits and borrows, they're recycled, right? So all this 3.3 billion UST that's borrowed is then re-injected as deposits to basically claim this hard on the yield. Then basically the amount that unwinds is a 9 billion U.S.T. It's like, you know, 12.2 billion U.S.T plus 4.8 billion of B-Luna, which is bonded, right because you need to bond being in order to do the borrowers in the first place on this 3.3 billion

Starting point is 00:25:46 of UST borrow. So if the unwind is much greater than $9 billion, you know, we're talking about maybe like $16, $17,000, maybe $17 billion and let's say the multiplier factor on selling against market cap is, you know, let's say 10 or 20 or something like that, then the entire system is insolvent. We're not just talking about a crash in the Luna price. It's basically the Luna goes to, you know, 0.001 penny, one cent, you know, for 0.001 dollars. And then it goes through hyperinflation to try and create enough Luna for a full dollar for every dollar that exits. And on top of that U.S.T. Depegs. So in the worst case, all of that stuff goes to zero altogether, right? So in the best case, we're talking about a massive drop in the Luna price.

Starting point is 00:26:37 in the worst case we're talking about the entire unwinding of the entire system and the contagion effects from that right and namely being that when retail gets burned first of all they go complain to regulators and then second of all you know the traditional media isn't as kind as you laura you know they're going to they're going to take this narrative and they're going to run with it and they already hate crypto so they're just going to slam us they're going to say oh look at crypto is just filled with scams this this and that could have a very big chilling effect on the market for a very long time. And I, for one, am not that interested in, you know, just bearing with like another two, three year super cold, you know, crypto winter. So, you know, I think for the most part,

Starting point is 00:27:14 we need to diffuse this bomb, you know, as quickly as possible. If this thing is faded for failure, then we might as well unravel it now. And we should spread the word to unravel it now before becomes too late. Now, obviously, the counter argument is that, in fact, it is not faded to failure that if they can get enough usage or utility out of UST, then that it's, it's a good thing. It's itself, that circulating effect of the actual stable coin for its use case will basically cause like a supply sink in UST, and hence it won't unravel. I generally don't buy that argument. I think there's no real use for UST right now in size except for farming on anchor, right? So you can literally talk to anybody, everybody that I know, everybody that I've talked to,

Starting point is 00:27:58 many of the firms that are in the space, many of them swinging very big size. you know, there are, a lot of them are farming Anchor and, you know, they don't even use it for anything else. I mean, maybe like here and there for an ICO that's on the tariff blockchain or whatever, but I mean, we're talking like orders and magnitude less, right? Like here in Anchor, we're talking about high single digit billions or to low double digit billions, you know, elsewhere we're talking about like at most like, you know, double digit millions, maybe triple digit millions at best, right? So, you know, we're talking about orders and magnitude difference. So, you know, I understand the play that they're making. They're basically buying time. They're bleeding money. They're paying marketing costs. You know, they're buying time to try and get actual use from this thing. But I just, there's not enough time. And I think, I don't think it'll work. I wanted to ask, so, you know, obviously they're not going to cut the yield on anchor like in all in one go down to 12%. So don't you feel that there would be kind of like a gradual way to do?

Starting point is 00:29:01 it where you wouldn't have like all these people trying to, you know, close out their positions and Terra and redeem for Luna or whatever, like is super fast. And so if you sort of ratchet down slowly, wouldn't that be a way of preventing the scenario that you outlined? I agree with you. I think if they, if they reduce the yield slowly, it'll be better. But overall, the net effect is nearly the same because it's the, it's about the amount that has to unravel over time to settle on finally an equilibrium point for what the yield should be on the deposit side such that the reserve doesn't leave. So I agree that it may be a little bit more gentler, but still a lot of this money has to kind of leave. Because if you think about it, there's sort of like marginal

