Dan Shin: Terra – The Stable Currency Tackling the Ecommerce Payments Market (#301)

Transcript

this week is Berlin blockchain week and we're so excited to be here actually as I'm recording this I just landed in Berlin and heading over to the web 3 summit will also be at Def Con from Wednesday to Friday at the Technical University of Berlin it's organized by gnosis and will feature prominent members of the etherium and decentralized web community last year's event was terrific and I really am looking forward to the second edition tickets are still available epicenter listeners can get 20% off the regular ticket price with the code con epicenter 2019 and that's a DAC on Io where can you find us this week well we're doing a live recording of epicenter on Thursday the 22nd at 10:00 a.m. in the main room Suneetha ayka and I will discuss the state of the dot

ecosystem and take questions from the audience so be sure to attend we're also doing a meet-up on Thursday from 6:30 p.m. to 9 p.m. come hang out with us have a drink you can register for the meet up at epicenter rocks slash Berlin meetup to get the address all of us are also speaking or moderating panels or on panels throughout the week so be sure to check out the schedule to find out when you're speaking and come say hi be happy to see you looking forward to seeing all of you at that pond and during the Berlin Blockade week this is epicenter episode 301 with guest daniel shin [Music] this episode of epicenter is brought you

by cosmos cosmos is building the intent of of blockchains an ecosystem where thousands of blockchains can interoperate creating the foundation for a new token economy if you have an idea for a DAP visit cosmos network slashed epicenter to learn more and to get in touch with the cosmos team hi welcome to epicenter my name is messing with you and my name is Peter beacons and so today we're speaking with Daniel shin who's the CEO of tera you may have heard of tera recently it is a stable coin that is coming out of Korea and one of the things that's interesting about Tara is just the the CEOs background so Daniel is an established ecommerce entrepreneur

in Korea he founded a team on which is one of the top three ecommerce platforms in Korea so like like an Amazon equivalent in Korea and from that experience he saw some of the issues that ecommerce merchants face and one of those issues and this is something that's been brought up a lot in a group of space is the cost of payments so the cost of doing business with regards to credit card transaction fees et cetera and so tera addresses this issue by creating a stable coin that removes a lot of the intermediaries that exist in in the payment space so banks intermediate banks payment service providers Kevin gateways stripe you know yeah and and

also the visa fee so it was a it was an interesting discussion to say the least yeah so there's there's some interesting ideas here with regards to the the peg that this table coin the mechanism for the peg and we went we got a little heated there for some time yeah I think it was a little bit controversial and we had some argument about whether it's good enough to have this table coin be backed by the company in effect namely the Luna a token holders yeah so Daniel gave some answers as well and I would invite all of you to hear what he has to say and make up your

minds yeah so I think this is interesting because when when I first heard about Terra the the thing that struck me the most is I thought wow like this is one of the first times or maybe even the first time that I see a cryptocurrency project that has an actual go to market strategy and like a plan on creating demand for this currency and that plan is that they've got this network of e-commerce merchants in Korea so food delivery apps movie ticket apps etc that are accepting this payment system and at the moment they're doing about a half a million dollars in transactions per day they've got three hundred thousand users on there their payment app so successful and they only launched like 50 days ago

so yeah it's I mean they've been really good at actually getting this on the ground and getting people to use it right but so one of your points of contention was that you think that this doesn't work that like the peg doesn't work yeah exactly so basically my point of contention was that I made the point that I think this works as long as there's an expectation of growth but that the system inherently can't hand cope with shrinkage and basically being convinced that it can't hold up in the event of a flex Black Swan event that will damage the system and its credibility and that it may cause it to fall apart even if no Black Swan event

actually happens I think like if we were to compare this to something like maker is like maker is collateralized by by ether it's over collateralized by ether and so there's something backing it there now one could argue that ether by which maker is backed is also backed by some expectation of future profit or like future value whereas with Tara there's no underlying collateral the only thing that keeps the peg is the expectation of future growth through this seniority model that they have and also the transaction fees that they pay to their to their validators so you had a you had issue took issue with that particularly because you think that you know if there was some catastrophic event where there's lost lock loss of confidence in Tara for whatever reason

it would be the spiral of for them yeah so I was very much the bad cop on this episode my view is that I think that so the person we interviewed was obviously Daniel the CEO we there was also another co-founder who wrote the white paper or co-authored the white paper his name is doc Wan he's the more sort of technical person the reason why I'm somewhat bullish on this on this project is because sort of like Daniel's background in e-commerce and and I sort of like more on the business side being able to create something that's valuable for a lot of people and understanding like the real business opportunities and problems that companies face and I think the design of this thing probably isn't

perfect like there's some parts that like definitely I think can be improved like the Oracle mechanism which we go into during the interview also it appears that right now validators are mining at a loss but so these these things that probably aren't optimal at the moment I think can be adjusted and fixed over time but as long as they have this vision of building this payment network and addressing this issue that you know like hundreds of thousands of companies over the world are faced with as long as that exists I think that they can be successful and so that's why I'm kind of bullish on it more on the like business go to market side then so much on the only technology I think the technology is kind of cool too it kind

