🎙 "We're Lifting Barriers For Outside Users; If You Allocate Capital in a Vacuum, It's Kind of Meaningless:" Terra's Do Kwon

In this week’s episode, we interview Do Kwon, cofounder of the Terra ecosystem, which includes a payments network, a stablecoin, a lending protocol and a synthetic assets platform. We talk about how he was able to achieve what most crypto companies can’t: Get a broad non-crypto native user base. Terra’s Chai payments system, which uses the Terra stablecoin, has about 2.6M active users in Korea. Kwon says there’s so much money to be made without bringing new people in, that many developers just settle with looking inwards in crypto.

Kwon explains how the Terra stablecoin is able to hold its peg, and how its use drives value back to the Luna token. We also talk about Anchor, Terra’s lending platform, and how it’s able to offer 20% fixed-rate yields.

Kwon dives into the vision behind Mirror, a synthetic assets trading platform. The goal is to give people anywhere in the world access to invest in US equities. He says US companies lead the world in terms of innovation but it’s very hard for people outside of the US to benefit from their growth.

At a time when much of crypto is focused on its equivalent of “Wall Street” or wealthy investors and speculators, Kwon wants to focus on making products for “Main Street.” Otherwise, he says, capital is just allocated in a vacuum instead of where there is actual production taking place.

The podcast was led by Camila Russo, and edited by Alp Gasimov. Transcript was edited by Owen Fernau and Dan Kahan.

🎙Listen to the interview in this week’s podcast episode here:

You’re a free signup, which means you get only part of the transcript below. Subscribe to never miss out on any content ($150/yr, $15/mo). Click here to pay with DAI.

Subscribe now

🙌 Together with:

• Zerion, a simple interface to access and use decentralized finance
• Balancer, one of the leading DeFi automated market makers (AMM) for multiple tokens. Dive into their pools at https://balancer.finance/!
• Kraken, consistently rated the best and most secure cryptocurrency exchange, which can get you from fiat to DeFi
• Aave, an open source and non-custodial liquidity protocol where users can earn interest on deposits and borrow assets.

Do Kwon: When I first graduated from computer science, I'm a software engineer by training, I joined Microsoft as an engineer, and a lot of the work that I was doing was an NLP. So like when I first trained, maybe it was just like the department that I got placed in, but our team had 34 engineers. And there were, I think, at any given time, maybe three or four people didn't work, it was just not a very ambitious environment for a young aspiring engineer to be able to do lots of work. So I started to tinker with side projects, until I made a prototype that got me excited enough to quit and to make a startup.

“...at any given time, maybe three or four people didn't work, it was just not a very ambitious environment for a young aspiring engineer to be able to do lots of work.So I started to tinker with side projects, until I made a prototype that got me excited enough to quit and to make a startup.”

So what that technology did was that it was in Wi-Fi mesh, so it allowed user devices like cell phones and laptops to connect to each other via Wi-Fi direct or Bluetooth. And the idea was, even if you don't have direct internet access, you don't have a connection to a cell tower, or a Wi-Fi router, you could connect to the Internet through a network of other people around you. So it was sort of like a distributed network of human beings in densely populated or poor internet connection areas.

So we turned that into a sort of a B2B business, targeting large enterprises like airports and amusement parks and things like that. And then you can imagine that the standard Google search query for “distributed network” turns out a lot of things like Bitcoin and Ethereum. And then that's how I got started to get acclimated to crypto.

And a turning moment for me was when one of my friends invited me to a Facebook chat group with eight people, and it was mainly friends from college that were talking about things like Bitcoin, Ethereum, and different things like that. And then that conversation actually turned out to be a lot more intelligent than the stuff you find on Reddit. So that's when I got hooked and then started spending more time looking at whitepapers and going meetups and participating in community chats, until in 2017, I decided to quit my company, and then to do something in crypto full time.

Camila Russo: And so when you decided to quit your company, this is the distributed network, Wi-Fi solution that you started, right?

DK: Right.

Volatility as the Roadblock

CR: Okay. And then what was the first thing that you did in crypto full time?

DK: So I quit my job on Halloween of 2017, and then that day I went out for drinks with one of my friends who was running a small fund at the time. And then he invited another friend, and then that friend turned out to be the cofounder of Terra, Daniel Shin. And at the bar that day, he was looking to buy QTUM, which, I don't know if you remember QTUM, but the basic premise was that you combine the best of Bitcoin and Ethereum. And the webpage didn't really scale correctly and it was worth $6 billion.

And then I asked him, do you really want to invest in something that can't put together a website without typos or scaling correctly? And that led to an interesting conversation about what it would take to get a cryptocurrency that has lots and lots of real users. So that adoption conversation led to stablecoins and led to what is Terra today.

“And then I asked him, do you really want to invest in something that can't put together a website without typos or scaling correctly? And that led to an interesting conversation about what it would take to get a cryptocurrency that has lots and lots of real users.”

CR: That's so interesting. Because back in 2017, there weren't many stablecoins. Obviously, right now stablecoins are super popular, everyone uses them for trading. But in 2017, it was Tether, right? And I don't know if there were many others. DAI wasn't around, USDC wasn't around. What made you think of stablecoins as the mainstream use case?

DK: There were a couple of different reasons. But when most people were doing something in say digital commerce looked at Bitcoin for the first time, like the main roadblock to getting Bitcoin adopted wasn't so much speed or scalability, it was volatility. Right? So Bitcoin has upside, yes, but in a marginal business, like let's say, an ecommerce company, or any company that sells goods and services on the internet, it's actually cost prohibitive to have that volatility built into Bitcoin.

And Tesla can afford it because it's Tesla. But for most companies, it's really hard to run the risk of your proceeds going and dropping significantly in price, because that volatility can make it difficult to meet, let's say, payroll, or to pay distributors in a timely fashion. So from a business perspective, volatility was one of the greatest roadblocks to adopting cryptocurrencies. There's obviously custody, wallet management and different things like that. But fundamentally, if you couldn't get to a state where you could sort of guarantee crypto holding value stable to some mainstream unit of account, then we thought it'd be really hard to get it adopted.

“...from a business perspective, volatility was one of the greatest roadblocks to adopting cryptocurrencies.”

So there was this paper called Seigniorage Shares by this British gentleman called Robert Sams that I read through when I was doing research into crypto. And that actually later inspired a lot of algorithmic stablecoin projects, like Basecoin, Terra, and I think to some extent, MakerDAO and lots of other ones that came after it. And the idea was that, essentially, you would sort of have a second coin from the stablecoin absorb all the volatility from the first. And the idea was that there are a set of people that enjoyed that volatility for speculative purposes. And by having the second group absorb all the volatility from the first, you can allow the stablecoin to be used as a medium of exchange, store of value, and unit of account in day to day business.

How Terra Achieves Stability

CR: That’s interesting. So obviously that's the model that DAI has with well, at first, just ETH backing the stablecoin DAI and absorbing that volatility as people also take the other side. Right? With Terra, does it work in the same way? Like, how does Terra achieve its stability?

[ … ]

Paid subscribers have access to the full transcript.

Subscribe now so you don’t miss any of The Defiant content. Subscribers reading this post: Head to posts marked with the little lock to see the full content.

Subscribe now

The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $15/month or $150/year, while free signups get only part of the content. Click here to pay with DAI.