Mark Jeffrey <> Publius

Mark Jeffrey <> Publius

May 25, 2022

0:00 Banter • 1:14 Regulatory Landscape Post-Terra • 6:44 Community Multi-sig • 7:25 Need For Disclosures To Inform The Public of Risks • 13:22 Losing Peg • 15:28 The Terra Attack • 21:04 Beanstalk During a Bank Run • 32:04 Pegging to a Basket of Goods • 35:00 Regulatory Concerns • 39:19 More Thoughts on Terra • 48:00 Closing

Twitter Space



Things are moving. Yeah, they definitely are. I mean, I let's see, last week I was I spent most of the week at the all in conference, which was the there are all in summit actually which was Jason Calacanis and you know David Friedman Sacks Chamath they're very wildly successful podcast and they had guests there like Elon Musk, etc..

So it's sort of off the grid for most of last week. And I came back a little sick, as you can hear. So you know, great time, though. But also I got out there right after sort of the terror disaster had run its course and it was sort of the topic of discussion on everyone's lips out there as well.

So but that that happened in between the last time you and I spoke and this conversation. So it will it will certainly color everything that we talk about today. I would imagine one would hope that recent events would colorization otherwise, I don't think too many people would be spending their time well listening to us chat. Yeah, no, absolutely.

So how would you guys like to begin or would you like me to sit down and let's just do it? Let's just do it. Yeah. Okay, well, I'll tell you what's sort of on my mind. I mean, with respect to you guys, I really have kind of two very big questions. The first one is the terror events has altered the psychology of the regulatory landscape, without a doubt, where all, you know, all the people that were going to come out of this space are, you know, like Warren and everybody there now are going to come after it a lot faster and a lot more focused on Stablecoins in particular, and especially within the United States,

which would seem to be right where you guys are. I would imagine they're going to come out with a law and it won't take too long where they're going to require all stablecoin issuers to back their stablecoins one for one in a bank like Jp morgan or somebody like that. I'm guessing this hasn't happened yet, but I think it's a good guess.

They will outlaw all purely algorithmic stablecoins how that has to be on your mind and what is your reaction to that and what will you do if that comes to pass? So there's there's a lot to be said here. And I, I don't think that regulatory situation can be understated. Obviously, the the events related to terror, as you said, have brought all of this into the spotlight much faster than it otherwise would have been.

However, and I do think this is a pretty big however beanstalk designed to to exist in any regulatory environment in a potentially incredibly harsh regulatory environment. So one of the thoughts behind having a truly decentralized stablecoin issuer is that it is not susceptible to regulation in any capacity because it's just a piece of software. So ultimately, I think the thing that's on our mind is in particular, let's play out the situation where at some point in the near future there is some law issued that either requires stablecoin to be backed or outlaws, algo, stablecoins, whatever, whatever it may be.

The goal has always been and continues to be to have all relationship to Bienstock and any individual, its relationship to Bienstock or any institution, its relationship to bienstock be such that nobody could impose those types of rules on the system as an autonomous, decentralized piece of software that the only way to impose those types of changes are through an on chain governance proposal, and that would require an acquiring of two thirds of the stock, at least 50% of the stock excuse.

And why? Go ahead, Mark.

No, I'll I'll let you finish. Go ahead. I was going to say, while I don't think that I to me, the real friction point lies in in the next two months, let's call it between now and when Beanstalk is back on and back to an on chain governance system. As I'm sure you know, the plan as of now is to have Beanstalk governed through off chain governance until on chain governance can be re-implemented in a safe fashion.

And that's going to take a couple of months likely. And so the real risk to me lies between now and then. So between now and whenever Beanstalk is back to fully on chain governance, where it's 100% autonomous, that would be that would be where the potential risk lies. And even in the case where that was that was implemented prior, some law that would be an issue was implemented prior to that event where now Beanstalk is back to on chain governance.

The current plan is for Beanstalk to be governed by a community run multisig over which we approve with and any other individual will have no control over whatsoever. And so the concept of being able to implement these types of rules that may be written into law in practice is impossible. And before I yield back to you, Mark, I just want to make a final comment, which is the law would, would, would as at least as you suggested, it would be a requirement for stablecoin issuers.

And the point is, what does it mean to be a stablecoin issuer? It's very clear that circle is a stablecoin issuer. It's very clear that bienstock the protocol is a stablecoin issuer. But I do feel pretty strongly legally to say I'm not the stablecoin issuer and I don't work for a company in any capacity that's a stablecoin issuer, so I have nothing to do with stablecoin issuance bienstock has a protocol of which I participate in and I'm a big believer in.