of looks like I don't know it it resembles Libra in some sense on the strategy side no not on the economic so I think I think I very much come from the from technology mechanism design school of thinking and I can totally see that they've done a tremendous job in getting traction for this in such a short amount of time and every obviously Daniel has a formidable background but it's very much a mindset that is fueled by the expectation of growth and basically I I agree then it'll it's a good model as long as there is growth but I think that it can't withhold a Black Swan event okay well I guess we'll see

so we hope you you'll enjoy this this interview with Daniel so actually this is interesting because we're actually sitting across from each other in the suit at full note we've never done an episode where both of us are sitting here in the studio so it was kind of like interesting dynamic to be able to yeah like not be on a Skype call hey I hope we will get to do this more often I really like it also III think the intro is very much different now that like we could actually talk to each other from face all right so with that here's our interview with Daniel shin we are here with Daniel shin Daniel is the CEO of Tara and previously he was the CEO and co-founder of teaming and teaming is one of the largest e-commerce platforms in

Korea they're regularly in the top three and so today we're gonna talk about about Tara and also his experience in the e-commerce space as a successful e-commerce entrepreneur in Korea and how that drove him to enter the cryptocurrency in blockchain space with this new project Daniel thank for joining us today hey thanks for having me so starting off yeah let's let's spend a little bit of time on your background because you know if you will if we look at our history of guests on the show I say it's quite unusual to have someone with such successful background as like an e-commerce entrepreneur building one of the largest platforms in the country and it just totally switched in transition to the

crypto space yeah tell us a bit about your background and how that led you to where you are today building Tara so I grew up in the States for most of my life in the East Coast and in 2010 I came back to Korea where I was born and that was right about the time where Groupon was one of the fastest growing companies in the world one of the hottest companies in the world and we decided to replicate that model in Korea after about a year of running the Groupon model we realized that pivoting

the business towards mobile commerce provided a larger opportunity because while Amazon had such a football u.s. there was no such equivalent in other parts of the world like Korea and we saw mobile as an opportunity to really drive growth behind ecommerce and mobile commerce so I ran the company for about eight years as the CEO we grew from five people to 1,300 the final year we were doing about three and a half billion dollars in transactions and had roughly 20% of the country use our platform at least once a year which was pretty cool but you may also know that

ecommerce runs on razor thin margins so after cost of goods and logistics and fulfillment and promotions and marketing there's not much left to the company and we thought one of the line items that we wanted to make go away was the payment cost so we were paying upwards of two point something percent on every transaction that we did and you know that was kind of the rule of the game for the past couple decades but with the advent of blockchain we thought you know I thought that was an opportunity to change that for our business at Piemonte as well as e-commerce businesses across

the world this definitely resonates with me I mean I started my career in e-commerce not at the same scale as as you did but I worked a lot with e-commerce clients and yeah payments has always been a pain like for so many reasons but also for for its costs and you know in in in the beginning of like when I started getting into Bitcoin everything that was kind of one of the promises of crypto is that like cryptocurrencies allow for these peer-to-peer payments and the transaction costs are much lower than anything else that's available out there like Visa MasterCard like most of the most of these these payment platforms you know from that context what is it that led you to want to build tera and

where did you find that cryptocurrencies in general as they exist weren't fulfilling you know that goal of having a low transaction costs for in transactions I think innately I'm an entrepreneur that really enjoys the early part of a startup industry or a topic that is currently unsolved and we're not sure if we can solve it but if we do it's a big win for myself and rest of the country so I thought for e-commerce as a broader industry blockchain coming in and solving the taxation that payment companies levy on each transaction as a mission worth

going after having said that I looked at the hundreds of projects that were getting funded and it was a bit shocking to me how little of a plan they had to connect with the real world economy and get it adopted and mass distributed across you know the regular people the non crypto traders I thought there was a role that I could play and bridging ecommerce as a broader industry with blockchain and crypto you know you've seen fin tech companies do this in the past right so and financial one of the largest fin tech companies in the world they piggybacked as a payment feature on Alibaba and transformed itself by adding

other financial features to become one of the largest digital banks in the world in a similar fashion we thought blockchain and crypto could really benefit from having an alliance of e-commerce companies as a distribution channel so there are a couple of stable coin solutions out there right so I can totally see why you would want to use a way you would want to build a an e-commerce platform on a stable token because basically having having this in a volatile asset doesn't make much sense but why did you choose to build a new system rather than building upon one of the sabre coins that's already out there or one of the sabre coin designs that is

already out there yeah so we've reviewed most of the white papers that were published at the time and big issue that payments companies need to solve is a two-pronged problem so you have to become cheaper and more efficient for e-commerce merchants and on the other hand you need to provide a tangible benefit as to why customers use it right so the former allows you to integrate with more and more ecommerce partners and impacts fungibility whereas the latter really improves upon your share of checkout and getting consumers to adopt it so I feel like other stable coins could have addressed

