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

Transcript

Hi all, ever since Terra Luna collapsed in the spring, there have been a number of questions about what happened exactly and how much culpability Terraform Labs co-founder Do Kwon has. Interest in his case ratcheted up in September when South Korea issued a warrant for his arrest. Do at the time did not turn himself in and the former Singapore resident was reported to no longer be in the city-state. Even Interpol may now be on the hunt for him. I had assumed Do wouldn't talk to the media due to his court case, but he surprised me last week when he agreed to come on the show.

I approached the interview with an open mind on whether Terra had been a fraud or not, meaning I tried to keep an open mind to both possibilities. My main intention was to reveal more information that could let legal experts decide those questions. I divided the interview into a few main categories starting with his legal case, then probing him about various allegations that could potentially point to fraud, and then finally wrapping up with some questions for users and also about his personal situation. Given the time constraints I had on the investigative portion, I did the best I could and during the interview I tried to push back if I felt he hadn't answered my question.

As Do himself said in the interview, transparency and information are important and I hope that this interview helps in the effort to understand exactly what happened with Terra Luna. Now here's my conversation with Do. Hi everyone, welcome to Unchained, your no hype resource for all things crypto. I'm your host Laura Shin, author of The Cryptopians. I started covering crypto 7 years ago and as a senior editor Forbes was the first mainstream media reporter to cover cryptocurrency full-time. This is the October 18th, 2022 episode of Unchained. The Cryptopians, the TV series? I'm excited to announce that I'm working with Playground Entertainment who've optioned the rights to adapt my

book for the small screen. For more info, check out the show notes and stay tuned. Chainalysis demystifies cryptocurrency by providing leading compliance, market intelligence, and investigation support for all crypto assets for organizations like Gemini, crypto.com, and BlockFi. Maximize your potential with the leading blockchain data platform by visiting chainalysis.com/unchained. 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. Whether you're crypto curious or a C-suite decision-maker, you have to check out Web3 with a16z, the chart-topping technology podcast about the future of the next internet. Listen to Web3 with a16z on Apple Podcasts, Spotify, or wherever you get your podcasts. Today's guest is Do Kwon, co-founder of Terraform Labs. Welcome, Do. Hi Laura, thanks for having me. Thanks for agreeing to do this. You were one of the creators of Terra, the algorithmic coin that collapsed in May, wiping out $60 billion in value between Terra and its sister coin Luna. A South

Korean court has issued a warrant for your arrest and even said that Interpol issued a red notice for you, which is a request for law enforcement worldwide to arrest you. Why have you not returned to Korea? Well, so just to set the facts straight, we are currently requesting made a request to check on the status of the red notice, but as far as I understand, there is not an international arrest warrant and it states so explicitly on this website. So, you know, every sovereign nation can interpret a red notice the way that it sees fit. A second point of clarification is since the end of last year, I haven't been living in South Korea, so it wouldn't be accurate to say

returning to South Korea. The more accurate point would be would I travel to South Korea? Yes, and I agree with you that I reached out to Interpol twice to request confirmation about the red notice and have not heard anything, so but did you similarly not hear anything back? So, as you can imagine, this isn't like an area So, first of all, I'm not a lawyer or like a law enforcement official. And specifically even within that like how red notices work is something that I don't really understand very well. But we we haven't heard anything back yet.

There is an appeals process to contest even if it hasn't granted, so we'll do everything that we can to make clarifications and make sure that this comes to a better result. And so as we mentioned, the South Korean court did issue this warrant for your arrest and the charges are based on the Capital Markets Act in Korea. What do you think of those charges? So, the thing about, you know, like the Capital Markets Act is sort of the financial regulatory authority in Korea is something called the FSC, the Financial Services Commission, which is I think from a US analog, it's amalgamation of the the SEC and the CFTC, but more from like a

you know, devising financial regulation perspective rather than the enforcement part. So, there's a separate subsidiary organization that is civilian that handles the enforcement portions, but generally the FSC sets policy. And the consistent stance of, you know, the Korean government has been that and even from the Financial Services Commission directly is that cryptocurrencies are not securities and securities as the way that they're defined in Korea is different from the way that it's defined in, you know, the US for instance and that it is not within the ambit of their jurisdiction to regulate cryptocurrency for that reason. More specifically right now, the the South Korean national legislature is

in the process of devising specific regulation for cryptocurrency. So, we are a little bit disappointed in the way that prosecutors are attempting to, you know, create new regulation through criminal enforcement proceedings, whereas that really should be within the job description of the legislature or at the very least the financial regulators. Yeah, I would say your comments here are in accord with a crypto lawyer that I had on the show, a South Korean crypto lawyer John Park who talked about how the reasoning behind the prosecutor's charges, they're not something that, you know, is explicitly stated by the FSC

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

Right, yeah, so I haven't seen a copy of this PDF, so besides application of the Capital Markets Act, we haven't been able to see, you know, what specific charges that we might be facing. We don't think that any of the charges pertaining to, you know, the Capital Markets Act is applicable because the government's stance has been that, you know, cryptocurrencies shouldn't be governed by Capital Markets Act if they're not securities, that new regulation, which several people in government have already indicated should be favorable to encourage the growth of digital assets in the country. We don't believe that that those are legitimate charges and are politically motivated.

And so is that why I noticed that in August, you told the Korea Times you would cooperate with the investigation, but is that essentially what changed that once the charges came out that you felt these are not legitimate? No, we we are cooperating, so for instance, like the South Korean prosecutors have asked for, you know, clarifications or supporting documents for various different types of things. I'm not at liberty to disclose what exact documents that we have been producing, but we've been cooperating with all the document requests in the capacity.

Okay. So, you were living in Singapore at the time of the collapse and Zack Guzman of Coinage said that he interviewed you in Singapore in August. However, on September 17th, Reuters reported that the Singaporean police said that you were no longer in the city-state and within the hour after that report came out, you tweeted that you were not on the run. And roughly a week later, you also tweeted, "Yeah, as I said, I'm making zero effort to hide." So, these tweets would seem to imply that you were still in Singapore. Are you in Singapore or are you not? Well, so just to clarify from the media reports that we've read, the main allegation regarding as to whether I'm on the run has been that I

left to Singapore in in premeditation of the crash that would happen in May, but that is absolutely not true. So, there's been reports as to, you know, how we shut down a Korean subsidiary, I think it was like in April or something like that and, you know, like various different team members from TFL similarly moved to Singapore to set up headquarters around that time, but that is simply not true. So, we had well, you were still in Singapore in August, so obviously it's not, but what happened in September?

Or did you move out of Singapore? The main reason why I don't want to talk about my location to the media is because when the crash happened in May, there there were lots of situations where personal security was threatened, right? And uh so for instance, uh people broke into, you know, my apartment building, even multiple cases in which that was televised across, you know, my home in South Korea as well as my home in Singapore. Several of these people were reporters, and several of these people were just regular people uh against whom I felt like a fair degree of uh threats to personal security and privacy.