But ultimately the goal is to be able to honestly say we can't do anything, we can do what you're saying and we recognize that these are rules you'd like to impose on the system. But ultimately this is a piece of software that nobody can control. So you guys control the Multisig, right? Well, this is the point, right? So currently and prior to the attack, Bienstock was owned by a multisig that Publius did control.

However, substantively, going forward, that will not be the case. The implementation of offline governance means that the new ownership address of Bienstock will be a community run Multisig wallet. Publius is likely to be one of more than a handful of signatures on the wallet, such that we would not be able to have any sort of direct control over the contract.

Hmm. Okay. Well, I think I mean, from my point of view and I wrote I wrote kind of a, you know, somewhat lengthy twitch tweetstorm about this, the Luna incident. You know, this is you know, we all know that something like $100 billion, I guess, was closer to $60 billion of value was destroyed in in, you know, roughly a 24 hour period.

And so by far the largest disaster in crypto history. And I've been kicking around in the space since 2013. Yeah, we had Mt. Gox. Yeah, we had the Dow theft. But this is, you know, just just a lot larger in terms of dollars, but also larger in terms of psychological impact, mostly because this is the first time that civilians got hit with significant shrapnel.

You know, somebody like you or me, we you know, we live by the light saber. We know what we're doing now. We can get armed. We get our hands dropped off. Right. That's we we know the game. But I think most of the people that, you know, they had era, you know, a lot of civilians had terror and they thought that was a real dollar that couldn't go away.

And that that 20% they were earning an anchor. You know that that might that might become less. I think everyone kind of understood that that might not be sustainable over like five years. But but I didn't I think they they they they thought that their dollars would never just go away. And to be frank, I was pretty stunned by the speed with which it all evaporated.

I didn't like Tara. There were things about the design that I didn't like. I didn't like the single point of failure in Luna. I never invested in it because, you know, I, you know, I thought, Well, shit, it's Luna. If one of devalues for whatever reason, this whole thing could, you know, death spiral could begin. And lo and behold, it did.

But even I didn't think it could happen in 24 hours. That was shocking. So I think, you know, I bring all this up mostly because you guys will have the same duty of care with respect to your stablecoins. And I'm not talking about the hack, I'm just talking about the design of the protocol itself. There will be civilians that will use your stablecoin.

And you know, I am now suitably terrified of all of these things losing their peg. And I just want to make sure that, you know, I want you guys to win. I like this. I fundamentally think this sort of thing should exist and is ultimately a good thing. But I also think it has to be tempered now with we're thinking about the civilians involved here somehow.

So not really a question. So I'll I'll get to the question next. So the bulk of the bulk of the attack, from what I quote, I would just want to cover you want to answer something good. I just want to comment on this because there's a lot there and it can't be understated the the pain that I'm sure was felt by numerous and endless numbers of people having lost large amounts of money.

And that's always painful. I think this is, though, fundamentally where, at least from my perspective, we are big believers in permissionless technology. And one of the core principles behind permissionless technology is that anyone can use it. And in practice, while there's certainly an argument to be made that certain things should not be accessible to people for their own good or to protect them, that's an argument that I basically never subscribed to and tend to believe that you're almost never doing.

People good by preventing them from accessing things. And so ultimately it's really a question of education and one of the things that you said, Mark, was they thought the retail people thought this or thought that it was impossible to know what everyone thought. I do think generally what you're saying about people's misperceptions of the risks associated with the system were quite misunderstood.

And people's understanding was wrong. And one of the things that has been discussed since this, but is something that has been on our mind for a long time. We included a risk section in the white paper, but still, that wasn't enough. We'd love for there to be some sort of generalized disclosure system in crypto where every project should be responsible for, you know, filling out some sort of set of disclosures that lay out how the protocol works, the inflation associated with the protocol, who are the major owners, whether there was a pre mine, any of the associated potential risks.

There's lots of things that should be in a standardized way disclosed. And right right now, there's no real standard for people to do that or to consume that information. And if if we as a community don't come together and figure out some set of disclosures, I do think to your earlier point, at some point, regulators are going to mandate disclosures and from my perspective, it's much better if we all come together and collectively say these are a reasonable set of disclosures and then everyone upholds them.