the stability issue as well as cheaper payment costs to merchants issue but I thought from a consumer perspective there's absolutely no reason to switch off of a credit card option or a digital wallet option to a stable coin option because why is there right so can you briefly explain what kind of a stable coin Tara is I think we'll go into more detail later but just to give an overview yeah so Tara keeps itself stable using a elastic money supply so if demand for Tara goes up by integrating with more ecommerce

companies than to prevent the prices from going up the algorithm issues more Tara to keep itself against the peg if demand for Tara comes down then we buy up supply in the open market and burn supply in order to bring the price back up to the peg the interesting component exists on both sides of the scenario so if we're constantly adding new e-commerce companies and driving more demand to Tara and that allows us to increase the circulating supply of Tara then in economics terms that's called senior age and we're able to take that resource and reinvest that in discounts

to consumers so we talked briefly about why other stable points don't work it's because there's no reason to switch from legacy platforms the reason why people are using Tara is because we're able to give five 10% discounts on every transaction that you do on e-commerce whether it's you know buying fashion apparel or diapers or travel or whatever it may be on the downside case where we need to buy up Tara we collateralize the network with a second token called Doudna so Luna is our the post mining token that receives transaction fee rewards from

Tara's payment network and Luna in short derives value because Luna will be valued at some multiple of the transaction fee cash flows that come into Luna holders and we take that value and in the times of Tara recessions we use it to collateralize Harrah's Network ok there's a lot to unpack here and we're gonna get into all the details of this over the episode you said something here that you want to create demand for this currency how do you plan to create the man for the currency because I believe like that is the the real thing that's holding the peg together is the expectation of future demand yeah so

demand is created by two things so constantly integrating with more and more partners which are you know ecommerce partners fashion e-commerce partners you know movie ticket apps food delivery apps whatever it may be and second increasing our share of checkout within those platforms so how are we able to integrate with more and more partners the answer is because we're able to reduce transaction fees for these platforms but how are we able to constantly increase sheriff checkout is because we're able to use the same seniors profits to offer ongoing discounts for consumers so if you're

buying the same good or the same service if there's multiple checkout options consumers are likely to choose the one that provides the best deal so we feel like more and more people will learn about Tara and we'll select Tara as their payment option in creasing our sheriff check out this chicks in the virtuous cycle of increasing the demand for Terra which allows us to print more supply of Terra and further take that seniors profits to give more discounts back to the community that's an actual limit to this though right because basically the entire ecommerce space has a ceiling and after a certain point you will not be able to offer these senior profits to

people who used to pay in terror anymore right naturally growth will slow as we become much larger but ecommerce as an industry is you know trillions of dollars across the world and e-commerce is just the Gateway for us to get into other industries right so you know there's no reason Terra can't be used in purchasing cars fueling your car in buying insurance and buying your home you know I think the ceiling does exist at some point but it's very very high and won't come for decades okay so so you think that there's a lot of headway for demand for Terra and essentially e-commerce is

sort of like the Gateway and you can then expand into other industries and even at some point even I don't be b2b payments does that also make sense yeah absolutely but even in the baseline scenario where we're connected with a subset of e-commerce companies and our share of check out does not increase the e-commerce as an industry across Asia is growing at 20 30 percent year-over-year so even if we are not able to onboard on board more partners even if you're not able to increase share of check out we're still going to grow 30 percent year every year but that is not the case we're going to add more partners we're going to add more industries and more use cases for tear down the road so what's going to happen once you can't

grow hundreds or tens of percent you're on here so what what happens if demand for Terra is stable coin M is constant well our worst case scenario is looking just like the in tech companies across the world so basically we'll be an ally pay or a PayPal or a venmo if we're not able to use the nourish to pay for discounts however the way that we think about it is we have a economy that we can piggyback to really grow our business with virtually no cost of acquisition cost cost of customer acquisition and once we have you know hundreds of

millions of customers on our platform there are so many more ways to increase seniors for example we can reduce the velocity of money so get people to preach arge their apps so that the velocity goes down which increases the supply of money we can introduce lending and investments on the app which also multiplies the amount of money that goes through Tara and chai so I think the opportunities are limitless but if we take for a second that you know we can do 100 billion and transactions over the next five years and 10% of that is used to give discounts to consumers and in

turn is used as a way to acquire customers then ten billion dollars is funneled into our ecosystem without using venture capital money to grow our business to wherever we can take it so what happens once amande for whatever reasons Jose there there's a global recession or climate crisis hits but every confidence in the product plummets and so what happens if the demand for terror goes down so how is it how is it collateralized so is it collateralized yeah so first line of defense is our Luna token and recall that Luna token is our mining token and if you help validate transactions you

receive transaction fee rewards from Paris payment network so let's take for instance that we do a five billion dollars annually in transactions and we take 50 basis points in transaction fees then that's 25 million dollars being paid to do now holders over the year so the way that you value Luna should be some multiple of that 25 billion dollars so for example these are trades I believe 50 to 60 X their profits stripe and PayPal probably trades above that so you know we can take FinTech comparables and