So it's it's not in the interest of, let's say, being on the run or something like that that I don't want to disclose where I live. It's just that every time the location where I live becomes known, it becomes almost impossible for me to live there. But can you at least answer whether or not you're in Singapore? No, I mean, so I I could answer that, but the problem is that I don't want there to be a bunch of guesswork in terms of like which country and like um which city or like where I happen to be living in. And these things are fairly easy to find, right? I have businesses, I have people that I meet. So the easier that I make it for people to figure out my location, the harder it is for me to

continue regular life. When it was reported that the South Korean Korean government said that Interpol had issued this red notice for you, you tweeted, "For something that has notice in the name, it sure gives no notice." And you talked about how you tried to search for the red notice and found nothing. And obviously you just mentioned that you've tried to verify this. But similarly, after it was reported that the Korean authorities had frozen $67 million of your own funds, you tweeted, "What has been probably the most surprising in all this is the amount of misinformation that gets spread. There is no cash out as alleged. I haven't used KuCoin or OKX in at least the last year, and no funds of TFL, LFG, or any other entities have been frozen."

So with these tweets, are you basically accusing the South Korean government of lying about these things? Saying that the reports aren't true, right? I don't know if their intentions were to mislead. I don't know if it was a simple mistake, but there's just simply too many things that are not true that are coming uh Korea's side for uh that I think, you know, across the board, given how high-profile this is, does not serve in the interest of clarifying truth to everyone. So for instance, we would read media reports like uh Do Kwon is on the run, which is absolutely not true. We went through proper procedures to pay all residual taxes and uh

applying for employment visas in Singapore and things like that to go. So obviously, there's no reason why any government official would think that we fled to Singapore, you know, even though it was the year prior when we made the move. Or for instance, like to say that our funds were fro- uh that my funds were frozen, I really have not used, you know, KuCoin or OKX or done any trading in those platforms, uh at least as far as I can remember. And I definitely don't have any funds there. And if they froze I I I don't remember the amount, but if it's like 67 million, I think I definitely would have noticed.

We're just uncomfortable with the amount of, you know, misinformation that is coming out. And we think it's been consistent throughout, you know, the last few months. You said in that recent interview with Coinage that the Luna Foundation Guard only has 313 Bitcoin, but ErgoBTC, which is um this on-chain sleuth who um is actually like really really good, um tracked the Bitcoin wallets of the LFG and concludes that actually LFG has more than 313 Bitcoin. And also that since September 15th, wallets associated with LFG have been depositing roughly $65 million worth of Bitcoin into KuCoin and OKX.

And they ErgoBTC said uh that um they were able to confirm the identity associated with these wallets because actually they've been used by LFG back in 2021. And uh the conclusion um he says, "If this analysis were incorrect, we would expect to see a large whale or OTC complaining of unjustly seized funds." And obviously there have been no reports of that. So what do you say to this evidence that your or LFG's funds are actually frozen at these exchanges?

Well, so I I think one of the things that people don't understand at, you know, trade agreements of this scale is that just because, you know, Bitcoin is being transferred, doesn't mean that that Bitcoin Bitcoin has to be short, you know, sold on a spot exchange. So for example, just because like Bitcoin is being used to defend UST peg, does not mean that somebody would put it into, let's say, like a BTC against UST pair and buy that asset directly. There can be intermediary steps. So for instance, there's been allegations that we moved LFG funds into a Gemini custody wallet, and then it's, you know, sitting there or something like that. Well, all

we did was to confirm a trade with a market maker and transferred the Bitcoin to an address at the market maker's instruction. So uh likely what would happen in situations like this because the market was crashing, the market maker could simply take custody of that Bitcoin and use an equivalent amount in other assets that they might have ready at the exchanges. So it could be like USDT or USDC, uh whichever trading pair would exist in the exchanges that they wanted to trade. And they would use those funds to acquire the UST.

And So but I feel like you're not answering this direct question, which really is about some So, you know, as you mentioned earlier, we were talking about the South Korean government saying that these funds were frozen, but now I'm presenting you with more like on-chain evidence that shows a similar amount of money that was at these exchanges. Are Are you asking the question as to whether the funds were actually frozen? But I'm also asking, what do you say to this analysis that shows that these wallets are associated with LFG and have much more than the 313 Bitcoin that you claimed?

Uh so that's that that's not true. So LFG, the only Bitcoin that it holds is 313. And but what about like TFL or you personally, any entity associated with Terra Luna? Uh are So are you asking whether TFL or myself has um Bitcoin? Well, this $65 million worth that was deposited into KuCoin and OKX. Like over video call, I wouldn't be able to identify like an on-chain audit trail or something to that effect. But what would be helpful is we've hired a sort of a on-chain analysis company, and we've worked with them to provide uh all the trading data at LFG. So they should

be publishing a report shortly, which I think is going to provide a lot more clarity. So there isn't any embezzlement or, you know, theft of funds or anything to that effect that seems to be cycling through the media. And when do you expect that report to be released? Uh I think we're in the closing phases. So they've gone through all the data. I I think they're just writing the report. So I think it should be over the next couple weeks. Okay. A lot of people have talked about the hubris and arrogance of your tweets during the time that Terra was on the upswing.

And you later said of these tweets that you had developed an entertaining alter ego. Do you feel any remorse for your cocky tone during that time? So I I think I got carried, you know, too much carried away with interacting with other people on crypto Twitter. So like the industry lingo for this is called shitposting, right? So I think in retrospect, I should have held myself to a sort of a more stringent standard. So, you know, just because there's anonymous cartoon characters that are, shall we say, more liberal with the words that they're using, does not mean that I should have followed

suit. I So I think the sort of the trigger that led me to be quite active on Twitter or something like that is, you know, in personal life, I am quite a bit of an introvert. So uh when I first started Terra, you know, there was not that much communication with media or Twitter, which wasn't necessarily a big problem because there weren't too many people wanting to talk to us anyway. But then over time, you know, as Terra grew, there was more of a pull from the community to be more open and frank about my thoughts and opinions and be more transparent about the things that we're working on. So over time, you know, Twitter became the medium by which I started to deliver

those news, either over um, you know, Twitter Spaces or, you know, Twitter threads and engaging with other people on Twitter. And um I I think sort of like how I developed that persona uh over time is I I I do think it was largely for entertainment value cuz it it was fun, you know, joking and shitposting with um other individuals on Twitter while I was doing it. But um even for myself personally, when I go back in time and then when I'm presented with a tweet that I would have written a couple years ago, it is quite cringe.

And um And uh people have told me to take them down, but I do think it's worthwhile just keeping them on there, you know, just for record keeping and posterity purposes. FatManTerra posted some stories of people who had lost a lot of money in Terra. There was one man who said he had a malignant tumor and he'd received $50,000 from insurance for therapy, but then he lost 90% of it in Anchor. Someone else lost a quarter of a million dollars. A lot of these people had young children. Taiwan News reported that a man in Taiwan who had $2 million in Terra um had that value plunged to about $1,000 and committed suicide.

Here's your opportunity to say something to the people who lost what in many cases was their life savings. Um here's your opportunity to say something to family who lost members to suicide. What do you want to say to them? So, whatever issues uh existed with Terra's design, its weakness to respond to you know, sort of the cruelty of the markets it's my responsibility and my responsibility alone.