And effectively, if you're if you're looking at a project that has issued disclosures, that should be a red flag enough. So this is something that as a as a community, as a whole, I think we all need to we need to take action. And frankly, just talking about it on a Twitter space isn't enough. So hopefully over the next couple of weeks, Beanstalk Farms will be able to put together some sort of disclosure around the Beanstalk relaunch as a first step to participating in this.

But perhaps there needs to be a more large and widespread community effort to do this as a whole collectively. And the only other thing that I want to say, though, is you mentioned that you're terrified of protocols losing their pick at this point. And one of the key design principles of Beanstalk is that if you don't have convertibility from collateral, you cannot have a perfect pact.

You cannot prevent beans from losing their peg. And in fact, beans are never at their peak. Beans are always almost always either above or below. It's just a question of how high or how low, above and below it's prejudice. And so fundamentally, I don't think the question is around a risk of losing the peg per say. It's a question of death spirals and how can write the 24 hour death spiral that resulted in the total collapse of value in the system, that that's what people should be terrified of going from 100 to 0 in a day in stock.

If you're terrified of losing the peg. This is not a system that that you're going to be around for a long time because bean stock is constantly above and below its peg. So there is, from a design perspective, a fundamentally different relationship between stock and being faced with its peg than terror. So lots of thoughts there. But it was very felt.

Felt Your comments were inspiring, so I wanted to comment on it. Yeah. Thank you. And you are right. When I say lose the peg, you know, I'm thinking of what happened to Tara. Like the death spiral to zero is when I say lose the peg. That's what's in my head. Not, you know, like a few points above or a few points below.

Not a big deal. But that has to be really specified and clarified, because if being for an $0.80, the core design principle of being stuck is beans are likely to at some point be trading at $0.80 again, the question is when they're trading at $0.80, is the expectation that now that $0.30, that means it's a zero? Or is it just a question of how low will it go until it's back to a dollar?

And that's that's the question of is are you in a death spiral or is this just another oscillation? And to some extent, you don't know until it's too late. But that is the question. Yeah. So let's talk about that a little bit because where I was going to go next was, you know, I read a number of analyzes about exactly how the terror attack happened.

And from what I read, basically there was a the attacker well, I'm just calling the attacker. We don't know if they're malicious or not, but let's just call them. The attacker was able to purchase a large amount of Tera for Bitcoin and dogecoin basically swapped, I think it was $4 billion worth of Bitcoin for $4 billion worth of USD because why wouldn't you get a decent amount of U.S. That's great for your quant, right?

So but he basically took the bait at that point and he armed his opponent with an overwhelming supply of USD. And also, you know, those pants were down, so to speak, because he had just removed a bunch of liquidity from Curv in preparation for launching the for pool, which was this new massive amount of liquidity with his partner FRAX and some other folks that was designed to be much larger and in fact defend against this kind of liquidity attack.

But he was in the transition moment, and that's when the the opponent struck and used the $4 billion worth of USD to severely unbalance the curve ball though basically just traded it, I think probably for, you know, $4 billion worth of another stable, probably USD C or something, thereby leaving the pool with a giant amount of USD and a very tiny amount of UCC and other things.

And that is how it started to die. Peg was So is that your understanding, first of all, of how this occurred as well? So generally we have a similar understanding. The numbers that I've come across is not that one party purchased $4 billion of USD for $4 billion of Bitcoin, but the general trend where the. So maybe to give a little more context, there was the plan from I believe was left or maybe was TFL to start to partially collateralize their system with bitcoin.

Originally they sold Luna for Bitcoin, which makes a lot of sense from an economic perspective because if you think about the outstanding USD as a liability, the way that they were going to cover their liability was by acquiring collateral in Bitcoin. So by selling Luna that facilitated them to cover some of their liabilities. However, and this is where I don't think the 4 billion number is exactly right, based on what I've heard the first billion that Joe Quon or Elektra ETFs, I don't I don't know which entity it was.

The first billion dollars of Bitcoin that they acquired was actually for Luna. However, and this is where things got worse and created the attack that or the the economic attack that you're talking about. At some point they switched from selling Luna to cover their liabilities and started selling us cheap, which frankly doesn't make a lot of sense, right, Because you sell $1,000,000,000 of USD to anyone, $4 billion to Bitcoin.

That doesn't change your outstanding asset liability mismatch, right? If you had a 9 billion USD overhang, if you sell 1,000,000,000 USD to the market for a billion Bitcoin, you're still short 9 billion. So at this point, to your point, Mark, whether it was a billion and a half USD or whether it was 2,000,000,004 billion USD, there was a large amount of USD that was sold Ötzi at a discount to someone in exchange for the acquiring of BTC.

