Terraform Labs Co-Founder Do Kwon on the future of cryptocurrency

In a new interview with Yahoo Finance's Zack Guzman, Terraform Labs Co-Founder Do Kwon discusses crypto regulation, venture capital, and a lawsuit his company just filed against the SEC.

Video Transcript


ZACK GUZMAN: Welcome back to Yahoo Finance's All Markets Summit. All day we've been talking about solutions to problems. And so let's focus in on one piece of the market that may have been causing more problems than anything but also solving a lot of things out there this year, that would be cryptocurrency. And this part of AMS sponsored in part by Grayscale.

Of course, as we've been talking about all year, the specter of regulation continues to grow and the SEC continues to answer questions about what they want to do about crypto as it surges past a $2.5 trillion market cap. And for more on that, very happy to bring into today's program the CEO, and co-founder of Terraform Labs, Do Kwon. Of course, he's leading the company behind Terra and their cryptocurrency LUNA, which is the 10th largest in the world behind Bitcoin after it has surged more than 6,000% on the year.

And Do, good to be chatting with you again today. Thanks for staying up late. Of course, we're going to get into all the specific problems that Terra is trying to solve but over the weekend you guys sparked some headlines by actually coming out on the offensive against the SEC, filing a lawsuit there after they took issue with a piece of what you guys are working on at Mirror Protocol, which actually lets people trade synthetic assets that mirror real-world assets, like stocks. Talk to me about the decision you made there to go on the offensive against the SEC.

DO KWON: So I can't comment on ongoing lawsuits, investigations but I just want to reiterate that we're happy to speak to regulators across the world. To educate them on the merits and potential problems of cryptocurrency. And I think Terraform Labs shares my vision for that.

ZACK GUZMAN: Yeah, without getting into the specifics of this case, it sounds like there were some issues of course, as was documented in the filing. They chose to serve you at Messari's Mainnet Conference, great conference out here in New York, was pretty well populated. And you took issue it seems with the way that that-- you know, the way that you were served in all of that. But I guess more broadly, what does it maybe say about the relationship between some of these leading DeFi projects right now and the way the SEC might appear to be cracking down?

DO KWON: Well, so I think more broadly, there's just an explosion of lots of different projects that are coming into the crypto industry. And usually, when there is you know, explosion of a new industry, some of which may you know, not fit in nicely with existing regulatory or incumbent networks, I think that just causes a bit of conflict and friction. So I think a lot of sort of the tensions that are being present between some of the leading networks in DeFi and regulators in various different places across the world, the United States being no exception, is indicative and is symptomatic of what's happening in that tension. But I think through this dialogue and exchange you generally end up with frameworks that are a little bit more accepting of innovation and change. And we're happy to be part of that dialogue, in so far as you know, proper procedures and frameworks are adhered to.

ZACK GUZMAN: Yeah, I think that proper procedures piece is pretty important. And there's a lot of people in DeFi, in the crypto world celebrating this move here. I suppose there also might be some people within the Terra world who are also a little nervous about what it could do to maybe increase the target in terms of what regulators are looking for. But I mean, when you step back and look at it I mean, is it a serious thing there to maybe applaud making sure that regulators adhere to their own rules in trying to figure out what's going on in crypto?

DO KWON: Yeah, that makes a lot of sense most of the DeFi protocols that we've created here at Terra, so I sort of think about my job as a toymaker, whereby we create lots of interesting DeFi protocols that sort of you know, defines the state of the art in terms of what we can do with our money and our financial products. That doesn't necessarily mean that these are companies, right? So we are creators of these products and once we create them, we hand them off to the community, including the entire ownership of the protocols. So I think that just takes a little bit of time and effort and getting used to.

ZACK GUZMAN: Yeah, for those that might not know, let's talk a little bit more about what Terra does because it's pretty important in the crypto world. As we've discussed before, there are a lot of people talking about stablecoins. Of course, the two largest, Tether and USDC are backed by real assets, most of them cash. When you look at LUNA and UST, your guys' stablecoin though, it's grown six times as fast as Tether has this year and it's backed not by real assets but by your cryptocurrency itself, LUNA. So talk to me about what that means in terms of detaching DeFi from the need for stablecoins that actually touch the banking system directly?

DO KWON: Sure. So we're actually at a really important time both in crypto and in traditional finance, whereby we're trying to create a decentralized economy that is difficult to censor and politicize. And it turns out that you get a lot of advantages in terms of being able to structure transactions and contracts between peer to peer intermediaries when these are unfettered by you know, rules a lot of which can be politicized by you know, powers that be.

