**A** (0:05):
Hello. Stage is yours. Thank you. Hello everyone. Thank you guys for coming. Today I'm going to be giving a talk on a one year Terra retrospective. For anyone who doesn't know, my name is Sunny, I work on a project called Osmosis. It's a dex on Cosmos. If you don't know what it is, I don't know what you're doing here. But last year at Gateway, I actually failed to give a talk because it was like literally I was dealing in the hacker room, just dealing with the Terra crash and we had to go fork the Terra chain twice to prevent a staking attack and fix Osmosis and stuff. So just did a live AMA and I got a chance to talk a little bit then about it had just happened that week and like, okay, how is Cosmos going to develop post Terra? And now I think it's like now that we're almost exactly one year later, I think it's a good time to kind of look back and see like, okay, how has Terra impacted both the Cosmos ecosystem but also crypto as a whole? So I actually originally wrote this as a blog post six months ago in order and it was called the six Month Retrospective. And I was like all ready to go to post it and was ready to go. And I would have gotten away with it if it weren't for those darn kids. And so I don't think my blog post would have gotten too many eyeballs that week. So I just ended up just pocketing it and never publishing it. The thing with FTX is we are building DeFi. If you've been in the space long enough, you are used to this. This happens every couple of years. You have Mount Gox, you had Quadriga. Obviously FTX is of a massively different scale, but we know the solutions here. This is literally what we're trying to fix, is move away from these centralized entities. I think the analysis of what happened to Terra is a lot more interesting. Terra was not this centralized exchange, it wasn't this CEFI thing. It was actually a DEFI protocol and something that I'm sure a lot of us in this room probably heavily bought into. Not just financially, but truly believed in it for a while. And so that's why I want to go and let's retrospect on this. So we're going to start with how did Terra relationship with Cosmos both before and after the crash? Right. So you know, Terra always had this like sort of weird, tenuous relationship with Cosmos. Sometimes they like to pretend, you know, sometimes they would like be like, oh, we're not a Cosmos chain. We're like doing our own thing off on the side. But then sometimes you have this guy like screaming, cosmos at this event. I don't know if can anyone find the video of this? I swear there's a video of him doing it. But I searched YouTube for like an hour and I couldn't find it. So if anyone still has that video, let me know. But we had this. We predicted that, hey, UST was going to come into Cosmos and bring this sudden rush of liquidity. And we were right about that. It did. And on osmosis, UST peaked at over a quarter of a billion dollars of liquidity. Luna as well, almost $175 million of liquidity. It brought in this massive flood of liquidity which led to this huge boom in Cosmos tvl, Cosmos asset prices. But then we kind of forgot what happens when a wave actually does hit. It kind of actually destroys everything in the process. So one thing I want to talk about is there was this narrative that was happening, I think, especially within a lot of the Ethereum community that like, oh, these Cosmos people were like dummies for letting this happen, right? Like, how did you let this thing happen? And you know, I think part of the story here is that like, UST was the only stablecoin that was available in Cosmos, right? There was no other IBC enabled stablecoin at the time. There was no in production bridges at the time. And so obviously being the thing that was available, that's what got the traction. But it's also worth noting that we weren't the only ones that fell for this, right? Not to excuse us, but UST was being exported everywhere throughout crypto. It was about to enter Solana in a very big way. It was becoming the primary stablecoin in the Avalanche ecosystem. Avax itself was going to be like, built like collateral in the Terra protocol. And you know, as I like to remind people, the Ethereums, like, UST was about to become the main stablecoin in the curve pools as well. It was literally like weeks away from happening before the deep egg happened. So, like, part of this whole narrative of like, okay, how did UST become so big in Cosmos? It just happened to be that it was. It got big in Cosmos first because we were the closest to ust. IBC made it the easiest for UST to come in and dominate in Cosmos, but it was very close to taking on a very similar role throughout the crypto ecosystem. But unfortunately that hurt us pretty bad. All that liquidity Went crashing away, all that sort of value and capital, you know, $60 billion poofed in thin air. But one thing I also like to point out is like, yes, the capital and liquidity, you know, this like paper money liquidity disappeared, but the users stayed. Right? Like if you look at this is for osmosis specifically, but obviously we had a fall off after the USD crash, but like it's actually stayed relatively stable. This is like our weekly active users and it's actually stayed relatively stable. And a lot of the users that came in initially from the Terra ecosystem ended up staying in the cosmos. It's