And then, as you said, and my understanding is that it wasn't just on curve. Well, they did peg the price on curve. They also dumped on centralized exchanges, so they dumped on by dams and they dumped on FTX, as I understand it. And that exacerbated because it wasn't just at that point, it was just that there was a bid on the amms.

There was actually an order book trading on centralized exchange. So it was across the board. Any of the demand that existed was blown through in a very short period of time. So we're basically on the same page. But and frankly, I haven't spent much time looking into it. So for all I know, you may have better information, but that's my understanding.

Yeah, I've read several different accounts of it. So what way to look? We're basically on the same page. I believe that you're right. I believe this was a sophisticated attack. There's no question about that. And in order to execute it properly, you probably know I can. I believe that you would attack Curve and the centralized exchanges at the same time.

The other thing I forgot to mention was the same entity put shorts into place on Bitcoin, on Luna and on Terra. And so as Terra started to dip Peg, then people started to redeem it for Luna, right? And then selling the Luna because you could get a dollar's worth of Luna still, even if even if you were to peg to $0.80, you could still redeem it.

$4 going to Luna and, you know, not lose money. But then you had to sell the Luna right away. And so the value of Luna started going down very quickly as well. And that at a certain point, Doe had to start selling Bitcoin in order to try to defend the peg, which brought down the price of Bitcoin. So the attacker basically made roughly $1,000,000,000 in shorts.

I just basically from the actions of their own attack. So my question to you is this that excuse me because of that, because this was a liquidity based attack, there's nothing that says that if someone acquired enough being, they couldn't attack you in the same way. Is that correct? And and what are you doing to defend against that?

So there's there's a lot even though it's quite a short question you ask Mark, it's perhaps the trillion dollar question. So first off, the idea that you can prevent in a permissionless market people from getting short and creating FUD and creating a short term supply catalyst, there's absolutely nothing that bienstock as a protocol can do to prevent that.

And in fact, to our earlier point about beans, that $0.80, okay, you should expect it. The concept is as being stock rose. There's going to be endless similar style short attacks put on bienstock. It goes without saying the question fundamentally is in that hostile market environment, are the incentives of being stock sufficient to counteract the the catalyst or the event that creates supply starts that the run on the bank eventually ends and in particular the run on the bank, and before the stock enters the death spiral.

And maybe those are the same thing. So opposite things I should say. So you're either in one state or the other. And to, to, to really break down all of the different things that Bienstock does differently from Tara. I would recommend we spend a lot of time recording a thorough podcast, breaking down the different incentives between being stock and Tara.

So that is like a full break down all of the differences. But I think let's just take the main, the core, the core mechanism, the in stock is a credit based STABLECOIN. So what does that mean? It means anytime the price is too low, whether it's from a bank run or for any other reason, the way bienstock tries to return the price to the peg is by borrowing beans from the market.

So fundamentally the assumption people are making when using beans is that bean stock is credit worthy, that there's an assumption that in the future bean stock will be able to attract lenders. And so if we think about it in a in a bank runs scenario, whereas in the case of Terra, demand for Luna was the thing that would create stability in the USD price in the case of Beanstalk, demand for debt in bean stock soil is the willingness to offer to offer debt.

So demand for soil would be the beanstalk native term would be the real question of sustainability. Is there demand for our people willing to lend to bean stock? And I think it's impossible to answer other than in practice and letting bean stock play out, whether when faced with these really harsh situations, people will be willing to lend to bean stock.

That's something that can only be determined in practice. However, from a theoretical perspective, there's a lot that can be done from an incentive design standpoint to minimize the chances that there's no demand for soil like was the case with Luna and maximize the chances that there is demand for soil at some price. And so let's break down why.

At the margin, Luna collapsed to zero in a short a time, as it did, which mark you said you were surprised by. But if we look at the rational economic actor during a bank run in the Terra ecosystem, it kind of makes sense. So once you enter this bank run situation in Terra, the nature of the protocol is that there was a throttle limit to convert USD to Luna and therefore people started to sell their USD at a discount.

So if you're holding USD, you need to decide, I'm either going to sell my USD at a discount or wait to try to convert my USD into Luna for a dollar's worth of Luna. Therefore, by definition there's a lot of upcoming supply for Luna that's about to come out. So if I am thinking if let's say I am a believer in Terra and I think that right now the total USD supply is around 20 billion, I'm bullish that at some point in the future the total demand for USD is going to hit 100 billion.

