Hi, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan, and I'm a senior market seditor at Bloomberg. This week on the show, well, I'm actually down at the Jersey shore, trying my best not to get sunburned and worse than my melanoma. So we actually recorded this podcast a week in advance, and therefore apologies to anyone who notices that are crazy things are a little out of date. But that's not the only thing different this week now. Regular listeners will know that this show tends to focus on the old fashioned investment assets like stocks and bonds and currencies. We don't dabble much into cryptocurrencies and decentralized finance investments. But I think we can all agree this new fagult stuff is just so fascinating that we'd all be foolish to ignore it completely. Recently, I wrote about really some fascinating developments in the DeFi space that kind of falls squarely into our wheelhouse here on this show. Equities, or at least synthetic equities trading on the blockchains without the ownership of any actual stocks being involved. So I'm happy to bring onto the show one of the innovators behind these tokens who's nice enough to answer I don't know about a million questions I had for that story. And he's also brought with him one of his collaborators in the DeFi space, so let's meet them. Their names are do Quan. He's the co founder and CEO of Terraform Labs and Zachy Mannion. He's the co founder of Eclusion and the son Lia protocol. Doan Zachi, Welcome to the show. Thanks so much for your time. It's great to be head's great to be here. So I wanted to start with you now. I know you talk a lot about these projects and in in depth sort of nuts and bolts of it for our listeners, though, I was hoping you could kind of start with some of the basics and especially the notion two things that I think are really kind of at the center of these type of products, and what is the notion of just staking in the cryptocurrency and defy world, and also the notion of stable coins, especially if you can start with staking um Especially to me, I think what is fascinating in your project is how crypto can be staked as sort of a way to govern the protocol that runs everything. You know, you use them to vote or propose changes to the protocol. But walk us through, you know, kind of briefly that the idea behind staking. You know, what are some of the motivations, some of the incentives to get people to stake their tokens and especially that notion uh in their use in governing the actual terror form or rather Terra blockchain and the mirror protocol where these synthetic assets are trading. Yeah. So the most general definition of the word staking means that you put your money at stake in order to make important decisions within that work. So traditional you know, like in most crypto networks, you have a token that can be used to govern the network or to set important decisions, and to stake the token means that you lock up these tokens in the blockchain. And then if you make a decision that is adversarial or counterproductive to the network, then um, you you incur a penalty against that steak. Um. You know. The good thing about this is is about us. The network grows, the amount of capital or the amount of tokens at stake increases as well, so you have this nice linearity with the growth of the network and the amount of money at stake, and talk us a little bit again. And I think this will be important for listeners who aren't familiar with the space to kind of understand what's coming next. But talk to us about stable coins. In other words, the idea that a cryptocurrency can basically track the dollar or another currency once you want to as closely as possible. And the Terra stable coin UH known as the Tara dollar us T being sort of the lynch pin of of many of these projects on your platform. Give us a little, you know, sort of freshman level education on stable coins. Yeah. So stable coins are cryptocurrencies similar to bitcoiner etherium, but the key differences is that they're designed to track the price of something that's a little bit more stable, like the US dollar, like the Korean one, the Hong Kong dollar. And the idea is that if you have cryptocurrencies that are pegged to stable assets, then you retain all them benefits of Bitcoin and etherium, like permissionlessness, you can build apps on top of it, it's easier to cross borders. Um well, at the same time, you have, you know, a token whose value tracks the price of something that you can use for actual currencies, so it's easier to weave into things like fintech and other types of applications. Right now, So, uh, with the Mirror protocol and correct me if I get any of this wrong. But basically, say I want to create a synthetic stock to trade on the Mirror protocol, so I will stake some of some us t or no, it's actually the Mirror token. I guess the Mirror protocol token, which is not a stable coin that that fluctuates in value. I will stake some and suggest to the community, Okay, I want let's say Walmart, I want to synthetic Walmart stock to trade, So I'll put up a certain amount of the Mirror token, and then everyone else votes with their tokens right to to decide whether yeah, we we do want a synthetic Walmart. Is that that's the gist of it, right, Yeah, that's right right? And then so as a kind of a trader or participated in this network, I'll then say, okay, someone needs to create the Walmart token, so I'll I'll put up some collateral um to create a certain number of synthetic shares of Walmart and walk us through what happens next. Sure, So, um, you know, anybody can lock up some collateral. Let's say it could be terror USD, it could be another cryptocurrency, it could be you know, uh, derivative, cryptocurrency derivative. So anyways, you lock up some type of cryptotoken whose value exceeds the amount of the synthetic that you're about the issue. So, for example, if you lock up a hundred and fifty dollars worth of some collateral, you get to mint you know, let's say a hundred dollars worth of some token that tracks the price of whatever has been just listed, let's say Walmart. So in that case, you can trade the synthetics, you can hold them, you can do whatever you want. But the idea is that you have this, you know, purely decentralized peer to peer exchange of value between many participants across the world globally. Right, and how many do you suppose there's I've seen some estimates. Uh it's a few thousand regular traders, right, Yeah, So it actually fluctuates quite a bit. So in crypto, usership really changes depending on how well the price of cryptocurrencies are doing. So these days we're seeing about you know, anywhere between three thousands to six thousand daily active users. Um, you know, like um, but during let's say February March, um, you know, sort of peak markets and crypto, we were seeing about I remember the daily but on a monthly basis, we were seeing about a hundred and fifty monthly active months. Act. That's amazing. That's uh, in a pretty short time, right. I mean this all launched what's the end of last year, right, and a lot of it was you know, purely by accident. So um, you know around the plane when we first launched Mirror, Wall Street That's was making like a big what was making big waves? And then um, you know, the community you know, tried to vote in things gmc, GM and AMC, which were really popular assets of the Wall Street That's movement. Yeah, and then a bunch of Twitter celebrities that were following that movement started to talk about Mirror as like an alternative to robin Hood that can't be censored, is entirely transparent, and I think that was probably the catalyst that that led Mirror to take off. I think what it all adds up to is, um, well, there must be traders around the world salivating at this stuff UM, especially sort of your algorithmic based traders writing programs. One thing I find fascinating is you pull in from what's called an oracle um prices of the actual stocks in the market about every thirty seconds. So for one of these sort of low latency you know, trade on the micro second type of trade algorithmic trader, that this has got to be in a very appealing I would think opportunity for people