So, for the community that engaged with the Terra ecosystem, used its dapps, you know, sent tokens and coins into uh its many protocols, the the downfall of the companies that chose to build on Terra, uh for the people that you know, chose to work on the ecosystem, and for, you know, the hundreds of thousands, if not millions of people that used, you know, Terra currency, uh you know, the Terra ecosystem, which was all built on the stability of UST, I own up to that responsibility fully. And it's it's not easy.

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

I I I think and it it could seem, you know, with the way that we've been responding to allegations and news reports and things like that that that we're the being defensive or something like that, but that is absolutely not the case. I believed in the stability of UST, and I do understand that my beliefs and statements about how stable and safe UST would be led a lot of uh you know, traders and, you know, holders without the tools to understand the complex economic mechanisms uh underpinning UST to gain confidence in a system that ultimately failed.

And I I do apologize and I do own up to, you know, the full responsibility of that. The only thing that we are attempting to do is that in the process of people dealing with this grief, uh there's been a lot of people making allegations like, you know, it was a fraud or Do Kwon probably shorted UST or there was theft or embezzlement going on. And I just want to I I I I think it's like not not even from like my personal perspective, but there are people that are still in the Terra ecosystem and continuing to build things. And um there are lots that even for the people in grief, I think it is important for their

closure uh for them to have a correct representation of what exactly happened, right? And while it is easy to think this entire thing crashed because it was a scam or to point fingers to, you know, somebody and just assume there was some theft going on or something like that. That was absolutely not the case. It's It's probably really hard for this to resonate in in this current time, but uh I've been a founder in crypto for the last five years. I you know, hold the transparency, openness, and the integrity of this in industry quite highly.

And you know, even to this day, I am proud of the way the integrity by which uh we sort of tried to create our protocols, the work that we did, and the values that we tried to defend. Um so, it's in the interest of providing transparency and the truth of the things as they happened, not to say that we ultimately created a protocol that ended up failing and destroyed billions of dollars in value. Um Seoul Broadcasting System or SBS News, uh one of the biggest broadcasters in Korea, reported that the National Tax Service in Korea confirmed that you had moved the profits from your coin trading

from Singapore from your Singapore corporation to the Virgin Islands. And that also you donated coins to your family to purchase an apartment. How do you feel about you and your family making off well financially when so many Terra users lost large sums of money or even family members to to suicide? Uh so, my family members were like my wife, for instance, doesn't own any real estate. I I do own an apartment in Seoul. We We didn't move funds from the Singapore to the British Virgin Islands.

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

So, we didn't move any crypto to the British Virgin Islands. Um any crypto that was created by TFL originated in the British Virgin Islands, and there was no movement of funds the other way. If If If that makes sense. Okay. So, in a moment we're going to talk a little bit more about certain business decisions, which will give you the opportunity to be uh transparent as you discussed. But first, a quick word from the sponsors who make this show possible. Join over 10 million people using crypto.com, the easiest place to buy, earn, and spend over 150 cryptocurrencies.

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but that a week before launch, they found out the yields would be 20% determined by you, and when they suggested that it be lowered, you refused. Why did you refuse? So, that's that's absolutely not true. So, one of the interesting things is like the the people that came on some of the Korean shows and claimed to be core developers of TFL or Anchor literally just interns. And if you look through GitHub or any of the, you know, documentation or anything that we would have published in open source or anything to that effect, um not uh not not a single line of code uh, came from their contribution. So, I struggled to see how they can claim

themselves core developers of Anchor. So to to contextualize how Anchor came about, it was, you know, it was being contemplated throughout 2020, and it launched in the early days of 2021. And during those days, if you took a look at what was happening in DeFi, 20% was not actually not extremely high yield. So, you remember during DeFi summer, when a lot of the yields across DeFi were three-digit, four-digit percentage type of yield. Uh, in fact, when we were raising venture capital around the ANC token for the first time, the most common feedback that we heard was uh, looking at the comparables of DeFi

yields at such a high rate, like, do you think Anchor could actually get any users? And that was the primary concern, uh, around the time that Anchor launched. Now, the issue was Anchor's main value proposition was that the yields would change more slowly over time. Like, over something called the Anchor rate, which is governance-determined. So, the one of the main problems that it sought out to solve in the beginning was that it would take what was previously very volatile yields that were coming from, you know, crypto money markets like Compound or Aave, and then attempt to stabilize it over time so that it would be easier to use in other protocols and for average users.

And that's, I think, been one of the biggest problems with Anchor. Right? Because DeFi yields, as you know, crashed to almost zero, uh, as crypto markets started to slow down over time, and liquidity became farmed out very quickly. And then Anchor wasn't able to change its rates in line with the rest of the market, such that there became a lot of, let's say, trading funds or, you know, market makers that were buying, uh, UST at very large sizes to be able to farm the yield. But, you know, in the beginning, like, even internally, um, a lot of the questions came down to is this yield going to be attractive enough such that people and other protocols would choose to integrate with

Anchor? CoinDesk Korea confirmed that Terra had a pre-mine of 1 billion SDT, which was a Terra stablecoin that was pegged to the value of the IMF's special drawing rights basket or SDR. And at that time, SDRs are worth about a dollar 40, meaning that Terraform Labs had essentially been able to print 1.4 billion dollars out of thin air. Now, this fact actually wasn't explicitly or officially disclosed for the public to easily see or know about. In a way, you could sort of say it was hidden in plain sight.

Additionally, it looks like investor decks and the Terra white paper did not mention this. And conversions that were being made of these SDTs to Korean won Terra or KRT were actually being censored on the Terra Station block explorer, and they were only visible on independent block explorers. So, why not be upfront about the minting of the SDTs from the start? With the SDT issue, I think the major confusion that people have is so, like, if you went to Terra Station, which is the main wallet of the Terra ecosystem, there's a dashboard page, and the amount of SDT that existed in issuance was visible there the whole time. So, in the

beginning, when the Terra blockchain launched, there was the the main block explorers were, uh, you know, Terra Station or uh, terradastake.id. And in both of those things, the existence of SDT was very clearly disclosed. At the genesis events, we had a conversation with validators as to why SDT needs to exist, and there's a pretty clear reason. So, the way that UST operates, or, you know, back in those days, I guess, you know, KRT or some other stablecoins like MNT, is that there's a market swap mechanism to create, uh, UST by burning Luna, and vice versa, redeeming UST into Luna. And how these swaps work is that there's a

virtual AMM pool, uh, such that, you know, when a certain side of the trade is being favored, the exchange rate changes quadratically, similar to how you would see, uh, prices change in places like Uniswap or SushiSwap and so on and so forth. Now, the issue was that for an AMM like this, the, uh, amount of stablecoins that you can effectively mint or redeem would depend very strongly on the amount of liquidity that would exist for Luna on off-chain exchanges. So, which meant that, like, in the very beginning, it was very hard for us to estimate how much liquidity for Luna would exist, because it's impossible to predict such a thing.