So I'm on long term bullish terra and I want to participate the system at the margin while this bank run is happening again. The main thing that Terra needs is demand for Luna, the efficient actor. If they're looking at this market and they're saying, I want to buy Luna, the question is, well, when should I buy Luna? Should I buy it right now, or should I wait to buy?

And the fact that there's all of this upcoming supply of Luna that you know is coming but hasn't come yet, effectively makes it such that the efficient actor would never buy Luna at that point. They would wait to buy Luna until all of that sell pressure is clear. And in short, that is what exacerbated and in a very short period of time led to the collapse of the Luna Price all the way to zero.

Because you had everyone knew that there was this excess supply of Luna that was coming and therefore who in their right mind would hold Luna In the short term, the smart trade was too short. Luna And so the dumb trade was to buy Luna and no one was buying. And at the time that was the one thing that the system needed.

And that's where the death spiral ultimately became pretty easy to create in practice. Now, if we juxtapose that with Bienstock again, the core piece of being stock's model is that it needs there to be demand for soil. People need to be willing to lend to be in stock. One of the core pieces of the Bienstock lending model is the debt is paid back on a first in first out basis, which is novel.

Prior to smart contracts, you never go to your bank and say, Hey, here's here's the interest rate. I'm willing to accept, but you let me know when you pay me back. You never trust the bank to do that. But thanks to smart contracts, people can actually get in line for when they're going to get paid back and verify that that's being honored.

And so soil if people lend to stock and there's demand for soil at the margin, they can price two things. They can price the exact bean supply at which they will get paid back and they can know at the exact time that they lend to be in stock what their return is. And so if we think about fundamentally that said, if you're in that same shoes during the bank run, you are a long term bullish being stock.

And right now, even though you expect there's some short term supply coming and the price is probably going to go down further, the trade that bean stock offers to lenders is you can lock in your return at a given being supply. And so at the margin, if someone is looking and thinking when should I want to be in stock, it's a fundamentally different question.

I agree. And so the at the end of the day, we don't know whether or not this will be sufficient of an incentive to attract lenders, if that makes sense. You know, there's lot there's lots of other pieces of being stocks, models that are designed to mitigate a bank run. But I think at the end of the day, this really is the me the fruit in first out harvest schedule is the meat here, because it allows people to be an efficient actor and to price the return, price the risk and decide I want to accept this trade right now.

And that is the fundamental difference. Yeah, I agree. In Luna you had to wait. The efficient actor had to wait in paying stock. The efficient actor has to act. And that's that's where you can potentially have an end to the bankrupt as opposed to a total death spiral immediately. Once you enter a bankrupt, if somebody on your end made the argument that debt is nonfungible.

So everybody's debt position is in fact an NFT, I mean that's not actually implemented as an NFT, but it is nonfungible. Everybody's got a unique debt position and place in line and rate at which they will realize a return which is really interesting. And I do agree with you that is a unique feature and I really like that feature a lot.

What I what I wonder about what you just said is, you know, you can only raise the rate by 3% every season. So in a bank run, is that enough? Like, you know, shouldn't you be raising 20% in the season and apparently not enough? And that's actually by design. The point is, if if people now let's say there's this short seller that creates this flood event, if people are there's this there's this bank run event and now there's excess supply and the price is decreasing and below a dollar, if the interest rate can potentially explode and go up 20%, 50%, 100% very quickly, that fundamentally diminishes the effectiveness of the first in first out harvest

schedule on the incentive to let because now at the margin, the question is, well, I can wait to lend to the protocol and maybe someone gets in front of me in line, but maybe I increase my rate of return by 100% or 50% or 200%. So the fact that stock raises the interest rate very slowly is actually, in practice, an explicit trade off that Bienstock is willing to accept bankrupts that when the price is selling off, the expectation is that people should leave.

The protocol is happy for people that want to are comfortable making that trade and selling their beans at a discount To do so. It decreases the total obligation of the system. And so the concept is there's nothing wrong with short term deviations in the peg. And if you assume that there is demand to lend to be in stock, then over a slightly more extended period of time, Beanstalk should be able to return the price to the peg.

So the problem with raising interest rates super efficiently, such that it's always priced efficiently, is that the margin it can change the incentive structure to lend to stock and compromise the efficiency of the soil market. So again, the efficiency of the soil market is really the thing that matters, not not anything else. By comparison. Got that. That's actually an excellent point.