like that are you are you finding that sort of participant yet, you know, really um automated traders not not exactly just people sitting there trading by hand. I think that there's a very uh interesting you know, the confluence of having these trading platforms that exists only on chain has created like real opportunities to sort of interweave the consensus process and the trading process of the same sort of core infrastructure. And so you're seeing a lot of innovation there among trading firms as they try and figure out how all these pieces uh fit together. I think that there's a lot of that. You know, we've never really had like open markets where the where the matchmaking production was transparent and open like this, and so what like what does it mean to be close to the market? Is like, is very different in a decentralized world that it is the old centralized world where it was all about you know, there isn't you know mas dec has a data center somewhere, and it's all about being as closed as possible to it, right, right, And I should point out, you know, due to the nature of this, this type of UM project, you really don't know who's trading what. It's all anonymous more or less. Right kind of yeah, kind of brings uh, you know, us to the some of the issues covered in the story and that um, you know, you've got to wonder how regulators, you know, the equity market around the world is so tightly regulated. Um. Every year it seems like there's a few hundred more pages of regulations added to to you know, the national market system in the US, for example, or the rules governing broker dealers. Um. That you know, you must wonder how, you know, do you feel like a shoe is going to drop from regulators eventually on this Well, so I I sort of think about, um, you know, the protocols as no different and from the protocols that governed the internet, right, So in the beginning, when things like email or like telegram or encryptive phones first came out, the regulatory responses always you know, at a backdoor or you know, these protocols are bad for the economy or whatever it is that there's always a backlash at the beginning, I guess, yeah, But I think what's important is that what can be regulated and what can be governed. It's it's just basically, these protocols changed the natural law of how human beings interact with each other, right And at the end of the day, if it's sort of like a decentralized shift in natural laws, that regulators find a way to work around it. So, for example, when email and telegram and those things came out, these are still challenges that regulators overcome, but they've adopted other ways to make sure that, you know, regulatory enforcement is still possible. Right. So for these decentralized protocols, even if you can't prevent these protocols from existing, which which really can be done, right, what what what they can do is to sort of try to regulate the vendors that interact with these protocols. And I think it's it's um very possible to be able to do that. So I just want to comment on this a little bit, which is that I break it into three things. So I think the one theme is what dough is talking about, which is what we've essentially done is made like UH defy UH an inherent property of the Internet. Like if you're gonna have the Internet, you're gonna have defied. UM. It's really hard to at this point to have one without the other. UM. So that's one aspect of it. The second aspect of it is there's the regulation, But then there's the aims of the regulation. And the aims of the regulation is to have fair, transparent, effective markets and effective right discovery UH and an effective finance running society and UM. And I think blockchain protocols have done a really good job of starting to incorporate those things directly into the software UM. And I think the extent to which regulators are fighting defy while not embracing our ability to put these things directly in software, they're giving up a huge opportunity to make the world a better place. UM. And Then I think the last thing is composed ability. I think the most things that has been like the most exciting thing about like why would you bring equities to defy Like, what's the point? Um? And the point is that like these protocols are composable in ways UM that like traditional equities are not that you can't build, uh, you know, software that on top of your robin Hood account, the way you can build software on top of your mirror assets. UM. And that's really I think a big piece of this that's very exciting. UM. And like why again this is important, UM? And why I think it is Uh, it is a mistake to move too quickly directly. So you made the point in some of the comments to me and Zach you maybe you have some thoughts on this about how, you know, not everyone is able to trade the stock market, um, for whatever reason, you know, whether you're in a country uh that has some kind of controls that will not let you open a prefuge account or it's prohibitively expensive. Talk to me a little bit about that notion. Who are some of the the people who are kind of locked out from traditional stock markets that could benefit from this type of program. Yeah, so it's it's kind of you know, hard to imagine this in the West, but you know, uh, I think the equities market in some some countries are more exciting than others, right. So, um, for example, uh, the U S stock market is appealing. The U S companies lead industries in lots of different sectors, and therefore their their equities are really compelling. But there are lots of places where it's difficult to gain access to asset classes that are outside of the country. So or in some cases there are adversarial rules and roadblocks that are set up to make it difficult to invest. So for example, um, you know in Korea, in Japan, you know, capital gains tax on foreign equities single stocks is whereas uh, you know, on domestic equities is like zero. So and then whenever you know, retail interest in investing in foreign equities goes up, they make an announcement saying, hey, if you if you guys keep investing in use equities, will just keep raising texts. Right. So they're they're purposefully designed to prevent capital flight and to keep as much money in domestic equities markets as possible. Or there are places like let's say China or Malaysia where it's just in general very difficult to get access to equities outside of the country. Um, so what's you know, like a surface level, like the very simple problem that these synthetic equities saw us that it allows global access to any asset class that is determined by the community, and that that alone is really exciting, right, And I think that's an important point. I mean, we're talking, you know, talking about Mirrord equities because that's kind of the first uh iteration of this. There's some mirrored ETFs two. What what else you know could we Obviously, I guess you could probably try to do anything right Mirrord commodities and oil and gold and all that I mean is that something you think is coming in the pipeline, Anything fungible that shades in the market can can be made into a Mirrord asset, you know. To me, the I guess you know, and I'll admit it to you guys. I'm a I'm a worried word at heart, you know, I'm always worried about what could possibly go wrong. So when I looked at this, one of the things I worry about is stable coins itself, you know. Um, and uh, maybe you guys can explain a little bit about this. There's you know, two ways to do a stable coin. You do. Let let's other type of thing where you're actually you know, backing the stable coin with with US dollars or you know, I'm guessing there's other currency back stable coins out there UM, or you can do it algorithmically, which I understand is what us T does. Can you give us, and you know, with the acknowledgement that we're not all computer scientists out here, but can you give us an idea of how that algorithmic backing of a stable coin works. So basically, the idea is that without having explicit collaboral you can set up a set of incentives to make it make it attractive for players to um you know, keep the price of the stable coin pay. So, for example, in the para