Starting point is 00:29:44 sellers along the way, right? Like at 19.5%, everybody who's in it is in it, right? At 19% like some marginal group leaves, right? It might be small, right, but some marginal group leaves, right? And then 18 and a half, then some marginal group leaves. If you sum up all the marginal groups, is that the same effect as immediately taking the deposit yield from 19 and a half to 12? Right. So on one hand, I agree with you in the sense that it's not as bad. I think the sum of the parts is actually less than having an immediate drop. I think the sum is actually less than the whole. But I don't think it's that much less than the whole. Okay, well, this has been incredibly interesting. I guess we'll have to see

Starting point is 00:30:27 who ends up being right. Obviously, there's kind of a lot of, a lot vested on one particular side. So they're probably, you know, thinking a lot about these issues and maybe trying to take your criticism and improve before anything that happens. Well, it seems like that already. But anyway. Yeah, it's much appreciated. Yeah, yeah. It's been great having you.

Starting point is 00:30:52 Thanks so much for coming on Unchained. Yeah, thanks for having me. Appreciate it. Don't forget. Next tip is the weekly news recap. Stick around for this week in crypto after this short break. 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 Subservantes. Download the crypto.com app now and get $25 with the code Laura. Link in the description.

Starting point is 00:31:37 Thanks for tuning in to this week's news recap. Ronan will be reimbursing users. Eight days after losing $600 million to the largest exploit in Defy history, Sky Mavis announced plans to reimburse all affected Ronan Network Bridge users. Sky Mavis will be raising $150 million in a funding round led by Binance with participation from Anamoka brands, A16Z, and others. That $150 million in cash, along with balance sheet funds already owned by Sky Mavis, will replace the 173,600 ether and 25.5 million USDC that was drained from the Ronan Bridge

Starting point is 00:32:19 last week in a social engineering attack that saw four of Sky Mavis run. validators and a third-party validator run by AXIDOW compromised. The news comes just a few months after the Wormhole Bridge announced a similar reimbursement funding round from Jump Crypto following a $300 million exploit. In the aftermath, Ronan Bridge will be upgrading its security, which previously relied on only five out of nine validator confirmations for a transaction to go through. According to a SkyMavis blog post, the new validator group will be up to 21 validators in the next three months, split amongst various stakeholders rather than just Sky Mavis.

Starting point is 00:32:59 Ronan Bridge, which was shut down in the aftermath of last week's hack, will go live after a round of upgrades and audits that could take weeks. Meanwhile, Binance will be supporting ETH withdrawals and deposits from Ronan. Interestingly, the 56,000 Eth drained from Auxidow will not be fully reimbursed by Binance or Sky Mavis's balance sheet. Instead, SkyMavis explained, the 56,000-Eath compromised from the AXEDAW Treasury will remain under-collateralized as Sky Mavis works with law enforcement to recover the funds. If the funds are not fully recovered within two years, the AXIDAL will vote on next steps for the Treasury.

Starting point is 00:33:39 In related news, the Ronan Bridge hacker was active this week, moving roughly $7 million through the coin mixer, Tornado Cash. Stable coins are coming to Bitcoin. Lightning Labs, a lightning network developer, announced a new protocol this week, dubbed Taro, which aims to make Bitcoin's layer two solution a multi-asset network, as explained by Lightning Lab CEO Elizabeth Stark in a blog post. In essence, Terrault's purpose is to Bitcoinize the dollar, Sterk wrote. With Tero, developers will be able to issue assets on the Bitcoin blockchain and then move them onto Lightning for speed and scalability,

Starting point is 00:34:17 making use of Bitcoin liquidity to ensure interoperability between assets. Notably, according to Stark, Terra will also allow assets like stablecoins to route through the Bitcoin network via lightning. Interestingly, Terra was only recently made possible by Bitcoin's taproot upgrade, which made significant improvements to contracting, security, and efficiency for the chain. Fun fact. The launch of Terrao was on April 5th, aka Satoshi's birthday, the same day that Roosevelt ordered U.S. citizens to return gold worth more than $100 for

Starting point is 00:34:52 Viat in 1933. Major raises was the theme of the week. Crypto funding continued its rampant pace this week. In conjunction with the Terrell announcement, Lightning Labs raised $70 million in a Series B funding round led by Valor Equity Partners and Bailey Gifford. Other participants included Robin Hood's CEO Vlad Tennev, Crypto Infrastructure Firm Nydig, and Brevin Howard. Lightning Labs did not disclose the valuation.