But at the same time, uh, in the very beginning, when there was no Luna liquidity, there needed to be a way to be able to create Terra stablecoins, because the entire point of, uh, Terra as a project was to be able to create stablecoins that if you needed to pay, let's say, a 10% fee to create, like, a thousand dollars' worth of stablecoins, for instance, the system wouldn't function very well. So, it was a whole diverse system to make sure the various different apps that were being created on Terra, uh, which in the beginning was largely being driven by the efforts of TFL, uh, would be able to gain access to stablecoins without having to pay some ridiculous fees or pass those fees onto consumers.

So, you mentioned that it was visible that these SDTs existed. But, as I mentioned, um, this wasn't something that was talked about in the white paper or the investment decks, and the conversions of SDT to KRT were, as I mentioned, they were censored on the Terra Station block explorer. So, again, you know, this is like what I said in the question, that it was sort of hidden in plain sight. Like, if you knew where to look, you could find it, but like other than that, it wasn't kind of more proactively disclosed. So, why not? Well, so, for example, if you look at Terra's white paper, it doesn't actually describe anything like tokenomics. It's so it's it's written in a high-level way that describes how UST can be created

and minted and why a decentralized algorithmic stablecoin is an important thing for the industry. So, uh, it didn't go into token supplies or how the genesis token event would be distributed or anything to that effect. We intended for it to be written in the format of more of an academic white paper as to why this particular algorithm for creating decentralized currency was important and exciting. In terms of, let's say, investor decks, um, that that we used in the presale, we we had multiple versions of this, right?

So, we hadn't contemplated on the need, uh, for a stablecoin reserve at the very beginning, because we hadn't fully worked out how everything would work when we first started doing, let's say, presales of Luna. So, in the later versions of how we socialize this, the the need to create a stablecoin reserve the tune of about a billion dollars is clearly stated. And why were the SDT conversions to KRT not visible on the Terra Station block explorer?

I I don't think we blocked any conversions of SDT, uh, to KRT or anything like that. Uh, in fact, I've seen block explorer links to finder circulating when people wanted to ask us questions for what exactly SDT was, for instance. So, I'm guessing it was visible. We made no effort to censor any type of transaction on the finder block explorer whatsoever. And and it's open source, right? So, how the finder codebase is managed is that everything is open source, and then it's pushed into finder by Terraform Labs So, even the deployment is handled through GitHub. So, whatever censorship that we would have done would have been very apparent for other people to see,

because everything that was worked on by TFL or ConsenSys has been open source, and other people could view and audit it. Right. And as I mentioned, I did see a block explorer showing no transactions, you know, for that conversion. And then for the same, uh, from a different block explorer, an independent one, I I was able to see that. So, obviously, and well, as you described, you were using this these SDTs to obtain some different stablecoins, you know, to you were talking about like liquidity. Um, but so, what did you do with the stablecoins that you were obtaining, uh, with the SDT?

Um, so, the needs changed throughout time, right? So, for instance, I think when UST first started to take off, and the on-chain liquidity for Luna wasn't sufficient yet, I I think the all-time high for UST was about a dollar nine cents. So, during times in which, like, the on-chain UST creation mechanism would not be sufficient to be able to, um, let's say, bring down the price of UST to the dollar peg, in the early days, we used those SDT reserves to bring down UST price. In the very beginning, uh, of the process, a part of the SDT reserves were used to allow Chai to gain access to KRT.

You know, like, the idea there being that, uh, huge slippage costs on an exchange for a payment system to run wouldn't make sense. So, it was making stablecoins available for the apps, as well as making sure that UST was pegged. And so, if you're saying that you needed these stablecoins to keep the peg, you know, at parity with the dollar, then is that an admission that you knew that the algorithm was insufficient to maintain the peg? No, that's that's not what I mean. So, what I mean is, if you look at how, like, the virtual AMM, like, the UST creation mechanism works, it's bounded by how liquid Luna happens to be. And that's because how this virtual AMM works is that there is an oracle that is

reading in the price of Luna denominated in various different currency pegs. So, the price of Luna in KRW, US dollar, SDR, and so on and so forth. And then how the swaps work is that around that oracle reference price, the price actually you know, moves up and down quadratically depending on which side of the trade is being favored by the AMM. Now, the issue is like when the blockchain is first launched in the initial phases, you can't create a lot of stable coins because Luna as a new young asset is not liquid. And over time as Luna becomes more liquid, the minting and the redemption capabilities of Terra stable coins goes up. But in the very

beginning like in order to, you know, allow apps and other types of things to be able to gain access to stable coins, like it's important for the entire system to not be bounded to a few hundred dollars or a few thousand dollars of minting capacity because of what the liquidity conditions looks like for the Luna token. Right? And later down the line when Luna became extremely liquid, I think I've seen daily trading volumes of like four billion dollars, six billion dollars in certain situations. Like the minting capacity was able to be raised significantly through governance. To the tune of I think maybe like a hundred and twenty million dollars a day, something to that effect. So, the system scaled well throughout time. In initially, it needed help bootstrapping.

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

volume. Decentralization didn't happen because we stopped doing a particular thing. It just happened because the ecosystem grew very very large. And I think one of the things that people are forgetting, you know, in the light of recent events is that like UST was one of the largest and the most liquid stable coins, and Luna was one of the largest proof-of-stake networks in the world. Right? So, as a as a function of doing that, our interest in terms of, you know, trading UST and Luna, you know, shifted from, let's say, you know, wanting to maintain pegs or making sure that enough liquidity was available and things like that. It shifted more towards investing in various different types of projects that

would launch on Terra. So, we we might take like an interest in acquiring something like, you know, Astroport for instance. But I guess, you know, the one thing is so here we are talking about how you were using these SDTs to obtain stable coins which would help you maintain the peg. And then, you know, so maybe at a certain point you stopped that, but then later on with the new plan, um, you know, last year to maintain the peg through this BTC backstop, isn't that sort of the same thing? And isn't that again this notion that through market operations you need to maintain the peg because the algorithm would not do it on its own.

Oh, so one of the things that people misunderstand about LFG is that a lot of people think that LFG's role would be an active market maker. So, that's not how it was designed at all. So, the initial goal was LFG to, you know, to raise large amounts of BTC by selling Luna to, you know, venture capital or, um, you know, other people. And then the idea would be that this BTC would be bridged over to the Terra blockchain such that it would be a secondary way of minting and redeeming UST, not just Luna. So, the goal was that we would have BTC, so you could you could mint UST by putting in more BTC into this

on-chain reserve. And vice versa, you would be able to take out BTC by redeeming UST against it. And the goal was to uh set this up for multiple currencies. So, for for instance, uh we had acquired um, like a hundred million dollar position in Avalanche to be able to do the same thing with AVAX tokens. So, the the eventual goal was to get to a state where UST would be backed by every large and promising cryptocurrency. Now, the issue was that while the BTC bridge and the the reserve mechanism was being worked on by various teams, the crisis struck in May. So, we had a choice. So, we had the choice of

either not deploying the BTC, right? Because that's not what we originally intended to do with it. Or we could try to deploy it to, you know, absorb what we thought then would be a short-term market volatility. I think given in the light of things that actually happened, people think that Terra was designed to be a system where LFG would just act as a market maker to defend UST peg. And that is absolutely not the way that it was designed at all. Evidence shows that you or TFL or LFG used Abracadabra's Degen Box to cash out billions of dollars worth of UST into harder stable coins such as USDT.