honestly thanks to a lot of the work from people like Donku and Sephi and all these people within the Terra ecosystem who were really trying to expose the lunatics to the wider cosmos ecosystem. And today you see that where it's like, even today you see on Twitter, people still have the Moon emojis and stuff in their, in their Twitter bios. And so this is like why I like to call. So that's why my original post was called titled the Terra Supernova. Where, you know, Terra likes to, you know, it uses this analogy of the planet and the moon and blah, blah, blah. But I actually, I think like a better astronomical analogy is a supernova, right? Terra was this, you know, star became so big, attracted all the mass, and at some point it just explodes and sends the stardust throughout the cosmos, including the users, but also all the developers and projects. Right. So, you know, this was thanks to a lot of the work from like, you know, our team helped like with like the Osmosis grants program help. A lot of these teams had lost all of their funding. It was all in ust, you know, the Osmosis grants program came in, stepped in and helped provide funding to a lot of these teams. The Juno Grants program helped provide funding to a lot of these teams. Like, I think part of what happened was like a lot of the rest of, you know, I think Cosmos got wrecked just as hard as a lot of the Terra projects as well. And there was this like shared suffering that we had together. And it's not the best way to build community, but it is a way to build community and it, and it really did work. And so I just want to, like, I think maybe people don't realize how many of the projects that you just like accept as Cosmos projects today actually came from Terra. Like, I just want to like go through some of them, right? Like, obviously you have Mars. One of the biggest lending protocols on Terra, Skip started off as building mev solutions for Terra. Cato was a fiat on ramp originally for ust. IBCX was built by the original anchor team. They left create a new company called AlphaWorks built the IBC index. Levana is a perps protocol launching on Osmosis pretty soon. So similar to GMX style, Astroport is building liquidity vaults on Osmosis. Injective Neutron, a bunch of other Cosmos chains Margin another perps protocol. CDT is this stablecoin that we'll talk about in a little bit. The Apollo Dao. They've built the multisig tooling that is Lifesaver because otherwise it's really annoying to use the Conscious SDK, Multisigs tfm. They have some really cool. You should check it out. It's actually probably one of the best trading interfaces for osmosis. You actually have charts and everything there. Very nice to use. You have a nice NFT aggregator, coinhaul. Also really great. You have projects like Prism. They're launching a Cosmos SDK chain pretty soon. Zodiac is launching on Osmosis pretty soon. Leap Wallet, if any of you have used it. It's like an amazing wallet. Check it out. They originally started on Terra, now are one of the biggest Cosmos multi chain wallets. You have Loop White Whale Eclipse which Yas just mentioned in his previous talk. They're building a framework to build rollups on top of Cos you have Obi, which is building osmosis smart accounts and generalized account abstraction based wallets. You have even some of the most popular NFT projects from. I'm sure everyone's seen the hero NFTs that were all throughout Terra. They're on Stargaze. You also have developer tools like Beaker. Beaker was if anyone was familiar with Terraform, it was the developer toolkit that people used to use in Terra. Well, Beaker was like, you know, the developer who built that came over to the Osmosis team and we've built Beaker which is a framework, it's like the hard hat or foundry for cosmosm and it's a way for anyone to easily build Cosmos apps. You have Abstract, which is also built by some ex white whale people but you can basically easily build. It's almost like an open zeppelin. For cosmosmith you have Cellotone built by the X Prism team. It's sort of the best block explorer and remix style application for actually interacting with CosmosM applications. And just this week Terascope, which is one of the most popular explorers that everyone loved, rebranded to Chainscope and now they support Osmosis. And I'm sure they'll start supporting more Cosmos chains pretty soon. And then you even have like Terraform Labs also contributing tooling as well. Like, you know, they've made their popular Terra Station wallet be a multi chain Cosmos wallet. They're building these, this alliance thing, which is a interesting security model. I think it has some issues. I think they should come work with us on mesh security. But, you know, it's nice to see that they're actually contributing to, you know, security models throughout Cosmos. And I will, you know, before I get raged at in the comments. Yes, of course, Kujira. You know, I don't know why people think I have some issue with Kujira. Anyone who tried. One thing I've learned from Jay is anytime someone, there's unnecessary drama happening. Like there's probably like something like someone's trying to seed it for no reason, right? Like, I really love what the Kojira team has been building. They've built one of like the best orderbook interfaces, one of the best staking API interfaces, the, you know, one