system, you have two levers, let you pull essentially like akin to uh, you know, bone pure policies of central banks. And the idea is that at any given time, you can trade in one dollar's worth of tar usc for one dollar's worth of luna. So for example, if TARA us these trading in nineties cents, you can you can buy from the market, uh you know, trade it for one dollar's worth of luna and sell that and capture a temp person organstras so Whenever Para is shading at a discount market, participants have an incentive to keep buying up the asset until shading at parody. With the vice versa, if it's shading at one point one dollars, users now have an incentive to buy a dollar's worth of Luna, swap that to one pair of USD and then sell that to capture temperson artistraws the other way. So, Zachie, let's let's hear what you're up to these days. How how did your projects fit in with Terra and what dough is doing. So, you know, I've been building a lot of the infrastructure that Terra uses for like the last seven years, um so, a lot of a lot of the sort of core software infrastructure that Terra is built upon is built on a project called Cosmos um and so like we've been working very closely with the Terra and the Dover for many years a um as they as they've been building out on our ecosystem. Um I'm working on a project called Similia, which is very focused on this sort of unique role of liquidity providers. Um SO. One of the things that is like very cool about these new crypto defied markets um, is that anyone can be a market maker. Um. It's not this elitist, but like we need better tools. Um. And so what Samlia is focused on doing is building better tools for market makers, uh in in markets like terrace swamp and unit swap and all of these uh defy exchanges. And it was really focused on and sort of democratized access to being a market maker. Yeah, and I'm glad you brought that up. UM, terror swap and unit swap. Uh sort of a different, vastly different sort of model than your coin based or your binance. UM. Walk us what you guys could walk us through how a defy exchange like that works. I mean, I guess the the ultimate goal is no middlemen at all, right, you just users to be able to trade with each other, um, which just the blockchain serving as sort of the you know, the the the exchange itself. Is that Is that a I mean it might be an oversimplified explanation, but is that basically it? Okay, So there's there's a couple of things. So basically there's this, there's there's this. There's this idea called a constant function market maker, where there's a very simple, frequently very simple algorithm that that uh uh looks at the value of two reserves uh and computer price um, and then someone can uh swap through that reserve. So what why why do we want to have systems that have reserves rather than having systems that um that you know, just match buyers and sellers and converge on a price um. Which is actually you know, we've tried with you know, over the history of cryptocurrencies and in this space, we've tried all kinds of different market architectures, but the one that has really taken off is this terrot swapping a swap constant lunching market maker with this reserve. And the reserve is provided by liquidity providers who which is who uh familier is trying to serve um And why is this? Why is the soul so powerful? Is it's actually really quite powerful in terms of this composability feature to be able to know that there is going to be liquidity at any price um uh, you know, at any time, at any price, being able to access liquidity and swap on it like in a block uh and sometimes compose alone, swap something else into a single into into a single block. UH. So it all happens atomically. Like you know, imagine if you could like literally take out like a lock on the New York Stock Exchange SAM going to sell stock, use that the cash from that to take a leverage position in another asset and maybe uh look at the price change there and then sell that asset and like no one else could trade at the time. UM. And cryptocurrency has allowed us to build stuff like that. UM. And so this is why the unit swap style that the sort of unit swap style constant function market maker structure has like sort of dominate, has taken a dominant position across the cryptic furrency world. UM. And what this has what the next implication of this is that this is all open source software and so you just expect this functionality to be everywhere. Um Uh Again, it just has a marketplace, just becomes a function of the Internet where you can basically swap any asset wherever you are UM at a click of a button and always know that you're gonna be able to find uh a liquidity on the other side to take that position. And so my understanding uh for the mirror protocol is that um, there are trading fees associated UM, but they're all sort of recycled back into the community itself that the liquidity providers, you know, get a cut of fees and and and that sort of thing, which I think causes a lot of people to say, well, what's the what's in it for dough and terror form labs? Um? And my understanding is that um, your your other cryptocurrency, Luna plays a role in in all this. Can you sort of walk us through sort of what your your company and your personal incentives are for the success of Mirror? Yeah, so, um, you know a lot of people think that we get uh sort of you know, indirect benefits from running Mirrors. So like there's no direct benefits, right, we don't take any trading fees. It's decentralized, there's no tokens that we pre mind ourselves. So ultimately there's no direct incentive for doing it now. But you know, like one of the benefits of having run Pair is that I'm like pretty much shareholder. There's no investors that whole equity and performed lamps, so you can be a little bit flexible of not not everything that you do needs to be profitable, right, so we do a bunch of different things, Uh, for example, like I I found in a payments company that raised close to a hundred million dollars by seft bank um, you know, so we work on you know, savings. SDK is like anchor and different things like that. So think about Mirror as like one of those things that we did and a gift we gave to the world. So and just you know, to give it the there's those old books, you know, Staking for Dummies, you know, or the Complete Idiot's Guide Mistaking. So say I wanted to put something stupid into the Mirror protocol, like tokenized baseball cards or I don't know whatever, and so I would put up a certain amount of M I R token and say, let's vote on this. Here's the here's x number of Mirror tokens, m I R tokens, and everyone else who wants to I guess or can vote and they put they stake their tokens as well, right, So if they say that's a bad idea and and it gets voted down, then I lose the steak I put up. And does everyone who voted get back their tokens? Then yes. So, guys, if I'm gonna play Devil's advocate for a bit and say, uh, mirror equities, these are gonna just be a plaything of insider traders, tax dodgers, money launders, on and on and on. How do you respond to that? I think, Um, you know, for tax dodgers and insider traders, if you're going to be doing insider treating, putting the record of that on a public ledger that is viewable in perpetuity is the worst idea ever. Fair enough? Fair enough? Yeah? Yeah? So, um, Well, generally, as you know, analytic systems for blockchains improve. Um, It's actually like, if you're trying to do something that is against the law, it's actually against your interests to put it on the blockchain because it never goes away. Right. So while the traders are anonymous, um, you know, someone with a badge and a gun who wants to find out who they are will be able to I guess, is the bottom line? Right? Yeah? Stand clear of the craziest things we saw in markets this week. Alright, Uh, great conversation, guys. I gotta tell you that we have a tradition on this show where we take turns discussing the craziest thing we saw in markets this week. So I have a feeling in the defied space. You guys have seen some crazy things. Anything stand out down Zaki, any crazy things you've you've witnessed recently? I would say the most