With Degen Box, you could stake collateral to buy UST, then you could put that into Anchor for the yield, and then use the aUST to borrow more UST, which you could then again put back into Anchor, and etc. etc. thereby amassing a ton of UST. And then when it came to the Degen Box, there were liquidity providers that were incentivized by SPELL rewards to provide a ton of liquidity in the Curve pool. And that then made it easier for you or anyone to cash out of UST for a stable coin called MIM, Magic Internet Money, without it having harmed the UST peg.

So, there are multiple people that have showed that these wallets associated with you or TFL or LFG cashed out 2.7 billion dollars worth of UST for MIM, the vast majority of which were turned into USDT, some into USDC, and that money was then sent to exchanges such as Binance, KuCoin, Huobi, OKX, and others. What do you have to say about this evidence which is available on Dune Analytics and this notion that you cashed out 2.7 billion dollars worth of UST in a short period?

Okay. So, I think what people misunderstand is TFL cannot create UST out of thin air. So, I think the primary question that they should be asking is where did the UST come from? The UST reserve was already decommissioned by the point that Magic Internet Money came around. So, basically in terms of Degen Box, the only thing that we did was Degen Box was actually quite destructive to UST because when Degen Box was going up, essentially when crypto markets were on the up and up, it would make it more difficult to mint UST because there were a lot of people trying to mint it. And then on the downside, Magic Internet Money kind of operated like like a

multi-sig based hedge fund. So, during I think the MIM crisis of let's say February of this year, I think the Abracadabra team just basically sold down um, all of their UST on I think a companion app called Popsicle or something to that effect. I think hundreds of millions of dollars in like a couple of transactions. So, I think in terms of that volatility, it's not something that helped the Terra ecosystem at all. But whatever transactions that we did against MIM, selling UST into USDT, and then acquire Luna with that USDT, mint more UST, and then so on and so forth against, you know, Degen Box. And the way that Degen

Box worked was quite insane. So, like, you you would allow minting capabilities on on Degen Box, and then there would be so many people that were coming in from places like TikTok and things like that and buying out that entire capacity in a matter of seconds. And really, UST doesn't handle those situations particularly well, as you can imagine, because its minting mechanism is based on AMM pricing. So, it's it's not that I I think people confuse trading volume with cashing out money. And TFL did supply, you know, UST into Degen Box so that UST wouldn't depeg. But it wasn't definitely not a situation where we cashed out 2.7 billion dollars or

anything to that effect. And did you cash out any amount of money? Are you disputing the 2.7 billion dollars or that you cashed out at all using Degen Box? If you're asking the question whether TFL ever sold any UST or Luna, yes, we definitely did. But I I think people are sort of drawing conclusions based on incomplete on-chain data. We definitely did sell Luna and UST over time to be able to fund operations. But you sold them for MIM, which you then turned into USDT? Generally how we would, you know, sell something like Luna or USDT would be either by using OTC or if we needed funds quickly, just sell it on a,

um, centralized exchange. So, you never used this mechanism that I described with MIM. No, we we did use MIM, but that that was an arbitrage mechanism, right? So, like 2.7 billion dollars or um, anything to that effect was not uh something that TFL used to cash out money or or anything like that. So, one of your defenses in the Coinage interview was that failure is not fraud. I think I also saw this in a Wall Street Journal article about you. However, Tech in Asia reported that in May, right after Terra's collapse, Chai claimed that its partnership, the one in which it was using Terra for its back-end operations, had been discontinued.

However, it actually turned out, as Tech in Asia discovered, that this relationship had actually been terminated all the way back in 2020. And Tech in Tech in Asia asserted that in the intervening years, Terra and Chai kept users in the dark about this. In fact, in 2021, you tweeted multiple times about one of Terra's use cases being Chai. For instance, you said that Chai and Meme Pay contributed 2.5 million users to Terra. That same year, you claimed on The Defiant podcast that 2.6 million Koreans were using Terra stable coins for payments.

And in March of '22, which is just, you know, half a year ago, you noted that Chai used Terra stable coins on the Palm podcast. And it turns out, so Chai and Terra did have some kind of marketing partnership in 2021. But there was so little volume, nowhere near millions of people, that eventually this was discontinued just after a few months. So, why did you continue to claim that Chai brought millions of users to Terra during a time when not only that that wasn't true, but that it even couldn't be true because that initial arrangement with Chai had ended?

Okay, so in in terms of Chai terminating its support for the Terra blockchain, it's actually something a notice that they put out in March 19th of 2022. So, they they put out the post then that they would be terminating Terra support because of lack of usership. Right? So, what is true is that in 2020, Daniel left TFL, uh so Daniel Shin, my ex-cofounder, left TFL to focus on Chai full-time. And then I stepped away from Chai, which was a company that I also cofounded, to focus on TFL.

In terms of usership, Chai did, you know, get to 2.5 million users or something in that range. But it is true that in 2021, and I think in 2022, usership had tapered off as um it had, you know, started to focus on other business lines, like a payment gateway, which had nothing to do with crypto. It was called I'mport. As well as like a new, more, you know, crypto-based business line that they had been contemplating. So, um it So, I I I did mention uh from time to time that, you know, for example, Daniel Shin was no longer, you know, uh working at TFL and is focused

focusing on Chai. It's not something that we advertised loudly. Right? Because a lot of it didn't really seem like one of those things that, you know, really mattered all that much. I I considered myself to have been a more the more active cofounder uh in building both of those companies. So, in terms of day-to-day operations, it didn't really have that much of an impact. Um But so, why did you continue in 2021 multiple times to say that Chai was bringing 2.5 million users to Terra, or that 2.6 million Koreans used Terra stable coins for payments? You know, even in March of this year, you were saying similar things.

Why did you continue to do that? Well so um in in terms of Chai usership, um I had limited visibility into how exactly many users would be able to do it. Um so, there was a service called Chai Scan that tracked exactly how many number of wallets were actually using Chai. So, by 2021, I think that number had fallen to something like, you know, 700,000 or 800,000, or or something to that effect. It's It's like a top-line number that I remembered from the days in which I was using Chai.

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

And so, was Chai transaction data visible on a Terra block explorer? Yes. Terra blockchain? Yes. So, people have noticed that the transaction volume didn't really change over that period, despite the um you know, ending of these relationships. So, was Terraform Labs faking that Chai transaction data on the blockchain? Whatever transactions are written through the Terra blockchain is written by Chai. Right? So, there's been like allegations, like, for instance, you know, there's been statements that were made to the Korean media about like how Daniel and I had like a personal fallout, or like

Chai and Terra have no relationship, and even like statements that contradict facts of announcements that were made to users. It was definitely true that Chai put out a notice in March of 2022 that they would be terminating the usage of, you know, like the Terra blockchain. I think that's more like in the interest of I I mean, like as you can understand, like like after everything that's happened, people would want to distance themselves away from Terra, especially if you're in Korea, because you want to minimize, you know, attention and, you know liability.