apply a multiple and that's what luna should be trading at the second layer of defense is we take the transaction fees that are levied to e-commerce and we temporarily increase that if there's downward pressure and Lunas price to the point where the collateral cannot fully collateralized para so recall that ecommerce pays say 3% of their transaction volume per year tarah charges like I said you know anywhere from 30 to 50 basis points so there's a five six X ability to up our transaction fees without the e-commerce

companies churning off of our payment network so in the times of Luna downward pressure were able to 2 X 3 extra transaction fees so that it counters the downward pressure in Luna Price the final measure that I'll talk about is something that we want to wean off of down the road is we will have a very very healthy cash reserve as well and we recognize that in the very very beginning we don't have enough ecommerce partners across enough geographies to say that okay we we will not drop by 50% in a given year but just as government's weaned off to fractional reserves over time so that

we're fully reliant on Luna when we have thousands of partners across many many countries and doing you know tens of billions and transactions let's let's walk through a user flow here so let's say I'm in Korea and I want to use Tara to benefit from these decrease transaction fees on like my favorite ecommerce site like this I want to buy a movie ticket or something what does that look like for the user from you know the moment he's turned about Tara to the transaction and maybe you know explain what's going on in the background while this is happening basically the user flow is identical to what you would do before so you would turn on your movie

ticket app you would select the movie that you want to buy and when you go to the checkout page you will see multiple pay options including the payment option that Tara provides called chai so you would click on chai if you're a first-time user of chai then you would have to integrate your bank account to it and sign up for the app right so that I think that's that's what I'm most interested in so onboarding onboarding this payment system what does that look like for the user in terms of acquiring Tara and what's happening in the background for that for that Tara to be minted and how it relates to like Luna for example so essentially you sign up for the app

the first time you do kyc and you link up your bank account the banks offer a API integration where we're able to essentially command the bank to pull from the account when the user is purchasing something and so once you've signed up for that app as you go through the e-commerce flow if you click the product you click chai and with a six digit code or a face ID you're able to pay for the product in you know a couple seamless steps what's happening in the background is the money is pulled from your bank account and it's converted to chai

points and chai points are linked to Tara so essentially or you know $100 of chai that you charge up your app $100 of Terra is held in the background and what that allows us to do is impact demand in tera with the growth of transaction volume of the chai side if transaction volume grows then try would have to basically buy up more tear up in order to match that event and that puts upward pressure in the price of terror which allows the arbitrage

mechanism to print more tera and increase the supply to counter the upswing in price okay so let me just interject here so what as user I connect to my bank account and I use my existing Fiat reserves to to buy some tera where is that terror coming from and he says is the bank somehow connected to the system and enabling not tera to be minted how does that minting process works so your purchase does not mint the tera essentially when you transact the Fiat on-ramp happens through your bank account and indirectly the Fiat that you've unwrapped is used essentially to

buy up Tara that's that's already been minted so as you can imagine if there's a set supply of Tara but if more people are demanding the Tara then the price should swing upwards and we have arbitrage mechanisms in place where if terrorists price goes up then people are encouraged to deposit money and receive terror so that they could sell it in the open market and create more supply of Harrah if if that makes sense so basically if people then deposit more money in order to mint more Tara where does that Tara come from I think that's the way I'm stuck let's just say it comes from exchanges but went through

the exchanges get it from the exchanges already had a set supply of territory I think what we're missing here is really the mechanism by which Tara is minted when there's an increased demand for Tara and there's not enough Tara in the market yeah the mechanics that you need to understand is the demand for Tara and the minting of Tara is actually two separate sequences so if through our payment network more people are depositing Fiat and converting it for Tara because it's a better way to pay for things then let's just assume that that Tara is bought from exchange a and

because we don't want people to go to the exchange themselves and sign up for exchanges and all their private keys and whatnot let's say we have a custody service where we do that on their behalf if transaction volume increases then we buy up more Tara which obviously with the same number of supply puts upward pressure on the price of Tara so if Tara used to be a dollar and if transaction volume goes up by 10 percent then Tara's prices go up to you know a dollar 10 we have a separate smart contract in place where if if you deposit a dollars worth of Luna then

you'll get a Tara in return so think for a second when people would make that trade people would make that trade if Tara is trading above the dollar right so you deposit a dollars worth of Luna by buying it up on an exchange into the smart contract and you get one Tara which is currently trading at dollar ten then these people will take it and sell it into the exchange and capture the 10 cent arbitrage profit until that ten cents goes away so the first component impacts the second component but there are actually two completely separate sequences where ecommerce volume impacts the demand and price of Tara and then

there is a smart contract that crazy arbitrage opportunities for traders which impacts the elastic supply of Terra okay so basically the Luna holders are the people who profit from the increase in Terra so this is where the profits flow tool right what you don't necessarily have to be a luna holder because you can buy a dollars worth of Luna at any given time and trade it for Terra at that instant as terrorist trading above a dollar okay but basically so you have to have Luna in order to benefit from this right I mean you can you can buy it you didn't actually have to buy in the token say about you can just buy it on an exchange but you have to buy a Luna so basically

the profit does go to Luna Hoda's correct so how are you able to pass this profit on to people who actually pay for things on the e-commerce platform because you said that you can give like five ten percent discounts to the users of your payment service how is the money that is distributed to Luna holders how does this actually end up with the customers recall that the smart contract trades a new Terra that gets minted for a Luna that gets deposited deposited into the smart contract so basically the Terra that we minted is new supply whereas the

