The Terra saga rumbles on.
Welcome to The Daily Forkast, May 17th, 2022.
I'm Megha Chaddah of Forkast covering all things blockchain.
Do Kwon's latest proposal for the Terra blockchain involves a hard fork and ditching the Stablecoin
UST.
But will the community go for it?
Meanwhile, in an exclusive interview, Singapore's sovereign wealth fund, Temasek told Forkast
that contrary to reports from last year, it doesn't own Bitcoin, but it is getting ready
for tokenized assets.
We'll take a look at that, plus a whole lot more coming up.
Let's get you up to speed from Asia to the world.
Join thousands of NFT traders who already start their day on CryptoSlam.
Let's kick off with more on the fallout from the UST and LUNA crash.
In South Korea.
The fiasco is weighing heavily on play-to-earn projects and their tokens.
Local gaming giant COM2US saw the price of its play to earn cryptocurrency C2X plunge
from around US$2 to US$0.82 by Tuesday morning in Asia, following the dip pegging of UST.
The blockchain gaming project is on the Terra main net and C2X says it has now decided to
switch to an alternative which is yet to be revealed.
Meanwhile, the South Korean financial services firm NH Investment and Securities has lowered
its target price for COM2US Holdings from around US$137 to around US$98.
It said that the Terra LUNA debacle has cast uncertainties over the play to earn business.
South Korean gaming developer Net Mobile's MBXCoin, which has no affiliation to UST or
Terra, had fallen from over US$50 on May 6th to less than US$9 by Tuesday morning.
Fellow developer WeMade's Wemix play-to-earn currency has also experienced heavy price
fluctuations, though that turbulence was apparent before Terra's troubles began.
Share prices for all three companies have fallen over the past seven days, with COM2US
down 10%, WeMade down 4% and NetMarble down over 17% Tuesday morning in Asia.
Meanwhile, TerraForm Labs co-founder and CEO Do Kwon has come up with a new plan for a
path forward for Terra.
In a series of tweets early morning Tuesday, Asia time, Kwon confirmed proposing a hard
fork of the Terra blockchain and Terra Ecosystem Revival 2, which will abandon the algorithmic
stablecoin UST.
Under the proposal, the network will be forked, with the original trade being called Terra
Classic, with the LUNA Classic Token and the new one taking the name Terra and its native
token, Luna.
Kwon's proposal is reminiscent of the 2016 Genesis DAO exploit, which led to the birth
of the current Ethereum chain.
He said that they believe this token distribution is the best solution for the varying interests
and time preferences of each stakeholder group.
He also said it creates the most viable path to revive the Terra ecosystem.
But some US stakeholders clapped back at the proposal, saying that they lost their funds
in the crash and urging TerraForm Labs to address the issue.
The hard fork will go live for community voting tomorrow, May 18th Asia time.
You can find those stories and a whole lot more at Forkast.News.
LUNA, the cryptocurrency powering the Stablecoin Terra USD or UST was trading at over US$80
just ten days ago, and it's now been reduced to a fraction of a penny.
So what's really happened here and what lies ahead for LUNA and UST?
Benjamin Stani, Business Development and Sales Director at Matrixport, joins in to talk about
just that.
It's great to have you again with us, Benjamin.
Thank you for having me.
Let's start with the basics on Terra USD and the LUNA, the UST.
It's an algorithmic stablecoin what exactly does that mean?
How does it work?
How is it different from other stablecoins like circle and tether?
Well, let's talk first about the collateralized stablecoins because they're a bit easier to
understand.
The two most popular that you mentioned are USDC and USDT, and together they have a market
cap of around US$130 billion.
So there's clearly demand for those.
The way it works is very simple.
The issuing entity says we've got liquid assets worth the equivalent of US$1 on balance sheet
for every stablecoin that we issue.
And you can come to us at any time and exchange your coin for US$1 in fiat.
Now there's a decentralized version of this as well, and they're using crypto assets.
But in essence, the logic is the same.
Every coin is backed by assets on the balance sheet.
Now the other version is the algo stablecoins and they are a bit different.
They're backed by the promise to be able to exchange one stablecoin for the dollar equivalent
value of another crypto.
And in the case of UST, that was LUNA.
Well, UST is theoretically supposed to be worth US$1 each.
So how did it lose that dollar peg?
And where does Luna fit into this and what's led to Luna's value collapsing?
Basically, you're always allowed to exchange UST for the dollar equivalent value of one
LUNA, and there's the catch, because that creates a twofold problem.