And I think a lot of those statements are more in that interest, rather than like of what actually transpired. And while I wish things would have been different, like I can't fault people for wanting to minimize personal risk during times like this. For this question, I would like to credit the stellar reporting of CoinDesk's Sam Kessler. In a June 2019 hard fork of Terra, there was no public discussion, but a line in the code for the new blockchain essentially amended the blockchain's genesis file to change the wallet address of a Terra investor, Translink Capital, perhaps because it had lost the private keys to its address.

So, this is a very similar move to the one that occurred with the DAO hard fork on Ethereum, where people now call that an irregular state change. Essentially, the money was moved in this irregular fashion from one place to another. However, as I'm sure you're well aware, the Ethereum community had extensive conversations about this on the internet. Um I mean, it really was kind of a moment-to-moment, just, you know, people were constantly online discussing this. And the decision was one that was very clearly communicated um to the community.

However, when Terra did this essentially, you know, very similar move with this June 2019 hard fork, it appears that Terraform Labs sort of unilaterally decided to allocate these new coins to Translink Capital, and didn't have the community weigh in on it. Why did TFL make this decision without having a public discussion? Uh well, so I I do remember a public discussion. But like you you have to remember that in 2019, when Terra first launched, the there was no meaningful community to the size of Ethereum when the DAO hack happened.

So, like it's not so much that there was a lack of discussion. It's just that the community was just a handful of people, you know, back in those days. Like 2019 was No, I mean, you you I I don't think you were in crypto in 2016, but Ethereum was not even a year old at that time. You know, the DAO hack happened basically, um 10 months into Ethereum's life. So, I don't I don't think it's that dissimilar. I keep going. Yeah, but I I think it was even smaller than that. Like if you went into, you know, Terra's Telegram room, it was mostly bots, and maybe there were like, you know, five or six people that were talking, and then everybody else was just lurking. Um so, uh for instance, so basically,

with respect to Translink Capital, we created sort of a web interface that asked, you know, pre-sale participants to create a new wallet using Station, and to supply the wallet address to that web interface. Now, what we, you know, couldn't verify was whether a wrong address had been inputted because of an issue with the software, or because like, you know, Translink Capital lost the keys, or something to that effect. But the way that the Terra blockchain works is that TFL can't unilaterally decide to do an upgrade.

Like it's each of the validators would read through the code. Uh it's it's it's basically a migration script that upgrades the blockchain from one state to the other. And then they decide as to whether they're going to upgrade software at a given block time or not. There are cases in which validators refuse to upgrade software, especially in the case of, let's say, an emergency software update, where like only the binaries provided, but the source code is updated later in order to prevent the hacker of misusing that information prior to the upgrade having completed. Right? So, it's it's essentially a validator-driven process.

And when we made this decision, because we weren't sure whose fault it was in the very early days of the network, to provide a fresh address, it did come up in validator discussions. There were some people that were uncomfortable with it. But, general consensus during that time was, yeah, I mean, it's not a big deal, especially if you don't know whose fault it is. We should just go ahead and do it. And that's how the network update happened. Validators in Cosmos can be quite stubborn. Just because you tell them to do something doesn't mean that they do it. After Terra crashed, it was revealed that you were part of another algorithmic stablecoin, Basis Cash, which failed to reach dollar parity and eventually fell to a value below a penny.

Why were you so confident and frankly arrogant about Terra when you had this other experience with an algorithmic stablecoin that failed spectacularly? So, I I think I discussed in the Coin Desk interview, but basically, the way that Terraform Labs, you know, did work is it's it's sort of became kind of an accelerator that would create lots of different apps. And that's sort of like the mental model by which I operate. So, for example, out of TFL came, you know, apps like, you know, Pylon, which used to be like a yield-based I forgot what they're called, but you you buy tokens through yield. And we also created things like, you know, Anchor, we created Mirror, we created, you know, from our alumni

network came things like Alice and Sutton and things like that. So, generally speaking, if somebody becomes entrepreneurial and then wants to do something we we throw full support and and just let them. So, the context around Basis Cash is that when we first brought in like the initial team that was start to build Anchor, it was actually like maybe a five or six-person team. But, we found that only one person had the interest and sort of the mechanism design skills to be able to work on Anchor.

Whereas, the other people were sort of unmotivated and not really excited about the things that were going on. What they did is they were spending a lot of time, you know, like yield farming DeFi around that time. Which is not something that I had too much experience doing. So, the the lucky thing is that these guys brought in data points about how, you know, this thing called like Yam Finance or you know, Yearn and those things would work. And that's sort of how I first became an active user and became acclimated to DeFi.

And then over time, they said, I we we would like to take a protocol that had never launched, something called Basis, which I think shut down in 2018 or something like that. And and then said they wanted to do an implementation of the Basis protocol. And then to launch it anonymously. Like during that time, like anonymous launches were all the rage. So, I'm not even sure if those guys actually wanted to hide their identity because it didn't have a pre-mine. Right? So, like Basis Cash didn't have any sort of a pre-mine or something like that. I think they just wanted to get the experience of being an an anonymous founder. And and then they started, you know, cranking out the code and writing things and then they assumed

a persona of, you know, like from the Rick and Morty series, like, you know, they there's like Beth and Summer and all these different characters. Given that they each of the members there were too comfortable with English, they asked whether I could be Rick and then speak to people so that they they can get, you know, attention and users for Basis Cash. Right. But, so Joe, I don't know if you like heard my very specific question, which was like when you went to launch Terra, why were you so confident and, you know, seemingly arrogant about it when you had this other experience with the stablecoin that failed? Well, so Terra predates Basis Cash number one.

And number two, I don't I don't think algorithmic stablecoins fail because of algorithms. I think it fails because of the stability of the economies that are backing them. What what I mean is like an algorithmic stablecoin and a national currency are actually very similar constructs. It's all based on the quantity theory of money. And the idea is that like you should be able to absorb contractions and expansions in currency. And the best way to do that is to build a robust economy surrounding it. So, for instance, when there's a currency failure of a small developing nation, it doesn't fail because of the monetary policy of the central bank has failed. Or because they don't know how to use mechanisms like bonds or things like that to pick up the slack in currency demand. It's because the

underlying economy is weaker. Right? So, I I don't think there was any fundamental problem with like Iron Finance or Basis Cash mechanism-wise that led these things to fail. It's because there was no solid economy that was being built on top of them in such a way that wouldn't make currency demand volatile. And but do you feel that the investors in Terra would have had an interest in knowing that you had this other experience working on a similar stablecoin that had failed? So, in terms of Basis Cash, I mean, sorry to use this word again.

Essentially, all I did was to join Telegram rooms and shitpost. So, right after they launched Basis Cash, they spun out of TFL. So, they they they handed in the resignation, I think, on that day or maybe the day after. And then they like hired community managers and other developers and things like that. And then ran that for, I think, a few weeks until Basis Cash depegged and they had to look for other jobs. But, in terms of like how exactly Basis Cash was implemented or like what they planned to do with Basis Cash to encourage the use of the stablecoin, I had no involvement in those things. Like in retrospect, should I have like assumed like Rick's character and then

shitposted on Telegram? Maybe not. It was an educational experience. I learned a lot about DeFi and why like pseudonymous foundership makes sense in crypto. I saw the energy of the communities that were interested in DeFi at that time. And I think without Basis Cash, it would have been like much harder to get that learning experience earlier on. But, I just want to say that Basis Cash is not something that I designed or operated. It's something that I encouraged. And have you ever anonymously founded other projects?