I had not thought of that. You're right. If you raise yeah, if you raise the interest rates too quickly, then a lot of people just hang back and think, oh, well, they're going to lend now it's going to go, I'm going to get 50%. If I just sit here and wait late for the wait for the thing to bleed more.

So yeah, yeah, that makes sense. Yeah. Okay. I buy that. All right. Another question I had was and I was thinking about the regulation, and I am still worried about that. I think I think actually, of all the risks here, the biggest risk is the regulatory risk at this point. I wonder, Mark, if that is true. We aren't doing great.

Well, yeah, I mean, I love your design. Like, look, I can't find it. There might be some there might be a problem with it somewhere, but I have not seen it. And every time I try to poke a hole in it, I. I come back, I go, No, that's not a whole. That actually makes sense. So. So congratulations on that.

I don't think there's a hole here. If there is, I'm completely missing it. So. So that's good. So that leaves me with regulate, with regulation as the only it's really the biggest risk and especially as our politicians, you know, are looking to score points. So let's some. But let's play through what Wait, wait, let me finish. Let me just grab I'm going somewhere I think you'll find interesting and sort of the thought I had is excuse me, let's assume that they're coming.

If instead of making being a stablecoin, you instead made it a consumer price index flat coin. You know, not unlike what FRAX is doing with its FRAX piece saying I can't remember what the acronym stands for, but basically it's a price. It's basically an inflation proof STABLECOIN Instead of nailing it to a dollar, you nail it to a basket of goods, so it always resists inflation.

Presto, now you're not a stablecoin. So any regulation doesn't apply to you. And yet the same mechanisms could still be used to support that, I think. Have you guys thought about that at all? So a couple of things to be set here. One, the main problem and it's not for say, a problem, but it's just an additional risk with issuing it and CPI pegged, even though I think the CPI is stupid and wouldn't be the right measure of inflation.

But let's say you wanted to issue a being pegged to a basket of goods or some index. There's nothing wrong with that for say, other than the that increases the total liability of the system over time. In practice, I would argue the general devaluation of the US dollar is a tailwind for buying stock. The fact that it's outstanding assets that are issued are in in real terms decreasing.

That's good to issue an asset that is in real terms, not decreasing by definition that's a little bit harder to maintain. However, not to say that in practice at scale Bienstock would do that. It's just to say it's a little bit more of an uphill battle. Furthermore, at the moment the market isn't really interested in a an inflation resistant stablecoin.

It's interested in dollars on chain, and therefore that's another uphill battle of now you're going to issue an asset nobody wants instead of the asset that everybody wants. I would also make the argument, and I don't think the regulators are going to care that from their perspective they should much prefer people are using dollar Stablecoins as opposed to other stablecoins.

But again, that's neither here nor there in terms of how they're actually going to regulate this. My main point though is bienstock. It just doesn't care. It really doesn't care. So in theory, they can they can, they can try whatever they want, but in the same way as if you try to regulate Bitcoin, what does that amount to in practice?

The hope is to have the exact same status for Bienstock Now as we spoke about earlier, over the short term, I do think there are some practical risks associated with getting there, but in reality I do think this is more or less hot air. I think the protocols that should be much more concerned are protocols like fracs that are de facto dependent on USB, DC on a centralized stablecoin And whenever the regulators do hit the centralized STABLECOIN issuers and impose KYC on them or whatever it may be, that is going to affect FRAX and that's going to affect other Stablecoin protocols like Maker potentially.

So Bienstock from first principles is designed to exist and thrive in an incredibly hostile regulatory environment. That has not changed. I think these other things that have managed to do what you're describing thriving in a hostile environment regulatory wise, I can think of two examples. One of them, of course is Bitcoin with an undocked founder that snuck up on the world over a ten year period.

All right, so that's one way to do it. And, you know, by the time everybody noticed it and they actually took it seriously, it was too late and had already reached sufficient size that there was it was too big to shut down and it was too decentralized and there was no throat to choke nobody knew who Satoshi was.

So there was there was no way to sort of punish them. Right. So, so that's example one. The other examples, Uber, and I remember when Travis first started that, you know, he basically, you know, he is his service was illegal. Let's just come out and say it was absolutely illegal. And every city almost that he launched in. But he did it.

He basically blitzkrieg did so quickly that so many people were using it and loved it, that there was no way to shut it down. Once it was once it was up and up and running in any city because the entire population would scream bloody murder. Right. So that was sort of the other example. And then it just became legal by default.