Luna that we received is from a previous fixed supply right yes so we as a protocol take those luna proceeds because it's been deposited and there's a voting mechanism in place to a funnel that proceeds which we can call senior to e-commerce discounts or any other use cases that we think will drive the growth of Terra's economy basically the luna that was deposited is the proceed so basically does the proceeds come from the fact that you as a company Howard a large portion of the Luna no that's

that's incorrect so basically we were able to create more demand for Terra through our e-commerce transaction volume going up and that created an arbitrage opportunity where we're able to mint more in Terra and sell that to people who wants to buy it and so those people who buy it they deposit Aluna and receive a Terra in return right so the luna that just got deposited into the smart contract becomes proceeds for us to distribute back into to the ecosystem but the person who's actually minted that Tara got the seigneur egde

right I mean they got the same rich proceeds so how do you pass on these benefits to the people who use Terra to pay for things so the Terra isn't minted by a person right it's minted by the protocol automatically when someone deposits the Luna right so basically the protocol in the case that Terra demand is increasing will end up with you know certain amount Luna let's call it I don't know like twenty million dollars is deposited into into the smart contract in order to whittle away at the arbitrage opportunity created in Terra prices then we have a separate voting mechanism by Luna holders to take that

twenty million dollars and deposit that into project that helped throw Terra's economy so right now the largest project that we're running is basically the payment network so we would essentially earmark the twenty million dollars to the payment network to be able to spend that as promotional dollars against purchases of goods and services okay so I think I understand so basically the the Luna holders in their entirety or by some voting mechanism decide that the profits that they have made by the growth of the Tara ecosystem is distributed not to them but to the users

of Terra said correct correct yes that's correct this episode of epicenter is brought to you by cosmos the Internet of blockchains cosmos is live and we couldn't be more excited to see so many projects already building on it blockchain technologies are evolving fast and development shouldn't be one size fits all that's adapt developer you need the tools that will allow your dad to scale grow and evolve over time the cosmos SDK is a user-friendly modular framework which allows you to customize or adapt to best suit your needs it's powered by tenorman core an advanced implementation of the BFT proof of state protocol cosmos takes care of networking and consensus and allows you to focus on building your application in

your language of choice if um smart contracts will be supported soon and the SDK makes it simple for you to connect to other blockchains in the cosmos network if you have an idea for a DAP and would like to learn more about the cosmos SDK or if you'd like to connect your existing adapter cosmos visit cosmos network slash epicenter for represent our listeners the cosmos team will reach out to answer your questions and help you get started we'd like to thank cosmos for those support of epicenter so switching gears a little bit here let's talk about the the validators in the Tara network and the white paper you refer to them as miners and you talk about the role of these validators and how their remunerated for their work in validating transactions

yep so it's a deep-ass system very similar to the cosmos network and right now we have about 66 validators or miners if you will and we've currently capped it at a hundred so later the validators would be ranked by the luna that's baked to them and the main role that they play is first and foremost to validate the transactions themselves another role that they play is to receive price feeds for tera and Luna

and lastly the Luna holders play voting role or a governance role and distributing the seniors profits that we just talked about okay can you talk about the Oracle what's the role of the Oracle in the of Terra design yeah so basically we need feeds for the local currencies that we pegged to so it could be the Korean Won the Singapore dollar the Thai Baht we need feeds for terrorist prices and Luna's prices so we obviously need feeds for the local currencies because Tara

needs to peg to it and it falling off of the local currency would create a arbitrage opportunity we need the parent doing our prices because again we as a smart contract make a promise to swap dollars worth of Luna for Tara at any given time so those are essentially the price feeds that we need okay and so I believe you're also issuing a Tara SDR so like SDR is this special drawing right issued by the IMF which is a basket of currencies that creates this stable currency and it's used to like for countries like to pay their debt or something like that why did you choose

to also create an SCR peg it's kind of unusual and unique yes so our fundamental thinking was that businesses in non-us parts of the world don't want to be settled in the US dollar so everybody wants to be settled in their local currency because very few businesses are wanting to take on the foreign exchange risk so we've created the KRT puts text to the Korean one here and we're looking to create hkt and sgt which text to the Hong Kong dollar and the Singapore dollar but because we only