of the, you know, really good UI around the UK stablecoin. And I'm just really, you know, I think they've done a really good job at bringing the Terra community back, like, you know, vibes into Cosmos, which is cool. So yeah, you know, Cosmos, we have this Stardust throughout Cosmos. Obviously we do have this challenge in front of us which is, you know, how do we start? Eventually the Stardust has to start to build new stars again. Right. And so we'll talk about that a little bit later. And we also have a panel later in the Neutron Hacker lounge about like, where is Cosmos going to be looking a year from now? So come check that out to like figure out, okay, now with all this Stardust, where does Cosmos go from here for the next one year? Now I want to step back and focus away from Cosmos for a second and talk about what impact did Terra have on crypto as a whole. So as many of you I'm sure. I got into crypto because of bitcoin. I wanted to build the digital money, right? Turns out bitcoin, it doesn't actually serve that great of a function as digital money. It's really more of like digital gold. And there's a reason the gold standard fell apart. I always show this class, but I really highly recommend it. It's called the Economics of Money and Banking and it's on Coursera for free. I took it originally because I was like, oh, you know, you gotta understand the banks know your enemy to take them down. And I took it and I came out with like, damn. Fiat currency is actually really brilliant, but it has a very interesting property which is like, you know, in any monetary system you're balancing these two things, discipline and elasticity. Discipline is how rigid the monetary supply is, which you don't want. You need discipline in a system. You don't want to enter hyperinflationary systems, but you also need elasticity. What elasticity basically means is money is a market or it's an asset, it has a price. And what happens is as the demand for money changes, you want the price to remain relatively stable. So elasticity is basically how you build it into a market that the supply can be reactive to changes in demand. As the demand for money increases, you want the supply of money to increase. Right. And this is like the fundamental problem with why Bitcoin and eth and all of these things will never be a true medium of exchange unit of account. You're never going to denominate long term debts as in this because it's not stable. Right. And we really do need to build actual stable digital fiat, algorithmic fiat currencies, current digital currencies who have these feedback cycles. And Terra was one of the first that actually tried to build such a mechanism. Was it the best design for a mechanism in retrospect? Obviously, no. But it was one of the, one of the few that was actually innovating and experimenting with this idea of hey, algorithmic supply that reacts to changes in demand. And I remember when the Terra team originally came to our office, the Tendermint office back in 2019 or something, I was skeptical of the stablecoin design. It was like, where's the collateral? But there but do. An interesting point. His point was it doesn't matter as much. Fiat currencies also don't have collateral. Fiat currencies remain stable because they have real economies behind them that are driving real demand. Right? Fiat holds its value because there's a set of real users that, that have this constant demand pressure on it. And this is actually a really good post from back in 2018 where he talked about this. How do you build economies that bootstrap demand? How is that build seniority systems, tax systems within the Terra system that is gonna keep the thing stable. And the thing is they actually started to build this. They had this whole CHAI thing going on. Now obviously in retrospect, it's unclear how real any of that was. But you know, it was at least like, you know, it felt real. That like, oh, the thesis at least seemed to make sense of like, hey, let's build real payment systems. Let's have companies actually using this in their cash flows. And then they also started building these like an entire defi economy around this, right? You have mirror, which was driving a lot of demand for UST being used. You had this ecosystem of defi applications being built on top of Terra and you had UST starting to be used throughout the entire crypto ecosystem exported out of Terra and Cosmos. And things seemed to be working right. There was growth. And then came the scam, the Anchor money machine. The magic money machine. And anytime there's a magic money machine, you should be skeptical. And the problem was you had these insane 20% APYs, which are obviously unsustainable, right? Like there was no actual way for these 20% APYs to be coming from anywhere. Where they were coming from was, you know, inflation of Luna and of the Anchor token and being basically being used to subsidize the project. But what this did was it changed it from organic demand to majority of UST was there for inorganic reasons, right? They weren't actually being used in payments or in actual defi protocols. It was all just sitting there for this yield farming purpose, which is the exact thing that Terra set out to not do. They wanted to build a real economy, not yield farming Ponzi schemes, right? And you know, and you had this like, it just like exacerbated from