First, the Luna that you receive when you exchange UST is being minted out of thin air
and it thereby increases inflation.
And so the value of every other LUNA goes down a bit just because the network didn't
get more valuable by just increasing the supply of LUNA.
Then of course you want it.
You want a dollar, so you didn't want a LUNA in the first place.
So you're going out to the open market most likely, and selling that dollar equivalent
of LUNA for fiat.
Now that mechanism works both ways.
So on the way up people have to buy LUNA to mint UST and that's pushing the price higher,
whereas on the way down and the inverse happens.
The second problem is, however, a bigger one because there's a bottleneck for these swap
transitions that happen on chain.
And this is where the peg broke.
Something caused stress to the system.
Then people saw that they couldn't convert the UST into LUNA fast enough and so they
went to centralized exchanges to sell the UST.
The price for UST started to drop, which caused even more stress than panic happened.
And then that created that death spiral.
The Luna Foundation got the organization that supposedly supports LUNA, said that they would
step in with Bitcoin reserves, yet we've seen that UST dollar peg crumbling.
Yes, that's right.
So obviously what's happening at that risk of a death spiral was very well known to the
LUNA Foundation Guard.
They were aware of this.
And so what they tried is they tried to build a Bitcoin reserve in order to prevent that
debt spiral.
The logic was that either you can convert to UST into the dollar equivalent of bitcoin
or they would use the treasury to defend the peg off chain.
Now that Bitcoin conversion wasn't ready yet, but even if what we witnessed was that the
pressure was just too large and once panic broke at the peak, we had about US$2 billion
of UST outstanding and that was backed by just less than US$2 billion of BTC.
And they've also been allegations that Citadel, BlackRock and Gemini are behind the UST collapse.
Your thoughts?
I personally doubt any of the aforementioned by players was involved.
I think Gemini even came out openly and denied any allegations, but that doesn't mean that
there was no centralized active behind it.
They withdrew liquidity from the three pool on a decentralized liquidity pool that made
it very vulnerable the system at that point.
And therefore, what could have also happened is that people just saw that panic and then
that cascaded down into causing more and more panic and created that self-reinforcing mechanism.
So while well, there's speculation and I believe that it might have been a centralized actor
behind it, even that's not fully, fully known yet.
Whether it was a centralized actor or it was just a breakdown of the system because of
panic doesn't really matter, because if it was a centralized actor, somebody would have
come out and exploited that trait, just like what George Soros did with the Bank of England.
So it's it's in a way, it was a flawed in that system and that just got exploded.
We still have so many questions and there's so much more to discuss.
But for today, we'll leave it here.
Thank you so much, Benjamin, for joining us.
Thank you very much.
And finally, Temasek is an investment firm owned by the Singapore Government that manages
a net portfolio worth US$273 billion.
The Sovereign Wealth Fund has shown significant interest in investing in the blockchain and
crypto space, leading a US$200 million funding round in crypto firm Amber Group back in February.
It was also reportedly buying Bitcoin last year.
But in an exclusive interview with Forkast's Editor in Chief Angie Lau. in Singapore, Pradyumna
Agarwal, managing director for blockchain investment at Temasek, said that's not the
case.
So it is one of those misinformation which we have chosen not to comment on because I
don't think it was part of the mainstream media.
We don't comment on our direct investing activities.
We are very focused on backing the best projects.
That's really where we are spending a lot of time and activity.
Today, Temasek does not own Bitcoin since you asked me this very pointed question, but
that is not a statement on whether we like Bitcoin or whether we want to own Bitcoin
or not.
I mean, that is just a factual statement of fact here today.
Where we are very, very focused is looking at which are the emerging protocols, where
is the utility that is central to all of our activity.
But part of that is tokenization.
And a lot of protocols don't have equity.
They raise through tokens.
So de facto you are or your funds own in crypto in some of these protocols is that that's
within your realm.
So Temasek has a flexible mandate.
We can gain exposure or seek to gain exposure to areas which we think are of interest to
us and will deliver appropriate risk adjusted returns.
So yes, it's within our mandate to be able to own tokens, but to be able to own and hold
and act on tokens, you need a completely different set of infrastructure.
Yeah, I mean, you don't want to necessarily be in the Treasury management space.
One is that, second is there is a new set of risks that comes with owning this new form
factor.
And therefore we are getting ready in terms of being able to deal with tokenized assets.
But I would say it will need some time to make sure that it meets our operating risk
requirements and that we can do it at scale.
And that's The Daily Forkast.
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Thanks for watching.
I'm Forkast's Megha Chaddah, until next time.