have one Luna one collateral we needed to pick a currency that is the least volatile over a long period of time to peg the value of Luna to so essentially we selected SDR as that you know mother Tara if you will you can imagine a scenario where you know several decades down the road Luna converges Warren to the portfolio mix of the local currencies in Tara's Network rather than to a basket that's issued by the IMF but we thought IMF SDR is at least in the beginning the best representation of the global network

that we aspire to capture so you said that the Luna is pegged to the SDR and then all of the other chains raised to whether that's the green wand Singapore dollar US dollar etc get their exchange rate relative to SDR is that correct correct yes okay interesting it kind of occurred to me that there are a lot of similarities between the underlying economics behind the SDR and something like like Libre mix Libre is also Beck's basket of currencies it's packed a basket of currencies did you see any like interesting dynamics here like for example you know should the IMF issue an SDR crypto currency would that make like

the Libra and perhaps even the Tara and like a lot of cryptocurrencies I think obsolete have you given any thought to that so I think the purpose of using SDR or a basket of currencies for you know Libra and SDR in the case of Tara is we envision having a global portfolio of businesses and because we don't know what those proportions are yet we need to pack to something that's already a basket of global currencies which is SDR so I think we use it more as a convenient index to start off with rather than SDR is the you know end all and be all of currencies so ultimately like I said the Tara that gets most

often used in practice is going to be the Korean Won Tara or the Singapore dollar Tara or the Thai Baht Tara but because we are one network that operates in multiple local currencies we do need some sort of mother exchange which SDR plays the proxy - at the moment so I don't think you know IMF issuing a currency is going to you know end all crypto stable point businesses I I think I think it's very far from the truth though maybe just as a reaction to Libra you know Christine Lagarde could be like we're gonna launch our own cryptocurrency to counteract the leave it'll be funny yeah so tell me

about the validators again so say I'm interested in becoming a validator how do I become a validator on your network and how are the validators as they are today so for the 66 people are the 66 companies you talked about earlier how are they distributed and what qualifies them to be a validator so as all early networks do I think we tried to either pick validators you know that have a track record of success in a similar operations and because we took lots of the components from the cosmos Adam and cosmos SDK lots of our validators overlap with those of the cosmos Adam

and we also invited our investor base because in in theory our investors are biggest fans and those who support our broader vision so you know guys like you know poly chain or hashed our investors in terrorist network who also run validators for us so in the beginning I guess you could say most of the validators received kind of hand-picked invites based on the two criterias that I talked about having a track record on cosmos or supportive investors Tutera down the road the validator list will be capped at a hundred and it'll be ranked

by the lunar state so obviously the stake that people will stake with them will be dependent on you know the fees that they charge but more importantly how secure their network is and the downtime and the track record that they build on on our network so you know I guess in a way you could think of it as a vote of confidence based on how well we perform so if I understand correctly the validators are currently still mining at a loss despite the fact that the transaction volume is like half a million a day would you confirm that I'm not entirely sure the economics of each validator however

as I've shared early in this call the transaction volume is going up you know 20 30 40 % each week and secondly we started off with a very very low transaction fee to e-commerce just as a entry point into the market but we've been received with you know good feedback so far so we're looking to increase those fees as well so I think if any validator is operating at a loss those losses will be very very short-lived okay and so you mentioned that we haven't really talked about but so Tara is is built on the cosmos SDK why did you choose to to build on cosmos

and what went into your into that and that choice and then you know what are your plans for like the future of of Tara as you know a Zone on the cosmos hub presumably I I think to be fair we didn't build on top of cosmos we we took lots of the components from cosmos sdk because we looked at how they work and you know thought they were fitting for what we want to accomplish number one component is transaction speeds so for Tara because we're working with existing businesses that - you know thousands of transactions per day the ability to get PPS up beyond say you

know to 3,000 is extremely important so knows they're there blockchain has been tested for transaction speeds and our test that as well taking the best parts of temperament have done TPS up to seven 8,000 per second the second component is we have a vision of not only connecting two ecommerce as payments but serving as essentially a stability component for lots of the d apps across other main that ecosystems so you know our our belief is that just about any application on the blockchain

will require a stable point because if you you know contribute code or if you contribute content or if you contribute you know just about anything nobody wants to be paid in the vault or token so we needed the ability to essentially hub across to other mainland so we've already signed partnerships with you know guys like you know tomo chain in Southeast Asia Clayton here in Korea and several other main net and cosmos obviously with their hub offers an opportunity for us to offer stability as a service so I'd very much like to get back to the economics of terror as a stable token so as I understand it currently tera is valuable

because of its expectation of future demand and in the case that it should go south for whatever reason it's primarily backed by the Luna token holders and in essence that is what in the legacy world would be the company right so basically it's it's in in effect it's backed by the company or the network so because it's backed by the by the Luna token to me it seems that the value of all Luna tokens together should be a fraction of the total volume that's being exchanged in tera tokens over the network would you disagree with this no I think it's for the most part correct okay so what