Starting point is 00:35:22 Binance U.S. raised a $200 million funding round at a valuation of $4.5 billion pre-money. The block reports that a Binance U.S. spokesperson revealed that the exchange wants to raise more in the coming months and plans to go public in the next two to three years. Near Protocol announced a second nine-digit raise in under three months on Wednesday. The protocol is bringing in $350 million in a round led by Tiger Global to decentralize the near-egoal. system. Near Foundation announced a $150 million raise in mid-January to support defy development. Disclosure, NIR Protocol, is a previous sponsor of this podcast. Boba Network and Ethereum scaling solution secured $45 million in a series A, giving the protocol a unicorn valuation of $1.5 billion.

Starting point is 00:36:16 Blockchain security firm SIRDIC announced an $88 million funding round that saw participation from traditional behemoths like Tiger Global, Goldman Sachs, and Sequoia Capital. Sertick is now valued at $2 billion. Cryptopayments firm Wire was acquired by Bolt in a deal valued at roughly $1.5 billion, reports the block. The UK plans to be a global crypto leader. On Tuesday, Rishi Sunak, the UK's chancellor, laid out plans to make the UK a global crypto asset technology hub.

Starting point is 00:36:49 The UK is set to make moves to regulate stable. coins, introduce an infrastructure sandbox for crypto firms to experiment, establish a crypto asset engagement group, and explore UK crypto taxes. Notably, the UK announced that the Royal Mint would be creating an NFT project this summer. It's my ambition to make the UK a global hub for crypto asset technology, said Sunac. Somewhat contradictoryly, the news comes as the UK's financial conduct authority is reluctant to give firms, such as blockchain.com, anti-money laundering licenses, leading many firms to pull out of the crypto-asset licensing process.

Starting point is 00:37:25 Another week, another multi-million dollar hack. Inverse Finance and Ethereum lending protocol last $15 million to an exploit this week, making it the 34th largest hack in the defy space, according to Rect. The manipulation was not a flash loan attack and was unrelated to Inverse's smart contract or front-end code, wrote the team. Instead, the hack involved a capital-intensive manipulation of the INV-Eath-Pair price Oracle on sushi swap. Once the Oracle was tricked into showing a fraudulently high price for INV, the hacker was able to borrow $15.6 million worth of Dola, WBT, and Wi-Fi.

Starting point is 00:38:06 For those of you who missed out on this week's episode of The Chopping Block, I recommend listening as Tarun Chitra and Tom Schmidt do a great job of explaining how the price manipulation worked and how the hacker pulled it off in a single block. The inverse finance team has committed to reimbursing all affected users and is currently trying to figure out the most efficient way to repay users without affecting the peg of Dola, Inverse Finance's algorithmic stablecoin. The headline for this section could have been about a multi-billion dollar hack, according to Open Zeppelin.

Starting point is 00:38:38 The security firm uncovered and resolved a bug on convex finance that could have resulted in a $15 billion rug pool due to how Convex's multi-sig was configured. Again, for more information, watch this week's episode of the chopping block, which talks about how Open Zeppelin forced Convex finance to add members to its multi-sig

Starting point is 00:38:59 before revealing the critical bug. The SEC approved a new Bitcoin ETF, but... The U.S. Securities and Exchange Commission approved a new Bitcoin Futures ETF from Nisi Arka and Toakrium on Wednesday, as reported by CoinDast. Bloomberg's senior ETF analyst, Eric Balchunas, called it a good sign regarding the approval