interesting thing that has been happening is just like to me, is like the acceleration of the liquid staking space. Um so, I think Go commented on it briefly, and there's a project that where we both collaborate on called light oh um that makes sort of what they're called staking derivatives, so derivatives from your steak gasset um and these things have just exploded, like um point five percent of all eight is all is now in staking derivative, which is just my boggle. That is pretty mind boggling. How about you, dog, have you seen anything crazy this week? Uh? No, markets are pretty boring in crypto right now, and if they're not mirrored, I don't trade stocks. So well, I was gonna say, maybe the craziest thing is that it seems like the volatility has calmed down, you know, at least you know I'm looking at bitcoin, it's it's kind of been stuck in this range, you know. Um, I don't know what do you guys think is that? Is that bound to is the volatility bounder erupt again there's or is this kind of a new normal for for bitcoin and and other the other big cryptos to kind of kind of be sort of boring. Oh no, I mean, like as I've been doing this for six years, like there's there's the volatility is our friend, and I don't I never think he's gone for long and he's always there. Just when you thought it was safe to go back in the water, you know, it's found it's about to come back, like like the you know, Jason and those old Halloween movies. All right, Well, I got a crazy thing, and uh it's tailored to you two guys, because I wanna sort of bring you into the conversation on it. It's a it's a bloomberg story about sort of all the scams going on in the crypto world. And I love you know the Again, I'm a novice to all this stuff, so I'm just learning of the term rug pull and getting rugged, which I find to be just the hilarious concept of hilarious term and and Honey Potts and we had this big, long feature story about some of the these big scams and this site out there called Token sniff or Um, which I guess is an attempt to try to weed out the real scams in crypto. You know, they have a name UM that I probably can't say on a family podcast. It starts when with an S rhymes with bitcoin. And you guys know what I'm talking about. But to me, you know, it's got to be frustrating to guys like you. Like here, you guys are and I don't want to make you blush. I don't want to flatter you, but two guys who are obviously super smart. You know, Uh, Dough, you went to Stanford, You've got a resume that includes time at Microsoft. I mean, you know you're in this for legitimate purposes, but you know, all around you guys are you know, for every Dough and ZACKI out there doing innovative uh you know, real world stuff, there's a million scam artists. And I just wonder, does it it must be frustrating, And is it's in some way aheadwinds what you're trying to accomplish, and and to two greater adoption of the projects that you're working on. I'll say this though, uh, you know, so like I spend all of my time thinking about security, like how these protocols were survived and the most adverse in the worst of circumstances. You know, you spend your time preparing for the worst. And if there were there were no adversaries out there, if there was nobody, if there was nobody trying, if there were no scams, if there were no um, we wouldn't actually really know if any of the stuff works. Um. Uh and uh, So you know, I do a little bit embrace the the adversarial nature of crypto the fact, and you know that you just assume that every every message that you get in your telegram, every email you get, somebody's probably trying to trick you for some reason. Um. And uh, it's not It's not the worst way to live. How about your dough How do you react to all this? I mean, I guess part of it is, you know, I know you do a lot of podcasts, you do a lot of interviews. Is that part of it just getting yourself out an explaining your story and what you're doing and trying to educate people that way. Yeah, I mean, you know, I think a large part of what makes these protocol stick is sort of like a common philosophy that stitches people from diverse blackgrounds together and then in order to have that sort of connective tissue, you need sort of a common vision and a common story that people can believe in. And the best way to be doing that UM for Better for Horses, the podcast circuit, So which is why I do this UM. In terms of scams, though, I think what's interesting is that in two thousand seventeen, there there were no projects that were being used. So in some in some cases, like you know, distinguishing the scams, if you will, from the non scams was not possible because none of them had any users in the in the first place. So the the only real difference was the founder's intentions, which is not possible to decipher against the decentralized vertical so that's really hard. But today that's kind of different. So if you look at, you know, some of the POP assets and uh, you know coin market cap, it's the market is still inefficient. There are still lots of garbage UM in the CMC pop undered, but I would say that's sort of changing as the most more used, more useful assets are sort of bubbling up to the top, whereas UM assets that are not useful are falling down. Yeah, I guess there's a bit of you know, Darwinism to it. You know, the strong ones will rise to the top and the rest will you know, people grow word over, you know, the sort of eye popping you know, one day gains that you see, we'll stop being as frequent. I suppose I don't know who knows really right, Well, guys, uh, I'll just say I've been expecting the Doge point story to like come to an end for for forever, and it's just like never. Ya. How do you explain that, Zachie? I mean, is it um you know? To me, it's just it's almost like the the humor value of it, the meme value, love it. It's just enough to draw so many people into it, regardless of the sort of the fundamental story behind it. I mean, what's your take on that. I have a very distinct take on it, so it won't take very long. The the thing about the assets that DO and I work on is the narratives are complex. There's substance, there's real work on computer science and cryptography and stuff like that that's behind this. And as a result, if you want to hold those assets, participate in those communities like you have to you have to sort of become part of that narrative, and the barrier to that is very hot. Um And the substancelessness of doge and and it's sort of of compatrions is a real asset for building sort of a meme driven community because there is no narrative, there is no big idea, there's there's nothing to it, and so then it really is open to everyone. And so like the sort of audaism of of these of these cryptocurrency of this kind of asset, I sort of starting to figure out why it works, um uh. And it seems like it doesn't make sense in the very long term, but it's you know, for a community driven thing, just like having zero substance whatsoever has become something of an asset. Yea ept calories like junk food, I guess is always going to be appealing. Well, guys, I really appreciate your time. I think that's all the time we have for this. So I know it's you're in South Korea. I know you got up early for this, so I appreciate that. Zaki, I'm not inn sure where you are, but Paul, I'll tell Okay, So uh, well, I the wonders of zoom We can all meet up from all corners of the world like this, and guys really appreciate it. And uh, you know, anything new and exciting comes along in your space, let you know, and maybe we can do it again. Yeah, thank you. What Goes Up? We'll be back next week and southern. You can find us on the Bloomberg Terminal, website and app or wherever you get your podcasts. We don't if you took the time to rate and review the show on Apple podcast so more listeners can find us, and you can find us on Twitter, follow me at Ring Anonymous, and also follow Bloomberg Podcasts at podcasts. Thank you to Charlie Pelo, Bloomberg Radio and the voice of the New York City Subway System. What Comes Up is produced by Tofur Foreheads ahead of Bloomberg podcast is Francesca Levie. Thanks for listening. See you next time. Than