No. So, let's talk about the week of the depegging. What happened to the LFG funds during that week? It's actually, you know, stated in in like a tweet thread that LFG put out. Or maybe it was like a PDF or DocuSign or something like that. So, basically, I think it was morning Singapore time of, I think, May 7th or May or something like that. Um so, I got up and there was a bunch of notifications on my phone. And I think UST had depegged about 2.5% at that time. And then there were some very large trades that had been made against the Curve liquidity pool of UST versus 3CRV.

That's led the Curve Finance pool to be almost depleted. And there were also very large sell orders on exchanges like Binance on the UST to Tether pair. So, we saw that, didn't really think it was a serious problem because UST like went through several cycles of, you know, site depegs both in the upwards direction and the downwards direction. So, we like initially thought this was something that time would solve. But, then again, like over time, that disparity seemed to get worse and worse. And there were, you know, patterns of very specific orders doing very large sells against UST.

And I think it was like maybe like a day later when we decided to use LFG funds to buy UST. Because not only were there very large sells happening, but on social media like Twitter, the sentiment was starting to catch on and rumors about like UST depegging and things like that. And just in general, like in these runaway situations, that's never a good thing. In the initial clip of capital, we deployed a few hundred million dollars to a market maker. I think we deployed like the some residual amounts of USDC and Tether that LFG had, like maybe a hundred million dollars in total.

The the market maker like went in, bought like a bunch of UST. But then like UST re-pegged for a brief moment in in time. And then just the sells started to get worse. So, we repeated that over the next couple of days trying to bring UST peg parity. The price of Luna was falling both because people were dumping, but also because shorts were piling up. And then that happened to both currencies. So, sometime during the middle, we we sort of had a war room of various different, you know, you know, OGs from the Terra community.

And then we decided that it might be worthwhile to raise fresh capital to bring back confidence in the UST markets as well as be well, just be able to buy more UST. So, we started to put together like a mid- midnight, you know, fundraising rounds, which very quickly got leaked. Like during that time, I I think more like even more shorts started to pile up against Luna. So, and we were planning to sell Luna to investors to be able to raise that capital to be able to buy back UST. So, when the total value of Luna fell below like a certain market cap, just the the raise became untenable. And um So, so now it's been about five months

later. Why hasn't the LFG released an accounting or trading logs of how that money was used or even mentioned which market makers executed the peg defense? Well, so in terms of the market maker, I think I mean, I I am bound to some confidentiality technically. But, you know, I I think there there's been pretty accurate assumptions like in the market of uh who the market maker was and things like that. So, I I don't think there's too too much need to clarify who the market maker was. In terms of like the accounting of LFG funds, like honestly, like in the beginning, like a lot of funds uh uh a lot of firms just didn't want to touch this, right? And then it took us some time to secure uh somebody that was

willing to work on uh the report, and there's a the there's a lot of transactions, right? So, uh it took a little bit of time for them to parse that data, as well as try to work with the market maker so that they would produce their data. I think finally we're in the closing phases of that. And that on top of like we've we've had a lot of people quit with the de-peg, as you can understand, there's um when something fails this spectacularly, even the most ardent supporter finds it very difficult to stake their career on like a new version of something that is quite different from what they initially believed in. So, it's it's been challenging just across the time uh just across the board at TFL, like wanting to do even basic

things. Since you made the LFG to increase Terra's decentralization, why did you unilaterally pull out that last tranche of Bitcoin for deployment by yourself without executing a vote? Okay, so basically, like in terms of LFG directorship, the way that we we structured it is that initially uh we had two directors, so which is myself and Nick Platias, who used to work at TFL a couple years ago. Um and was one of the authors of the white paper. And then the idea was that we would gather paperwork from each of the other uh soon-to-be directors. Yeah, so we were in the middle of that paperwork when the de-pegging happened.

So, the timing was just terrible for almost everything. Uh by the time that we were executing the last clip, um like there was pretty strong market sentiment that this wasn't going to recover, right? You know, like the LFG council at at that point was kind of kind of like in in shadows, right? So, there were people not engaging. I I think there was some side chatter about resigning uh or like um potential threat to risk and and things like that. So, we were in a situation where we had to execute the last tranches of the trade against sort of like an industry that it sort of turned turned their backs against us at that point.

I want to ask one more question about the money. So, on September 9th, 2021, you announced Project Dawn, which would unlock 3 million Luna a month for TFL for operating costs. So, there were times in the following months when this basically meant that $300 million worth of money was being spent on TFL's operating expenses per month. Where did that money go? Okay, so if you look at like the Project Dawn announcement, it says that 5 million Luna would be used to establish a like a like a separate pocket of capital that could fund general Cosmos development. And the 3 million a month we clearly stated in that announcement

is that in addition to Project Dawn, we would not be withdrawing more than $3 million from the Genesis wallet to be able to fund, you know, TFL operations. Wait, you 3 million Luna, not $3 million. Uh sorry, 3 million Luna. And during certain times, the amount of uh Luna that was being the dollar value of the Luna that was being withdrawn was extremely high, right? But um like and I think a a lot of the employees, you know, that work at TFL by dollar value in the Luna that they got, uh would have been massive amounts of money, right? But the thing is, like when you bring on somebody to and and then sign a

contract with them, generally they're going to want upside in tokens, right? And uh you know, there was discussion as to whether we should like bring down the amount of tokens that were being distributed or something to that effect, but it seemed inappropriate to try to take away the the upside that people had earned, despite the career risk that they took to join an early, you know, cryptocurrency developer company, when in fact, when the opposite would happen, we wouldn't necessarily raise uh the amount of, you know, tokens that we were promised, because the idea is that you you you you shoulder the risk and then get upside the other way. But one of the things that we did, because we were sensitive

to that emission, was that I personally haven't taken any tokens from TFL from May of 2020. In terms of the total token distribution, we did make an active attempt to try to make sure that as few tokens end up, you know, in the open markets as possible, as sensitive to like the interests of the community. So, you are saying that those tokens that that were being unlocked every month were basically going to pay these contracts with the employees, and so the employees were largely getting that money. Well, that and like, for example, like an OTC sale that we did with, you know, let's say Galaxy and Pantera and several other players, so

in essence, like token purchasers were vested over many months. A lot of them went to like meet, you know, things like contract obligations and things of that effect. Okay, so it essentially wasn't for operating expenses uh in the way that most people think of that, but it was for these agreements. Yeah, so what what I meant by like operating expenses is like stuff that we need to like disbursements we need to make out while operating TFL. And one other thing about this, in the blog post, you said that the details around each unlock would be transparently relayed to the community.