Starting point is 00:39:22 of a spot Bitcoin ETF because previous Bitcoin futures ETFs were approved under the Investment Company Act of 1940, while the Nisiarcha and Two Cream ETF is the first Bitcoin futures ETF to gain approval from the SEC under the Securities Act of 1933. This is a market change. According to an early January thread from Bloomberg's James Seafurt, the approval of an ETF under the 1933 Act would hinder some of the SEC's arguments against spot Bitcoin ETFs due to CME futures not being of significant size, subject to manipulation, etc. Interestingly, Seafurt notes that the pricing methodology for futures in spot Bitcoin

Starting point is 00:40:06 ETFs will be the same, meaning the futures that SEC has approved are based on the pricing from exchanges that they say are subject to manipulation. In related SEC crypto news, SEC chair Gary Gensler called for further SEC oversight on stablecoins in a speech on April 4th. The three largest stable coins were created by trading or lending platforms themselves, and U.S. retail investors have no direct right of redemption for the two largest stable coins by market capitalization. There are conflicts of interest in market integrity questions that would benefit from more oversight, said Gensler. During the same speech, Gensler revealed that the SEC is working with the CFTC to potentially split duties regarding crypto purview.

Starting point is 00:40:50 I've asked staff to work with the Commodities Future Trading Commission on how we jointly might address such platforms that might trade both crypto-based security tokens and some commodity tokens, said Gensler. FTXUS CEO Brian Harrison told the DeCript Daily podcast that the exchange is holding back from listing assets due to regulatory uncertainty regarding crypto tokens and securities law, which is spearheaded by the SEC. FTX US only supports 27 assets in comparison to FTX's 322. According to new guidelines, the SEC wants crypto exchanges to treat customer crypto holdings

Starting point is 00:41:28 as liabilities on their balance sheet. In related news, Treasury Secretary Janet Yellen made her first speech about digital assets on Thursday, in which he called crypto transformative. Bitcoin 2020 Bitcoin's annual conference in Miami took place this week. In an on-brand move, the festivities were kicked off with Miami Mayor Francis Suarez unveiling an 11-foot-thous-pound, laser-eyed robot bull statue. The event features speakers such as Peter Thiel, Jordan Peterson, and Jack Mallors. However, one prominent speaker, El Salvador's president, Naim Buckele, canceled his appearance

Starting point is 00:42:07 at the event due to unforeseen circumstances in his home country. On Thursday, Bitcoin 2022 experienced its first big announcement when Robin Hood chief product officer Aparna Chenna Pragata told the audience that the trading platform had activated crypto wallet functionality for 2 million customers. Users will now be able to send BTC, ETH, and Doge to self-custodied wallets. Robin Hood will also add support for Lightning Network. In other Bitcoin news, two of the most prominent SAT stackers did what they do best this week. They bought more Bitcoin. On April 5th, Macro Strategy, the subsidiary of Micro Strategy, purchased an additional 4,167 BTC, or $190 million worth. And on the 6th, Luna Foundation Guard added roughly

Starting point is 00:42:59 5,040 BTC, or $231 million to its $1 billion-plus stack. In related Terra News, Terraform Labs announced a one-thor-forker. $100 million token swap of Luna to Avax on Thursday between Terraform and Avalanche Foundation. Time for fun bits. A novel Dow experiment. Tweet Dow caught my attention this week due to a fun twist on NFT utility. The Dow sold a batch of 1,000 NFTs, each depicting the iconic Twitter egg, giving holders the ability to tweet once per day from the official tweet Dow Twitter account,

Starting point is 00:43:37 with absolutely no restrictions. As this is crypto-Twitter, the content is still a bit unhinged, but somewhat humorous. The NFTs, for those interested, are selling for a floor price of 0.319-Eth. For those who need a smile, I would recommend giving TweetDow's feed a scroll.

Starting point is 00:43:56 It's quite funny. Thanks so much for joining us today. To learn more about Kevin, Galois, and StablePoints, check out the show notes for this episode. Unchained is introduced by me, Laura Shin, with help from Anthony Yoon, Daniel Nuss, Merg Murdoch, Shoshch, and CLK transcription. Thanks for listening.

Unchained - Here’s Why USDN De-Pegged From the Dollar – And Why UST Might Too - Ep.339

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