Hi, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan, and I'm a senior market seditor at Bloomberg. This week on the show, well, I'm actually down at the Jersey shore, trying my best not to get sunburned and worse than my melanoma. So we actually recorded this podcast a week in advance, and therefore apologies to anyone who notices that are crazy things are a little out of date. But that's not the only thing different this week now. Regular listeners will know that this show tends to focus on the old fashioned investment assets like stocks and bonds and currencies. We don't dabble much into cryptocurrencies and decentralized finance investments. But I think we can all agree this new fagult stuff is just so fascinating that we'd all be foolish to ignore it completely. Recently, I wrote about really some fascinating developments in the DeFi space that kind of falls squarely into our wheelhouse here on this show. Equities, or at least synthetic equities trading on the blockchains without the ownership of any actual stocks being involved. So I'm happy to bring onto the show one of the innovators behind these tokens who's nice enough to answer I don't know about a million questions I had for that story. And he's also brought with him one of his collaborators in the DeFi space, so let's meet them. Their names are do Quan. He's the co founder and CEO of Terraform Labs and Zachy Mannion. He's the co founder of Eclusion and the son Lia protocol. Doan Zachi, Welcome to the show. Thanks so much for your time. It's great to be head's great to be here. So I wanted to start with you now. I know you talk a lot about these projects and in in depth sort of nuts and bolts of it for our listeners, though, I was hoping you could kind of start with some of the basics and especially the notion two things that I think are really kind of at the center of these type of products, and what is the notion of just staking in the cryptocurrency and defy world, and also the notion of stable coins, especially if you can start with staking um Especially to me, I think what is fascinating in your project is how crypto can be staked as sort of a way to govern the protocol that runs everything. You know, you use them to vote or propose changes to the protocol. But walk us through, you know, kind of briefly that the idea behind staking. You know, what are some of the motivations, some of the incentives to get people to stake their tokens and especially that notion uh in their use in governing the actual terror form or rather Terra blockchain and the mirror protocol where these synthetic assets are trading. Yeah. So the most general definition of the word staking means that you put your money at stake in order to make important decisions within that work. So traditional you know, like in most crypto networks, you have a token that can be used to govern the network or to set important decisions, and to stake the token means that you lock up these tokens in the blockchain. And then if you make a decision that is adversarial or counterproductive to the network, then um, you you incur a penalty against that steak. Um. You know. The good thing about this is is about us. The network grows, the amount of capital or the amount of tokens at stake increases as well, so you have this nice linearity with the growth of the network and the amount of money at stake, and talk us a little bit again. And I think this will be important for listeners who aren't familiar with the space to kind of understand what's coming next. But talk to us about stable coins. In other words, the idea that a cryptocurrency can basically track the dollar or another currency once you want to as closely as possible. And the Terra stable coin UH known as the Tara dollar us T being sort of the lynch pin of of many of these projects on your platform. Give us a little, you know, sort of freshman level education on stable coins. Yeah. So stable coins are cryptocurrencies similar to bitcoiner etherium, but the key differences is that they're designed to track the price of something that's a little bit more stable, like the US dollar, like the Korean one, the Hong Kong dollar. And the idea is that if you have cryptocurrencies that are pegged to stable assets, then you retain all them benefits of Bitcoin and etherium, like permissionlessness, you can build apps on top of it, it's easier to cross borders. Um well, at the same time, you have, you know, a token whose value tracks the price of something that you can use for actual currencies, so it's easier to weave into things like fintech and other types of applications. Right now, So, uh, with the Mirror protocol and correct me if I get any of this wrong. But basically, say I want to create a synthetic stock to trade on the Mirror protocol, so I will stake some of some us t or no, it's actually the Mirror token. I guess the Mirror protocol token, which is not a stable coin that that fluctuates in value. I will stake some and suggest to the community, Okay, I want let's say Walmart, I want to synthetic Walmart stock to trade, So I'll put up a certain amount of the Mirror token, and then everyone else votes with their tokens right to to decide whether yeah, we we do want a synthetic Walmart. Is that that's the gist of it, right, Yeah, that's right right? And then so as a kind of a trader or participated in this network, I'll then say, okay, someone needs to create the Walmart token, so I'll I'll put up some collateral um to create a certain number of synthetic shares of Walmart and walk us through what happens next. Sure, So, um, you know, anybody can lock up some collateral. Let's say it could be terror USD, it could be another cryptocurrency, it could be you know, uh, derivative, cryptocurrency derivative. So anyways, you lock up some type of cryptotoken whose value exceeds the amount of the synthetic that you're about the issue. So, for example, if you lock up a hundred and fifty dollars worth of some collateral, you get to mint you know, let's say a hundred dollars worth of some token that tracks the price of whatever has been just listed, let's say Walmart. So in that case, you can trade the synthetics, you can hold them, you can do whatever you want. But the idea is that you have this, you know, purely decentralized peer to peer exchange of value between many participants across the world globally. Right, and how many do you suppose there's I've seen some estimates. Uh it's a few thousand regular traders, right, Yeah, So it actually fluctuates quite a bit. So in crypto, usership really changes depending on how well the price of cryptocurrencies are doing. So these days we're seeing about you know, anywhere between three thousands to six thousand daily active users. Um, you know, like um, but during let's say February March, um, you know, sort of peak markets and crypto, we were seeing about I remember the daily but on a monthly basis, we were seeing about a hundred and fifty monthly active months. Act. That's amazing. That's uh, in a pretty short time, right. I mean this all launched what's the end of last year, right, and a lot of it was you know, purely by accident. So um, you know around the plane when we first launched Mirror, Wall Street That's was making like a big what was making big waves? And then um, you know, the community you know, tried to vote in things gmc, GM and AMC, which were really popular assets of the Wall Street That's movement. Yeah, and then a bunch of Twitter celebrities that were following that movement started to talk about Mirror as like an alternative to robin Hood that can't be censored, is entirely transparent, and I think that was probably the catalyst that that led Mirror to take off. I think what it all adds up to is, um, well, there must be traders around the world salivating at this stuff UM, especially sort of your algorithmic based traders writing programs. One thing I find fascinating is you pull in from what's called an oracle um prices of the actual stocks in the market about every thirty seconds. So for one of these sort of low latency you know, trade on the micro second type of trade algorithmic trader, that this has got to be in a very appealing I would think opportunity for people