But it was illegal when it launched. And, you know, so I think so I think you can do it and I think you can do it when you're doxxed and you're you're a legit company or you're known, but it is a race. And I think the race just got a lot more intense with Tara. So can you hear me, Marc?

I'm a little I'm a little short of breath at the moment. What's that? I'm a little short of breath at the moment. Mark Yeah, exactly. So and, you know, look, I want to see you guys win. I want you guys to win here. So I'm just thinking out loud. So. But, but, but to your point, and at this point, there is sort of a race condition in terms of getting back to on chain governance.

When Beanstalk was launched, I would argue with the exception of public ownership of the contract, there was already no single choke point other than economically you could buy out the whole system effectively, which will likely remain the case in perpetuity and for a very long period of time for any proof of stake based system. So that the the government that can mint infinite dollars can, in theory, purchase an infinite stake in any proof of stake network.

So that remains a perpetual risk at the moment. Other than that, you know, once Beanstalk is back to being on chain governance, I really don't think there's much of a conversation to be had. I'm to guess I'm going to have to have those conversations, if that makes sense, with with people as as now a docket founder. But when I have those conversations, I intend to be able to say, honestly, there's nothing I can do.

I hear you, but there's absolutely nothing I can do. And it's not even my hands are tied, my hands are free. I just can't do anything with them because I don't control the system. Gotcha. One other thing that came up during the whole terror thing. I don't remember who said it, but it was. It was a clever thought I believed when I heard it.

And that was, you know, when when terrorists started off, it was a pure algorithmic, algorithmic stablecoin. And at the moment that doe made the decision to partially collateralize it with Bitcoin, he now became, you know, sort of half collateralized, half algorithmic. Right? So it was he was sort of in between those two worlds. And in fact, that is what ultimately made him vulnerable because he was trying to acquire more Bitcoin with, with, with Terra.

And had he not done that, he might not be in the situation he's in right now, right where he sold the the Bitcoin for Terra. So there is one school of thought that says if you are, you know, if you're going to do an algorithmic, algorithmic stablecoin, you can die that you can't be, you have to be one or the other.

You have to be collateralized or pure algorithmic, but never both, never in the middle. If you're in the middle, that's the danger zone. What do you think of that thought? Well, I don't like the word never. I think it's a little strong and FRAX at the moment is working well enough. But in reality at the time we really were shocked at their decision to collateralize the system and I think we tweeted it while the collapse was happening, while we thought that the system was sustainable at the time that they made this decision to move to two partial collateralization with BTC, they very clearly didn't like that was assigned to the market, that they didn't have

faith in the model. So to it's it's very difficult to play Monday morning quarterback here because it's it's hard to know what they perceived and they being the leaders of of the ecosystem that made these decisions what they perceived the situation to be if they knew that they had this massive excess liability and they were running out of funds to subsidize the anchor yield, which was happening, and therefore they needed to very quickly figure out a way to cover their cover.

The liabilities, whenever they inevitably left anchor The question becomes like, what were they supposed to do? And it's very hard to say, Well, if I mean, here's the point. The point is they shouldn't have been able to do anything in that capacity. The fact that there was a group of people that as the leaders of this supposedly decentralized currency, could just say, we're going to do this thing and now substantively change the whole economic structure of our system, that's by definition, not decentralized.

And to me, it's an indication that the people that were running the show did really view their they're there themselves as fiduciary as are responsible to the holders of the system. Like, we need to fix this. We need to make this right. And so we're going to take executive action to fix the situation. And that even if they were right in their assessment that the system was in trouble, there's there is a point to be raised of was that the appropriate action to take?

Was any action appropriate? And given that they did act or the actions that they took appropriate, To me, the only real issue that I can see that's reasonable is that they sold us for Bitcoin as opposed to selling Luna for Bitcoin. That really doesn't make sense. If they were aware of the liabilities and they knew we need to try to cover the liabilities, that it's very hard to wrap your head around how that's a reasonable thing to do.

But otherwise, you know, I tend to tend to try to give people the benefit of the doubt that they're trying their best. And, you know, not it's very hard to know what the right thing to do is. And they clearly didn't didn't play their cards right. But that's it's hard to it's hard to say definitively what they should have done.

I'd argue, given what transpired, it's hard to imagine this go in any other way, if that makes sense. And maybe that's after it happens. It seems so obvious, but in practice, given what we know now, it's very hard to imagine the system working so a lot of Monday morning quarterbacking you can do. But at the end of the day, they were clearly trying their best and came up came up significantly short.