there, right? You had like abracadabra with their degen box like levering up and you had like Y combinator companies like telling consumers to like put their money into UST and get this like safe 20% yield. A lot of the defi applications on top of Terra shifted from building real products to just basically building anchor vaults. And you also had this like nefarious situation almost where you had something like Mars, which was a real lending product on top of Terra, but it couldn't compete with the 20% yield that was being issued by Anchor, right? And this is like not only now do you have like a lot of inorganic demand coming for Anchor, but you've also started vampiring the all the organic demand for your stablecoin that was actually being built by these real products. And this is like where everything went wrong, right? Because when as soon as things got a little bit shaky, right, this is from the jumps analysis of the dpeg, everyone went running for the door. And so this obviously, right? What are the lessons we learned here? People want to be like, oh, we shouldn't be Building algo stables. Algo stables are fundamentally broken. No, what we really learned was algo stables propped up by Ponzi's don't work. But like no shit, of course not. And that's what's to me so upsetting about the whole thing is that they set out with a hypothesis about an economic experiment they wanted to run and then they got greedy and blew up their own experiment and we didn't learn anything out of it. Right. The whole beauty of crypto is we get to run these crypto economic experiments and see how things work. But I don't know what were the lessons learned here other than this. And it's sad because now everyone's too scared to build to keep innovating on algo stables. But my take is the show must go on. If we don't keep innovating on decentralized money, what is the entire point of this industry? Bitcoin. It was meant to be the peer to peer electronic cash system. Like this whole defi thing is kind of dumb. If we're all just like using centralized stablecoins and might as well be using centralized CBDCs on bank ledgers. We shouldn't let the UST collapse, let us lose sight of the goal, you know, obviously, yes. You know, centralized stablecoins, great. We're going to bring them into Cosmos. You know, USDC is coming to Cosmos, Tether is coming to Cosmos. But like we need to figure out how do we build like stablecoins that aren't reliant on these centralized systems. Right. And there are some experiments that are running right now in throughout crypto that I am excited about. I'm interested in. You know, there is a secret underground group of people out there who are still experimenting with algo stables. They don't like to be known as much because you get laughed out of the room when you tell people you're doing that. But you have things like Spot and beanstalk. I think they have some interesting ideas around debt. I am not advocating for them, I'm just saying I think the experimentation and the research is important. You have projects like doing stuff with partial collateralization. I like what FRAX has done in a way you could think about it. Terra was also moving towards a partial collateralization system. They were trying to build up these LFG reserves but it kind of too little too late. You have projects working with floating rate exchange currencies. I really like the stuff that the RAI team has done. And long term, even in the traditional world, we know pegged currencies. Don't work. You had the infamous bank of England peg break. It's very hard to hard peg currencies which is why today we've moved towards a world of free floating currencies. And if we want to build a digital native fiat currency, we can't expect to be pegged to the dollar. But what we want to do is be stable relative to some notion of value. And the Rye team has, even Terra knew this, right? Their goal people might not remember they didn't start with a USD stablecoin, right? They started with SDR and then to bootstrap the demand, they ended up having to shift towards a US dollar stablecoin. But the point was always to shift away from the US dollar peg towards a more free floating exchange rate. And I think what's happening with Rye is really interesting that you can actually see that despite being a floating rate currency, it's actually more closely followed the US dollar than most other on average, most other like major world currencies. Which is a very, you know, heartening outcome from what's happening with Rye. You also, you know, I also like the stuff that Liquitee is doing with like direct redemptions as a way of like avoiding the need for the PSM and you know, avoiding the PSM style systems that you need in maker and whatnot. So within Cosmos, it's nice that we are actually running a number of stablecoin experiments. We have IST from the Agoric team, they're launching the vaults pretty soon. You have the Comdex, you have USK from the Kojira team, you have Silk. We have all of these stablecoin experiments running right now which I'm excited for one that I want to highlight which is called Membrane. Membrane is a project building on top of Osmosis right now and they take a lot of these ideas from these experiments being done and are building them into one product. So they are using a floating peg similar to Rye. They take this liquidation queue