happens I mean in daga sea terms that would correspond to a very severe under collateralization of the terror that being issued right and I mean I know that in the cryptocurrency space people are always going on about how the the dollar is not backed by anything because the Fed can just create it but for the largest part that's not actually true because most dollars are actually backed by things so basically if I take out a mortgage on my house yes the bank can create those dollars but they have my house as collateral if I finance my car they have my car as collateral or if I even if I take out credit card debt they have me as collateral my future earnings and my expectations as someone who has valuable skills

because I mean you can see that in the fact that they don't give credit card credit to anyone or if they do this system fails as I see it the terror system is backed very much by the expectation of growth and what happens if that is no longer there what happens if if for any reason the demand Falls beyond what can be absorbed by the lunar Hoda's do you have it you have some form of plan for like a cash back failure or like a confidence spiral where the confidence in the system and the expectation of future returns would like fall apart so I don't think there is a single answer that provides the most benefits for users and allows you to

scale and grow while at the same time fully minimizes all the risks so I think basically if you have a risk reward chart you kind of have to pick a optimal point that allows you to scale and grow while at the same time is very well hedged against risk basically we looked at fully fiat collateralized stable coins and our theory is that outside of crypto exchanges it's never going to be used because again the world is already digital in many parts of the developed countries your credit card is digital in nature your bank wires are digital and it's very expensive and hard for you to get people to switch off of a legacy

system and use something new when you're not providing tangible benefits for them so on the other side is a maker doubt where the collateral is essentially aetherium and ëthere IAM value is completely based on the demand for aetherium and there's no fundamental cash flow or driver that determines the value of the III so I think what we said was hey we can't be fully fiat collateralized because ultimately we'll never grow beyond or krypton each we can't be collateralized with you know aetherium or other crypto assets that don't have a fundamental cash flow so

let's take for example that we've collateralized ourselves with the equity of visa right and if you take a look at equity of visa essentially payment network for the past decade and you can you know take equity of visa you can take equity of Amex and you'll see that the revenue and equity of visa is actually fairly linear and upwards and I think that's a testament to the stickiness of payment networks so once platforms are unboard it to payment networks the likelihood of them turning off of it ie the likelihood of them not offering you the ability to pay

with a certain method to do business is very very very low so we picked a category that's fundamentally sticky but there's two things that we needed to admit the first is that in the beginning we're not visa right our payment network is a lot smaller our merchant base is a lot smaller and a lot more concentrated in a single country so we need to be fully backed by fiat but as we grow our merchant base we can we can wean off of the Fiat Reserve and start to depend on the equity of visa which for us is Luna the second component is we not only need to have a sticky base like visa but we

need to be a lot more stable than that and that's why we have the ability to calibrate our transaction fees from e-commerce up to you know six to eight times of what we normally charge because we're taking payment gateway fees down from you know three percent to below zero point five percent so if there's downward pressure in the price of Luna ie let's say we lose half of our merchant base in a single day we're able to up our transaction fees by 2x in order to counter that so that the fees that the luna holders are receiving remained steady and constant let's say for an example that we were trading at fifty X

our transaction fee cash flow and the 50 X multiple comes out to twenty five the same thing can occur we can up our transaction fees to e-commerce by 2x and the reward per Luna will still stay the same so I think the fundamental thesis that we have is in a design that's fundamentally sticky let's add in a factor of calibration so that we can minimize a significant amount of risk so I agree that this this will work in a setting where there's gross but I think the legacy money system to a large extent is backed by the fact that there is actually real value that collateral eise's it and in the case of make it out

there's either that collateral eise's it and in the future there'll be other things that we'll be able to collateralize and buy much much like in the legacy system where I can collateralize at all alone that I take out with my house and that's not the case here so basically I mean that despite the fact that you don't think that for instance in the maker system the global settlement is actually going to take place it's a credible threat that it could take place and everything would be settled and everyone would be fed from the underlying collateral and in the in the terrace system this is not the case in the terrace system if the bottom falls out there's nothing to break the father well I would argue that that's not true right so what's the

fundamental value driver of aetherium the fundamental value drive of aetherium is the usage of the network so basically the the guest transaction fees that are paid for being allowed to use the network and that's what fuels the value of etherium okay and what multiple of the gas that is received is Tyrion trader that today it's much more than it should be so I don't know from the top of my head but basically from from current usage levels it should probably be below what it currently trades that so you're making a good point that there's also speculation going on that it's going to become utilized more in the future and there's

an expectation of future profit from holding ether now but there is a fundamental utility of the ether token in paying for them for the network fees I don't know the exact number either but the multiples are so astronomically high that I don't even think it really matters how much gas is received to the network it's almost pure 99 percent speculation where ether prices are on a given day that that's my theory for Luna the fundamental value is the ecommerce network that sits below it so right now it's 25 ecommerce unicorns across Asia

and the Alliance of Terra will grow as people understand the value proposition that we provide to their business and their customers so if you believe that the alliance members churning off the platform is actually fairly difficult because we're offering them something that's relatively hard to replicate and if you believe that once we get to several thousand ecommerce companies across Asia losing a couple dozen is not going to harm the network in a significant way then I think you can buy into the fact that a speculative