like that are you are you finding that sort of participant yet, you know, really um automated traders not not exactly just people sitting there trading by hand. I think that there's a very uh interesting you know, the confluence of having these trading platforms that exists only on chain has created like real opportunities to sort of interweave the consensus process and the trading process of the same sort of core infrastructure. And so you're seeing a lot of innovation there among trading firms as they try and figure out how all these pieces uh fit together. I think that there's a lot of that. You know, we've never really had like open markets where the where the matchmaking production was transparent and open like this, and so what like what does it mean to be close to the market? Is like, is very different in a decentralized world that it is the old centralized world where it was all about you know, there isn't you know mas dec has a data center somewhere, and it's all about being as closed as possible to it, right, right, And I should point out, you know, due to the nature of this, this type of UM project, you really don't know who's trading what. It's all anonymous more or less. Right kind of yeah, kind of brings uh, you know, us to the some of the issues covered in the story and that um, you know, you've got to wonder how regulators, you know, the equity market around the world is so tightly regulated. Um. Every year it seems like there's a few hundred more pages of regulations added to to you know, the national market system in the US, for example, or the rules governing broker dealers. Um. That you know, you must wonder how, you know, do you feel like a shoe is going to drop from regulators eventually on this Well, so I I sort of think about, um, you know, the protocols as no different and from the protocols that governed the internet, right, So in the beginning, when things like email or like telegram or encryptive phones first came out, the regulatory responses always you know, at a backdoor or you know, these protocols are bad for the economy or whatever it is that there's always a backlash at the beginning, I guess, yeah, But I think what's important is that what can be regulated and what can be governed. It's it's just basically, these protocols changed the natural law of how human beings interact with each other, right And at the end of the day, if it's sort of like a decentralized shift in natural laws, that regulators find a way to work around it. So, for example, when email and telegram and those things came out, these are still challenges that regulators overcome, but they've adopted other ways to make sure that, you know, regulatory enforcement is still possible. Right. So for these decentralized protocols, even if you can't prevent these protocols from existing, which which really can be done, right, what what what they can do is to sort of try to regulate the vendors that interact with these protocols. And I think it's it's um very possible to be able to do that. So I just want to comment on this a little bit, which is that I break it into three things. So I think the one theme is what dough is talking about, which is what we've essentially done is made like UH defy UH an inherent property of the Internet. Like if you're gonna have the Internet, you're gonna have defied. UM. It's really hard to at this point to have one without the other. UM. So that's one aspect of it. The second aspect of it is there's the regulation, But then there's the aims of the regulation. And the aims of the regulation is to have fair, transparent, effective markets and effective right discovery UH and an effective finance running society and UM. And I think blockchain protocols have done a really good job of starting to incorporate those things directly into the software UM. And I think the extent to which regulators are fighting defy while not embracing our ability to put these things directly in software, they're giving up a huge opportunity to make the world a better place. UM. And Then I think the last thing is composed ability. I think the most things that has been like the most exciting thing about like why would you bring equities to defy Like, what's the point? Um? And the point is that like these protocols are composable in ways UM that like traditional equities are not that you can't build, uh, you know, software that on top of your robin Hood account, the way you can build software on top of your mirror assets. UM. And that's really I think a big piece of this that's very exciting. UM. And like why again this is important, UM? And why I think it is Uh, it is a mistake to move too quickly directly. So you made the point in some of the comments to me and Zach you maybe you have some thoughts on this about how, you know, not everyone is able to trade the stock market, um, for whatever reason, you know, whether you're in a country uh that has some kind of controls that will not let you open a prefuge account or it's prohibitively expensive. Talk to me a little bit about that notion. Who are some of the the people who are kind of locked out from traditional stock markets that could benefit from this type of program. Yeah, so it's it's kind of you know, hard to imagine this in the West, but you know, uh, I think the equities market in some some countries are more exciting than others, right. So, um, for example, uh, the U S stock market is appealing. The U S companies lead industries in lots of different sectors, and therefore their their equities are really compelling. But there are lots of places where it's difficult to gain access to asset classes that are outside of the country. So or in some cases there are adversarial rules and roadblocks that are set up to make it difficult to invest. So for example, um, you know in Korea, in Japan, you know, capital gains tax on foreign equities single stocks is whereas uh, you know, on domestic equities is like zero. So and then whenever you know, retail interest in investing in foreign equities goes up, they make an announcement saying, hey, if you if you guys keep investing in use equities, will just keep raising texts. Right. So they're they're purposefully designed to prevent capital flight and to keep as much money in domestic equities markets as possible. Or there are places like let's say China or Malaysia where it's just in general very difficult to get access to equities outside of the country. Um, so what's you know, like a surface level, like the very simple problem that these synthetic equities saw us that it allows global access to any asset class that is determined by the community, and that that alone is really exciting, right, And I think that's an important point. I mean, we're talking, you know, talking about Mirrord equities because that's kind of the first uh iteration of this. There's some mirrored ETFs two. What what else you know could we Obviously, I guess you could probably try to do anything right Mirrord commodities and oil and gold and all that I mean is that something you think is coming in the pipeline, Anything fungible that shades in the market can can be made into a Mirrord asset, you know. To me, the I guess you know, and I'll admit it to you guys. I'm a I'm a worried word at heart, you know, I'm always worried about what could possibly go wrong. So when I looked at this, one of the things I worry about is stable coins itself, you know. Um, and uh, maybe you guys can explain a little bit about this. There's you know, two ways to do a stable coin. You do. Let let's other type of thing where you're actually you know, backing the stable coin with with US dollars or you know, I'm guessing there's other currency back stable coins out there UM, or you can do it algorithmically, which I understand is what us T does. Can you give us, and you know, with the acknowledgement that we're not all computer scientists out here, but can you give us an idea of how that algorithmic backing of a stable coin works. So basically, the idea is that without having explicit collaboral you can set up a set of incentives to make it make it attractive for players to um you know, keep the price of the stable coin pay. So, for example, in the para