system similar to USK along with a stability pool similar to Liquitee. So you have this multiple tiered system of how liquidations work. By the way, anyone doesn't follow Trix on Twitter? Definitely follow him. Every year I do this analysis of whose tweets did I like the most that year. And I think in 2022 Trix was my number one or number two. So massively underrated account. Follow him. But then direct collateral redemptions, it'll be pluggable into Mars credit accounts. One key that they're really focused on is no centralized stablecoin collateral. We want this thing to be a fully decentralized thing, no psm. And then one of the cool things they've been working on is this idea of asset bundles where it's like a truly multi collateral cdp. So even in things like Makerd multicolateral Daisy, you have multiple CDP vaults, but they're all isolated, right. With the way that membrane is working, you can have multiple collateral types in a single vault. So even if as long as they're uncorrelated assets, they don't have separate liquidation points, you get one liquidation point for all your collateral in a single vault, which is really cool. I'm going to shift gears really quick to talk about Bitcoin for a second. This is, this will feel a little bit off, but like, you know, it'll come back together, I promise. Bitcoin centric Cosmos, right? I, I, I've talked about this for a long time and I've, you know, you may have seen this tweet before. It's like, Cosmos will save Bitcoin. But I think this is still true. But I think there's also an extent to which right now I, if we want to save Bitcoin, will also help save Cosmos today. I think one of the biggest issues within the entire Cosmos ecosystem is a massive and just throughout Crypto other than Ethereum, is a massive lack of capital and liquidity. Right. And a large reason for this is that ETH is this asset, this like moneyness asset that has this giant market cap and through that it's been able to fund this like huge DeFi ecosystem. $27 billion of TVL in the Ethereum defi ecosystem that doesn't even include the L2s meanwhile. But you know, in Cosmos we don't have any asset like ETH that has this level of high store value. But there is an asset out there, Bitcoin, that has a higher market cap and more value than ETH and a fledgling defi ecosystem because you can't build anything on top of it right now. Right. And I think this is like, you know, ETH has, Ethereum has the money and the ecosystem. I think that, you know, my call to action for Cosmos is we need to really lean into Bitcoin. Bitcoin has the money, no ecosystem. Cosmos has an amazing ecosystem, but no like strong base money. And this is where these things can mix. You know, Bitcoin will be the Bitcoin, the blockchain will just be the asset issuance chain. It is an app chain. And then the Bitcoin the asset should flow throughout Cosmos and be the base store value asset for the rest of the ecosystem. And you know, there's been this like resurgence in excitement around bitcoin, obviously driven partially through ordinals. Now you have all these things like BRC20 tokens. And I think UD is doing a great job at saving bitcoin culture right now and making Bitcoin be this fun, exciting thing. And I think there's really an opportunity right now to really push changes in the bitcoin protocol. But now you have all these ordinals and stuff happening and whatnot and this is how they're being traded, literally via spreadsheet. It's like absurd because bitcoin still doesn't have the programmability right now. And so this is why I call on the Cosmos community, I'm working with the Axelar team, the Babylon team, to build all these decentralized bridges to Bitcoin so we can bring bitcoin into the Cosmos and do more things with it. And so we're working on all these decentralized bridges right now. But in the meanwhile to kickstart this process, we've been working very closely with Bitgo to bring native WBTC to Cosmos and so we'll be able to. It'll be their third deployment of WBTC after Ethereum and TRON. But basically WBTC, one of the most trusted assets in the DeFi ecosystem, it's used as collateral in Maker Compound, Aave Everywhere. Right? And by bringing this WBTC, it'll be this initial asset that we can start to use while we wait for the truly decentralized bitcoin bridges to come live. And as part of this we're working with the Membrane team to build bit$, which is going to be a purely bitcoin backed stablecoin. So you know, Terra had the right idea, right? They were collateral, they were building up collateral for UST with bitcoin and I think that was truly the right idea. And what we're going to do is, you know, using the Membrane Multi vault system, we'll be able to support, you know, starting with WBTC as the first collateral type, but start to include the many different bitcoin varieties throughout Cosmos as collateral types, such as, you know, Axelar's bridge nomics wormhole is working with tbtc. So that will come over soon. And eventually we want the end goal of bitcoin bridges as a drive chains and that's probably a while away, but we'll be able to build this. I think it's the first experiment. Let's start this experiment of bringing bitcoin in and issuing a stablecoin using it. I am way over time, so thank you guys. Let's see what we can do with this. Make the best out of this supernova. Thank you.