security like ëthere iam is a lot more risky than using Luna which is basically a replication of X percent of the share of checkout on e-commerce I totally get that point and I think that losing a couple of merchants or even like five percent is not going to break the system I am talking about resistance to Black Swan event event so basically like a financial crisis I mean even even if the likelihood of that occurring asked slim the trust that a system can withstand a challenge like that is in my view absolutely crucial in gaining traction

and actually having people use it yeah absolutely but even in the worst financial crisis like if you ask will Amazon go away I would say no like having been in e-commerce for the past decade actually more people switch away from more expensive gourmet options to buying on e-commerce in the cases of recessions so I would say the cash flows that come from ecommerce will stay relatively constant the second component is that Terra is now exchangeable for real goods and services in just about all parts of your life and I think that exudes a level of trust that you know a

trading focus token on exchanges cannot cannot do yeah after this conversation I feel like the the utility value in Terra is orders of magnitude higher than Briggs for instance like the actual utility value of either as gas in the theorem Network but yeah I'm still I'm still like I guess unsure about like so this Black Swan event like what would happen in that case and I guess like only time will tell if the peg can maintain itself like even maker has had some issues like maintaining this peg recently but yeah so as we're moving towards the Animas show here tell us a little bit about like what's the what's the future roadmap here both on so the

technical side but also in building this payment network and and this partner network in asia we've integrated to two of our 25 alliance members so far and in a matter of 50 days we've gotten to 300,000 payment users and about half a million dollars a day in transaction volume so our immediate roadmap is to roll out the payment network across all of our alliance members which include you know the largest food delivery network in Korea the you know largest movie theater network in Korea and so on and so forth if we're able to do that in not only

Korea but other parts of Asia that we have Alliance members and we essentially have a licensed Emani and payment gateway app in each of those markets we have liquidity in the local stable currency so you know Korean Tara in Korea you know the single port era and Singapore and we have compliance measures into those countries so it's very easy for us to offer global settlements global payments and global remittances because again we have a local impact stable point and liquidity

in each of those markets so I think expanding the network beyond just Korea is kind of our midterm goal beyond that I think we'll follow a lot of the footsteps of a lipe but introduce a blockchain element to that so if through e-commerce payments were able to capture millions of customers and lots of data around what they're buying on a daily basis then we're able to provide you know credit to e-commerce consumers were able to provide loans to e-commerce merchants were able to introduce investment products so I think there's other layers of a digital bank

that we can very naturally expand to once payments is up and running and we have access to customer data so I think you know I can go on and on about how we go from payments to you know a digital bank to beyond that you know de facto global currency of the world but I think that provides kind of a good you know five-year roadmap for us I think my very last question is a meta question so what informed the decision to actually build this as a blockchain product why didn't you build like a Visa or MasterCard competitor that just charges lower fees because in essence that that was your pain point right so you didn't

you didn't want to pay the two 3% that Visa and MasterCard charged and they have enormous profit margins because in essence the market is divided up among among these two companies so why did you not decide to create a non blockchain based payment system that just charges lower fees and gains traction that way because from from where I'm currently standing it seems like the blockchain element yes this is fantastic to actually accelerate this in the beginning because you're you're able to distribute the expectation of future profits to the users today and that helps you gain traction but that doesn't necessarily mean that it's where design

system or the system that can withstand you know for what whenever growth stops I think one component worth explaining here is that Visa and MasterCard actually only charge a very very small fraction of the payment price to the merchants so if you know stripe at the end of it all charges you know three and a half percent Visa and MasterCard only charges twenty 30 basis points of that the reason why it's so expensive to the end-user is there's lots of intermediates in the process so there's visa mastercard there's the issuing bank there is the payment

gateway that charges there's you know value-added networks that charges a fee so I think there's you know six or seven steps that take a fee in the legacy process which is absolutely ridiculous but that's the lay of the land today so we're taking our block chain Network and replacing the entirety of the stack rather than just replacing Visa MasterCard but in order to do that we need to find the way to incentivize users to adopt and I think our blockchain economy and the seniors profits that that result is a way to get people to adopt the second is obviously the transparency that blockchain

provides so we started off with a 25 ecommerce unicorn Network across Asia and we were able to form this alliance not only by the value proposition that we proposed but you know they're all participating in some shape or form as Luna holders and they've participated in the design of the blockchain itself so I think the transparency allows us to really form trust with the initial partners that will allow us to grow to a network you know kind of like Starwood across hotels or you know airline points across airline industry okay working

people learn more about Terra and potentially even I guess like to our listeners in Korea start using it to pay for things chai is you know top 10 ranked finance app in Korea today so on App Store and Google Play you can download and sign up and let's start using it on e-commerce and for Tara we have a discord room up and running so you can join in and participate in the community and discussions thanks a lot for coming on the show yes thank you for being on the show yeah thanks a lot thank you for joining us on this week's episode we released new episodes every week you can find and subscribe to the

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