And for a lot of these innovations that are core to DeFi, such as decentralized exchanges, lending protocols, synthetics, and all sorts of others, it is crucial that a decentralized economy and these decentralized apps depend on decentralized money. And that is essentially sort of the core thesis behind what Terra is working on in the sense that we have these stablecoins that are pegged to various different fiat currencies, such as the US dollar, the Korean won, the SGD, and so on and so forth, that are entirely decentralized and cannot be censored.

So this you know, on top of these things we have applications such as Anchor, whereby stablecoins can be deposited into smart contracts. And they can be leveraged to tap into the power of staking yields that are coming in from multiple blockchains to power a 19.5% yield on Terra stablecoins. Which is the best risk-adjusted yield that you can get on any stablecoin in the market

ZACK GUZMAN: Yeah, I wanted to get into the specifics of Anchor in a second. But I mean, first, when we're talking about growing out the Terra ecosystem, UST, and stablecoins in terms of the lead there, and continuing the growth. I guess the question is if some of these things become the target of regulators if you can't have the Mirror Protocol working that way, what does that do to maybe impact the growth of UST? I mean, how important is that piece of what Terra is working on?

DO KWON: Well, I mean, so I just want to reiterate that regardless of what regulators think about the issue, there's no change that I can make to the Mirror Protocol. So when we say that Mirror is decentralized, it is fully decentralized. There's nothing that the creator can do to sort of cap the growth of the protocol or the users that interact with it.

I think some of the few things that could happen is regulators could try to cap the growth of some of the front ends, like for example, censoring the applications or you know, pulling them down from app stores. But that's kind of hard to do when there's a motivated community to try to see a lot of these apps succeed. And even for Mirror, there's thousands of apps that tap into these synthetics to do all sorts of different things.

ZACK GUZMAN: Yeah. We were chatting with SEC Commissioner Hester Peirce, who has really been, I guess applauded for her thinking around crypto and her stances on it. Dubbed crypto mom by some in the community. But even she was talking about some of maybe that decentralized nature of some of these protocols, that even then, though they might appear decentralized, there is, of course, a centralized entity behind it. I mean, how decentralized is Terra exactly, maybe some of these other DeFi projects? And is that still a risk if regulators do seek not just pieces of what you guys are working on but I guess the companies behind it?

DO KWON: Yeah, so we've launched a lot of different things. So I think a lot of these things have you know, a slight gradient in terms of decentralization but what we mean is, can Terraform Labs be a single point of failure? And in almost all sorts of these things, it is fully decentralized. We cannot be a single point of failure.

So for Mirror Protocol specifically, we-- you know, when Mirror was first created, we didn't pre-mine any portion of the MIR tokens, so which is kind of novel in crypto, we kind of gave it all away. And it's been fascinating to see like an asset start at like $0.01, and then go all the way up to $12. And us having to do with-- having to get like very few, very little financial exposure from that. We don't hold operator keys in the protocol, which means that we cannot shut the protocol down. There's dozens of front ends and we only host one of these things. So from every sense of the word, I would say, our DeFi protocols including Mirror are fully decentralized in nature.

ZACK GUZMAN: I mean, when we're talking about all this too, I mean, the growth has been pretty substantial here in 2021, not just the world of Bitcoin but into kind of the rest of the fringe projects, working on things like Terra. When we look at maybe the businesses I guess you know, the VCs backing all this too, you guys have raised money from some pretty impressive names, including Mike Novogratz at Galaxy Digital, Coinbase Ventures, Polychain Capital, and the list goes on. I mean, is there maybe a fear that some of that capital might dry up if regulators continue to be as aggressive as maybe they have been?


ZACK GUZMAN: Just in a simple word, no. There's no indication yet of that happening at all?

DO KWON: Well, so we haven't raised money in a long time because we don't have to. But Terra is one of those communities that I don't think is sustained by venture capital dollars at all. So we have a very community-focused approach in the sense that anybody that wanted to purchase LUNA tokens for almost two years actually could have done it at like a $0.20 to $0.30 range. It's currently trading at around $42, $43. So a lot of the largest holders of you know, LUNA tokens and a lot of our other assets are actually just from the community. So if you wanted it to get in at a better deal than Novogratz, it was very easy to have done that.

ZACK GUZMAN: Yeah, which is rare to find I suppose, in a lot of the opportunities here that we've highlighted at Yahoo Finance's All Markets Summit but Do Kwon, the CEO, and co-founder of Terraform Labs. Appreciate you taking the time here to chat. Be well.

DO KWON: Thank you, Zack.

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