Yeah, and I agree with that. I don't think Dow is a bad actor. I you know, there's a lot of people saying, oh, it was a scam. I'm like, no, I don't think I don't think your name, your your your daughter Luna and then a few a few days before you go and perpetrate your scam. So I just I just don't believe that.

So I think it was I think it was an honest actor, but I think he's in a world of hurt now. And I don't know. I don't know if he can come back from this. We'll see. He's going to try a second act. We'll see how it goes. Yeah, that is the kind of curious thing, right? Like that, that behavior does reflect a deep confidence in the system.

Right. And tweet the tweet about naming my greatest creation after my greatest invention. Like, that's confidence, right? And was displayed wall the wall the reserve is being built and such such that there's clearly some there's something that doesn't make sense and it's very hard to know It's hard to know what what they should have done. But I would just say, if you guys never hear us say bienstock works and it def it def this works, I think that would make us lose an immense amount of credibility.

The whole point is these are systems that work until they don't work. And this these are incredibly systems. So the concept of declaring victory to me is quite foolish. Now it's good to declare many victories, right in stock de leveraging on the Padre coming down. That's a victory. The liquidity, the supply ratio increasing dramatically. That's a victory. These are all proof of concept that the model is more sustainable than it was yesterday.

And that in and of itself is a proof of concept. But the idea of declaring victory, that's just that, you know, unfortunately this is not a a game that that allows people to declare victory. So that's where I think something was off, very clearly off. But it's very hard to know, you know, what was going on inside their heads.

Yeah, No, totally hear you on that. The other thing I've been watching lately, you know, after after the whole terror thing went down, I also have been following. Are you do you follow Das and De in the Phantom ecosystem? The list? Unfortunately not. You don't. Okay, well, they. And there's a lot more to it than what Tara was doing.

But they actually did have a mechanism pretty much identical to to what Tara was doing with their Devi Stablecoin. And after Tara D pegged, all the sudden bad people were, Oh shit, we can do this. And we now have, you know, we now have the recipe for how to detect these things. They attacked DE and shoved it down from a dollar to around $0.60 and it sort of come back to $0.75 or so right now.

And they still have not been able to retain their their peg. So I was, you know, and unlike Tara, they did not have the moment where somebody took the bait, Right. So because there was no Bitcoin backing. DE So it was they were not this would to defeat the theory that, you know, if you're fish, neither fish nor foul, you're more vulnerable.

Just if you're an algorithmic stablecoin, there's always this or that style of algorithmic stablecoin I should say there's always this vulnerability. So but if you don't follow it, I guess there's not much you can say about it. Well, do they have a throttle limit between the. I don't know. I don't either. Otherwise I It seems weird that the Stablecoin would still be below a dollar, but the ecosystem be alive.

The throttle limit would be the only reason that that would make sense. I would think. Yeah. I'm not sure this happened while I was there was usually this happened while I was at all in Glacier and I haven't had a chance. As you can see, I'm six so I'm sort of moving a little bit more slowly than normal, so I'm not caught up yet with all the details of this particular event.

So there's too much stablecoins to keep track, but there are. They really are. Well, I guess that that really that that's really all the questions that I had written down. And thank you for putting up with my very pointed questions. I know it's a difficult time even still for you guys. So so thank you for putting up with that.

Oh, it's no problem at all. And from our perspective, it's good to have these questions asked and answered because they're on everyone's mind. So we appreciate you tremendously for for verbalizing them. And, you know, at the end of the day, I do think it's I've said upon this call or Twitter spaces, but it's important. Again, this is very much an experiment that we're all collectively engaged in.

And only through these discourses and dialogs can we collectively try to come to some sort of understanding about what works, what doesn't work, what can be improved. I mean, from our perspective, there's so much to be learned from the collapse of Tantra that it would be a shame not to break it all down and have endless discussions about it would be missing an opportunity.

And there's a lot of value lost and it would almost be it would be wrong to to waste the opportunity and pass it up as a learning opportunity. So it's this is tough. You know, this is the Wild West. And to your point about losing a hand, Yeah. As someone who recently lost a hand, Mark, I can tell you this is a this is a risky business.

So it's it's it may be that to sort of end where we started, we really are interested in working with the general crypto community to come up with some sort of disclosure system. And it's got to happen. So we're going to hopefully we've tried very hard throughout our whole the the beanstalk existence to keep up to date white papers and documentation, but it's difficult.

So there's got to be some industry standardization here. And again, if we don't do it, then then the regulators are going to come in and nobody likes a babysitter. So.