Did you have like regular reports about this? So, that that that's something that we weren't able to do, because for instance, like any sort of purchase contract has confidentiality obligations, right? So, we wouldn't be able to say this person purchased this much. And um even in cases where it becomes very easy to guess, that would create liability for us. And just just as a like a HR practice, I I was advised that it would become very difficult if you, you know, make it transparent for how how many tokens uh each employee was getting. And the disparities admittedly were quite high, because people joined at different points in time. So, for example, somebody that joined when Luna

was like 15 cents would be getting a lot more tokens from TFL than somebody that joined when Luna was $100, right? And while theoretically people can understand why that happens, it's kind of like demotivating in some sense to have to work with that amount of disparity. But, you know, people talk and they found out, you know, hints of who had many tokens and things like that over time. So, that that had been one of the consistent problems in terms of HR policy at TFL. And I I would assume many other crypto development firms.

I want to um ask you um some questions about your situation, and you mentioned your finances um a minute or two ago. What was your total net worth before you started Terra, and what's your current net worth? Yeah, I'm not sure if I'm comfortable answering that question. All right. In the next several days, it looks like your South Korean passport will be invalidated. What do you plan to do at that point? I'm not using it anyway, so it doesn't I can't see how that makes a difference to me. Meaning you don't intend to travel from where you are now? No, that's that's not what I meant. Do you have another passport that you can use to travel?

Yeah, so just in general, like with personal travel plans or location or things like that, it does get pretty horrible for me, given the amount of publicity around this. So, I just don't feel comfortable talking about, you know, location or how I plan to travel and things like that. I also wanted to ask some questions on behalf of some of these token holders. On May 21st, you tweeted that pre-de-peg UST holders would receive either USDT or USDC, and the Luna Foundation Guard tweeted something similar on the 16th, saying that foundation would return remaining assets to compensate the remaining users of UST, prioritizing the smallest holders. When will this occur? So, right now, the Luna Foundation Guard is not at

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

It's not a system whereby like we are a vendor of cryptocurrency, and that people give us money, and then we give them stablecoins. So, it's it's it is not that model, right? So, it's not a situation where and and I think a lot of the misconception comes from like people think that all stablecoins are the same. So, the idea is that okay, I just use a stablecoin, I don't care how it worked, but given you were the face of, you know, Terra's stablecoin, it didn't work, and I want my money back. But we weren't the counterparty to stablecoin acquisitions, right? So, it's more of a like a goodwill effort, us realizing that using this 313 13 Bitcoin is not going to re-peg UST, so we're going to

distribute it to USTC holders, but it's definitely not a refund. Right. So, there's compensation, but will you pay interest? No, we're I don't think we're making any like yield on the underlying tokens now. So, we're not generating interest. So, there will be no interest. And would you ever contribute your own personal funds to these reimbursements? Or to this compensation? My personal funds are not significant enough to make a difference to any of these distributions.

You've been through some extreme highs and extreme lows in your young life. You went to Stanford undergrad, which obviously is something seen as an achievement in and of itself. You became, I think, the biggest crypto star in Korea. Now, you're probably one of the most notorious men in Korea. The South Korean government wants to arrest you. How do you feel about the direction that your life has taken? So, Laura, to be honest, I think it's going to take a couple years and some sobriety retrospect for me to fully internalize everything that has happened.

But, like one of the things that I want to clarify is given some of the jokes that I made on Twitter or anything like that. It was never really about, you know, money or, you know, you know, fame or uh success quite in those terms. I'm sort of like a person that like likes making toys. Right? So, what I mean is I derive a lot of enjoyment from from just simply tinkering with things. So, for instance for instance, like even outside of programming, I enjoy building furniture for instance. Or these days, I guess, sometimes to cook.

So, like from that perspective, like I think one of the things that I hope the next few years would clarify is what happened with Terra was it wasn't a scam. Like it wasn't a fraud. Right? It was a massive market failure. But, I think one of the things I want to clarify is I believed in the need and the viability for decentralized algorithmic stablecoins more than anyone else. And as founders, we are we we sometimes have a bias and in some cases erroneous bias for being bullish.

Right? So, a lot of people say that I'm an idiot for, you know, buying Bitcoin right before it was about to crash or something like that. But, dispositionally speaking, like isn't crypto made better or any industry made better if there are people that just just a little bit like believe in things and is more optimistic than other people about how things are going to pan out and how things are going to work. I I I think the most important thing is like we really did try to hold ourselves to a pretty high standard of integrity. And I think now we're starting to make some attempts to make sure that we provide the right kind of information out there so that people can understand what happened better. We are a pretty small organization at this point. So,

there's sometimes going to be things that we won't be able to answer everything. Right? Because there's there's just too much accusations coming out and some without like any factual basis or something like that. But, we are trying our best. Like in terms of what it when it comes to my life, like I think like I the way that I think about it is I am but 31. And I would still love to contribute. So, um it is going to be an exciting time because I think you know, more of the work that I'm going to be doing is going to be in the core. I get to do a lot more engineering, which I didn't get to do in 2021 when Terra was just exploding. So, a lot of my time was spent in calls and meetings and podcasts. While this is definitely probably the hardest

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

market crashed. That could be one of those things. For example, being less aggressive and less joking on Twitter. I think definitely would have been uh one of them. Yeah, spending less time on social media and talking to people, I think, definitely would have helped. Probably have gotten a lot more work done. But, I I I think Look, so I think the next attempts at creating like decentralized money is going to look a lot different. Right? So, it might not even be a stablecoin. Right? So, it might not even be dollar-pegged.

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

And to keep attempting to create decentralized money that is not just censorship-resistant, but more robust, more transparent, and resistant to failure. And I think if some of the work that we've done at at TFL, because it's it's not really all about the failure. We did some interesting work. We built interesting apps. If some of the history of the work that we've done in sort of creating UST and seeing it scale and grow for 3 years is valuable for other people to be able to create that decentralized currency, I think that would make me very happy.

Well, is there anything that I didn't ask you that you would want to say? Just generally speaking, I plan to be I am working on like lots of different things. Like I'm not going to talk about them. I'm not necessarily going to, you know, some some of these necessarily or not even going to launch. Are you working on Luna Classic at all? No. Not at all. The Terra Station wallet I think still supports Luna Classic, but we we we don't um really have a relationship with the original classic blockchain anymore.

So, I'm just in general, like I plan to be working on things that are, you know, exciting to me. Once again, I am but 31 and I still want to contribute. Definitely all of these are going to be highly experimental. Right? So, as in like just for like my fun in building them. Uh if it's useful, feel free to contribute. Ask me questions you know, to build on them. And if you don't like them, just don't use them. But, you know, yeah, I I I I plan to continue building. And I look forward to working with several of you in the future.

All right. Well, I really thank you for agreeing to this interview. You know, as you mentioned that you find transparency and like revealing the facts to be important and I, you know, really appreciate that you took the time to answer what were some tough questions and um help in that effort. So, thank you so much for coming on Unchained. Thank you, Laura. Bye-bye. Thanks so much for joining us today. To learn more about Do and the collapse of Terra, check out the show notes for this episode. Every other week, Unchained hosts the Chopping Block, where crypto insiders to see Kara Swisher, Tom Schmidt, Robert Leshner, and Tarun Chitra chop up the latest news in digital assets. Subscribe on YouTube at youtube.com/c/unchainedpodcast.

Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Matt Pilchard, On Rvanovic, Pam Majumdar, Shashank, and CLK Transcription. Thanks for listening.