system, you have two levers, let you pull essentially like akin to uh, you know, bone pure policies of central banks. And the idea is that at any given time, you can trade in one dollar's worth of tar usc for one dollar's worth of luna. So for example, if TARA us these trading in nineties cents, you can you can buy from the market, uh you know, trade it for one dollar's worth of luna and sell that and capture a temp person organstras so Whenever Para is shading at a discount market, participants have an incentive to keep buying up the asset until shading at parody. With the vice versa, if it's shading at one point one dollars, users now have an incentive to buy a dollar's worth of Luna, swap that to one pair of USD and then sell that to capture temperson artistraws the other way. So, Zachie, let's let's hear what you're up to these days. How how did your projects fit in with Terra and what dough is doing. So, you know, I've been building a lot of the infrastructure that Terra uses for like the last seven years, um so, a lot of a lot of the sort of core software infrastructure that Terra is built upon is built on a project called Cosmos um and so like we've been working very closely with the Terra and the Dover for many years a um as they as they've been building out on our ecosystem. Um I'm working on a project called Similia, which is very focused on this sort of unique role of liquidity providers. Um SO. One of the things that is like very cool about these new crypto defied markets um, is that anyone can be a market maker. Um. It's not this elitist, but like we need better tools. Um. And so what Samlia is focused on doing is building better tools for market makers, uh in in markets like terrace swamp and unit swap and all of these uh defy exchanges. And it was really focused on and sort of democratized access to being a market maker. Yeah, and I'm glad you brought that up. UM, terror swap and unit swap. Uh sort of a different, vastly different sort of model than your coin based or your binance. UM. Walk us what you guys could walk us through how a defy exchange like that works. I mean, I guess the the ultimate goal is no middlemen at all, right, you just users to be able to trade with each other, um, which just the blockchain serving as sort of the you know, the the the exchange itself. Is that Is that a I mean it might be an oversimplified explanation, but is that basically it? Okay, So there's there's a couple of things. So basically there's this, there's there's this. There's this idea called a constant function market maker, where there's a very simple, frequently very simple algorithm that that uh uh looks at the value of two reserves uh and computer price um, and then someone can uh swap through that reserve. So what why why do we want to have systems that have reserves rather than having systems that um that you know, just match buyers and sellers and converge on a price um. Which is actually you know, we've tried with you know, over the history of cryptocurrencies and in this space, we've tried all kinds of different market architectures, but the one that has really taken off is this terrot swapping a swap constant lunching market maker with this reserve. And the reserve is provided by liquidity providers who which is who uh familier is trying to serve um And why is this? Why is the soul so powerful? Is it's actually really quite powerful in terms of this composability feature to be able to know that there is going to be liquidity at any price um uh, you know, at any time, at any price, being able to access liquidity and swap on it like in a block uh and sometimes compose alone, swap something else into a single into into a single block. UH. So it all happens atomically. Like you know, imagine if you could like literally take out like a lock on the New York Stock Exchange SAM going to sell stock, use that the cash from that to take a leverage position in another asset and maybe uh look at the price change there and then sell that asset and like no one else could trade at the time. UM. And cryptocurrency has allowed us to build stuff like that. UM. And so this is why the unit swap style that the sort of unit swap style constant function market maker structure has like sort of dominate, has taken a dominant position across the cryptic furrency world. UM. And what this has what the next implication of this is that this is all open source software and so you just expect this functionality to be everywhere. Um Uh Again, it just has a marketplace, just becomes a function of the Internet where you can basically swap any asset wherever you are UM at a click of a button and always know that you're gonna be able to find uh a liquidity on the other side to take that position. And so my understanding uh for the mirror protocol is that um, there are trading fees associated UM, but they're all sort of recycled back into the community itself that the liquidity providers, you know, get a cut of fees and and and that sort of thing, which I think causes a lot of people to say, well, what's the what's in it for dough and terror form labs? Um? And my understanding is that um, your your other cryptocurrency, Luna plays a role in in all this. Can you sort of walk us through sort of what your your company and your personal incentives are for the success of Mirror? Yeah, so, um, you know a lot of people think that we get uh sort of you know, indirect benefits from running Mirrors. So like there's no direct benefits, right, we don't take any trading fees. It's decentralized, there's no tokens that we pre mind ourselves. So ultimately there's no direct incentive for doing it now. But you know, like one of the benefits of having run Pair is that I'm like pretty much shareholder. There's no investors that whole equity and performed lamps, so you can be a little bit flexible of not not everything that you do needs to be profitable, right, so we do a bunch of different things, Uh, for example, like I I found in a payments company that raised close to a hundred million dollars by seft bank um, you know, so we work on you know, savings. SDK is like anchor and different things like that. So think about Mirror as like one of those things that we did and a gift we gave to the world. So and just you know, to give it the there's those old books, you know, Staking for Dummies, you know, or the Complete Idiot's Guide Mistaking. So say I wanted to put something stupid into the Mirror protocol, like tokenized baseball cards or I don't know whatever, and so I would put up a certain amount of M I R token and say, let's vote on this. Here's the here's x number of Mirror tokens, m I R tokens, and everyone else who wants to I guess or can vote and they put they stake their tokens as well, right, So if they say that's a bad idea and and it gets voted down, then I lose the steak I put up. And does everyone who voted get back their tokens? Then yes. So, guys, if I'm gonna play Devil's advocate for a bit and say, uh, mirror equities, these are gonna just be a plaything of insider traders, tax dodgers, money launders, on and on and on. How do you respond to that? I think, Um, you know, for tax dodgers and insider traders, if you're going to be doing insider treating, putting the record of that on a public ledger that is viewable in perpetuity is the worst idea ever. Fair enough? Fair enough? Yeah? Yeah? So, um, Well, generally, as you know, analytic systems for blockchains improve. Um, It's actually like, if you're trying to do something that is against the law, it's actually against your interests to put it on the blockchain because it never goes away. Right. So while the traders are anonymous, um, you know, someone with a badge and a gun who wants to find out who they are will be able to I guess, is the bottom line? Right? Yeah? Stand clear of the craziest things we saw in markets this week. Alright, Uh, great conversation, guys. I gotta tell you that we have a tradition on this show where we take turns discussing the craziest thing we saw in markets this week. So I have a feeling in the defied space. You guys have seen some crazy things. Anything stand out down Zaki, any crazy things you've you've witnessed recently? I would say the most interesting thing that has been happening is just like to me, is like the acceleration of the liquid staking space. Um so, I think Go commented on it briefly, and there's a project that where we both collaborate on called light oh um that makes sort of what they're called staking derivatives, so derivatives from your steak gasset um and these things have just exploded, like um point five percent of all eight is all is now in staking derivative, which is just my boggle. That is pretty mind boggling. How about you, dog, have you seen anything crazy this week? Uh? No, markets are pretty boring in crypto right now, and if they're not mirrored, I don't trade stocks. So well, I was gonna say, maybe the craziest thing is that it seems like the volatility has calmed down, you know, at least you know I'm looking at bitcoin, it's it's kind of been stuck in this range, you know. Um, I don't know what do you guys think is that? Is that bound to is the volatility bounder erupt again there's or is this kind of a new normal for for bitcoin and and other the other big cryptos to kind of kind of be sort of boring. Oh no, I mean, like as I've been doing this for six years, like there's there's the volatility is our friend, and I don't I never think he's gone for long and he's always there. Just when you thought it was safe to go back in the water, you know, it's found it's about to come back, like like the you know, Jason and those old Halloween movies. All right, Well, I got a crazy thing, and uh it's tailored to you two guys, because I wanna sort of bring you into the conversation on it. It's a it's a bloomberg story about sort of all the scams going on in the crypto world. And I love you know the Again, I'm a novice to all this stuff, so I'm just learning of the term rug pull and getting rugged, which I find to be just the hilarious concept of hilarious term and and Honey Potts and we had this big, long feature story about some of the these big scams and this site out there called Token sniff or Um, which I guess is an attempt to try to weed out the real scams in crypto. You know, they have a name UM that I probably can't say on a family podcast. It starts when with an S rhymes with bitcoin. And you guys know what I'm talking about. But to me, you know, it's got to be frustrating to guys like you. Like here, you guys are and I don't want to make you blush. I don't want to flatter you, but two guys who are obviously super smart. You know, Uh, Dough, you went to Stanford, You've got a resume that includes time at Microsoft. I mean, you know you're in this for legitimate purposes, but you know, all around you guys are you know, for every Dough and ZACKI out there doing innovative uh you know, real world stuff, there's a million scam artists. And I just wonder, does it it must be frustrating, And is it's in some way aheadwinds what you're trying to accomplish, and and to two greater adoption of the projects that you're working on. I'll say this though, uh, you know, so like I spend all of my time thinking about security, like how these protocols were survived and the most adverse in the worst of circumstances. You know, you spend your time preparing for the worst. And if there were there were no adversaries out there, if there was nobody, if there was nobody trying, if there were no scams, if there were no um, we wouldn't actually really know if any of the stuff works. Um. Uh and uh, So you know, I do a little bit embrace the the adversarial nature of crypto the fact, and you know that you just assume that every every message that you get in your telegram, every email you get, somebody's probably trying to trick you for some reason. Um. And uh, it's not It's not the worst way to live. How about your dough How do you react to all this? I mean, I guess part of it is, you know, I know you do a lot of podcasts, you do a lot of interviews. Is that part of it just getting yourself out an explaining your story and what you're doing and trying to educate people that way. Yeah, I mean, you know, I think a large part of what makes these protocol stick is sort of like a common philosophy that stitches people from diverse blackgrounds together and then in order to have that sort of connective tissue, you need sort of a common vision and a common story that people can believe in. And the best way to be doing that UM for Better for Horses, the podcast circuit, So which is why I do this UM. In terms of scams, though, I think what's interesting is that in two thousand seventeen, there there were no projects that were being used. So in some in some cases, like you know, distinguishing the scams, if you will, from the non scams was not possible because none of them had any users in the in the first place. So the the only real difference was the founder's intentions, which is not possible to decipher against the decentralized vertical so that's really hard. But today that's kind of different. So if you look at, you know, some of the POP assets and uh, you know coin market cap, it's the market is still inefficient. There are still lots of garbage UM in the CMC pop undered, but I would say that's sort of changing as the most more used, more useful assets are sort of bubbling up to the top, whereas UM assets that are not useful are falling down. Yeah, I guess there's a bit of you know, Darwinism to it. You know, the strong ones will rise to the top and the rest will you know, people grow word over, you know, the sort of eye popping you know, one day gains that you see, we'll stop being as frequent. I suppose I don't know who knows really right, Well, guys, uh, I'll just say I've been expecting the Doge point story to like come to an end for for forever, and it's just like never. Ya. How do you explain that, Zachie? I mean, is it um you know? To me, it's just it's almost like the the humor value of it, the meme value, love it. It's just enough to draw so many people into it, regardless of the sort of the fundamental story behind it. I mean, what's your take on that. I have a very distinct take on it, so it won't take very long. The the thing about the assets that DO and I work on is the narratives are complex. There's substance, there's real work on computer science and cryptography and stuff like that that's behind this. And as a result, if you want to hold those assets, participate in those communities like you have to you have to sort of become part of that narrative, and the barrier to that is very hot. Um And the substancelessness of doge and and it's sort of of compatrions is a real asset for building sort of a meme driven community because there is no narrative, there is no big idea, there's there's nothing to it, and so then it really is open to everyone. And so like the sort of audaism of of these of these cryptocurrency of this kind of asset, I sort of starting to figure out why it works, um uh. And it seems like it doesn't make sense in the very long term, but it's you know, for a community driven thing, just like having zero substance whatsoever has become something of an asset. Yea ept calories like junk food, I guess is always going to be appealing. Well, guys, I really appreciate your time. I think that's all the time we have for this. So I know it's you're in South Korea. I know you got up early for this, so I appreciate that. Zaki, I'm not inn sure where you are, but Paul, I'll tell Okay, So uh, well, I the wonders of zoom We can all meet up from all corners of the world like this, and guys really appreciate it. And uh, you know, anything new and exciting comes along in your space, let you know, and maybe we can do it again. Yeah, thank you. What Goes Up? We'll be back next week and southern. You can find us on the Bloomberg Terminal, website and app or wherever you get your podcasts. We don't if you took the time to rate and review the show on Apple podcast so more listeners can find us, and you can find us on Twitter, follow me at Ring Anonymous, and also follow Bloomberg Podcasts at podcasts. Thank you to Charlie Pelo, Bloomberg Radio and the voice of the New York City Subway System. What Comes Up is produced by Tofur Foreheads ahead of Bloomberg podcast is Francesca Levie. Thanks for listening. See you next time. Than