Crypto AMA with Terra (8.13.19)
Guests:
Do Kwon
Nicholas Platias
Moderator:
Moderator:
👾 Everyone, let’s give a warm welcome to Do Kwon (co-founder) and Nicholas Platias (Head of Research) of Terra!
As a reminder for everyone participating—please keep the discussion respectful and on-topic at all times.
@do @nick —could you start off by giving us a brief bio on your background as well as how you got started in crypto? And then a short overview of Terra and a brief update on your progress to date? We’ll then be off to the races with questions.
Do Kwon:
Hi @spencer thanks for the introduction. I am Do Kwon, and I am a co-founder at Terra. Nick and I are close friends from college (Stanford). Before Terra I was building technologies to connect user devices over Wifi mesh networks to extend last mile internet connectivity, and prior to that i was a NLP engineer at microsoft.
Do Kwon:
I think Nick and I got relatively a similar start in crypto - we were in the same chat room around 2017 with friends reading white papers and looking at projects and got hooked from an academic perspective
Do Kwon:
haha ^^ nick joined kind of late
Nicholas Platias:
Hey guys Nick here — originally from Greece, background in Math and CS at Stanford where I was Do’s roommate. Founded a machine learning startup before getting into crypto. Got interested in stablecoins second half of 2017 and hooked since then!
Moderator:
Haha welcome Nick :)
Do Kwon:
Terra is lots of things at this point, but to give a quick overview: Terra (https://medium.com/hashed-official/our-investment-in-terra-re-building-money-from-the-ground-up-fa8693a022e4) is designing a blockchain-based payment system that is powered by a price-stable cryptocurrency. Terra is working closely with global e-commerce platforms across Asia to drive mass adoption. To date, Terra has 15 genesis partners that drive $50 billion in annual transaction volume. About a month ago, Chai payment app launched on Terra protocol and is seeing strong growth of 667% (https://medium.com/terra-money/july-2019-terra-community-update-55dc93bd1763) in transaction volume with 300k+ signed users (74% women) in two ecommerce platforms
Moderator:
Awesome. Let’s open it up for questions!
Participant:
Hello guys. Couple of questions: Can you please talk about your decision to build on Tendermint and how that has worked out so far. Also, can you please share your thoughts on competing with Libra. Thanks!
Moderator:
I’d like to start my line of question by examining the Terra protocol design.Â
How many and which pegged currencies are live today?
Participant:
Also, can you please explain how the on-chain oracle works and steps you are taking to prevent it from being attacked / manipulated?
Do Kwon:
Hmm. Good question. So while I think there are plenty of consensus algorithms that are scalable and fast, I think Tendermint has established itself as the gold standard in that class that are widely used outside of its flagship project (Cosmos), which we thought was in the true sprit of decentralization and open source software. They also had really good tooling for developers to create blockchains around the mechanism.
Nicholas Platias:
Hey Jonathan -- here are my thoughts on LIbra: I think it's a very ambitious project with a vision largely aligned with ours -- frictionless global payments using a price-stable crypto. They are the only other crypto project we can point to whose ambition to adoption via a large userbase is credible. Other similarities: they plan to peg on an SDR-like basket, and want to eventually transition to a PoS network, which is what Terra did from launch.
Do Kwon:
Today there are 3 stablecoins in existance, each pegged to the KRW, USD, SDR; the goal is to create more stablecoins as our products enter new markets. we forecast Singapore at the end of the year.
Nicholas Platias:
That said, differences are substantial. The two largest: Libra as currently designed as a closed/permissioned system as opposed to Terra. Furthermore, their constraint to be fiat-backed prevents them from returning value to users via growth, which is Terra's key value proposition to users. I think it will be extremely expensive for Libra to acquire a large userbase despite their corporate sponsors.
Participant:
How did you get that growth
Moderator:
Gotcha. From your whitepaper it looks like the SDR is the flagship currency of the family and then the other pegged currencies are accessible via atomic swaps — allowing for shared liquidity. Does this mean that there are separate blockchains for each currency?
Nicholas Platias:
We put together an extensive analysis and comparison hereÂ
Nicholas Platias:
https://medium.com/terra-money/our-review-of-facebooks-libra-1a4f21afd817
Do Kwon:
All the stablecoins share one host blockchain. We just facilitate swaps across stablecoins to give the user sovereignty over the format in which their value should be stored, and ultimately (by integrating widely and making each stablecoin very useable) how it should be spent
Participant:
These are great answers, thanks guys!
Nicholas Platias:
The on-chain oracle has been one of the toughest pieces of mechanism design -- we learned that the hard way. In a nutshell, validators vote on the price of each currency pair registered by the protocol using whatever data source they deem best, usually price feeds from major exchanges. For each currency, the protocol takes a weighted median of votes (weighted by Luna stake) to determine the final result.
Moderator:
As a reminder, I’m going to be dropping in user-submitted questions from our Slido instance (marked by *)Â
* Who runs Chai payments? Is it legal in Korea for Chai to use cryptocurrency to process payments?
Do Kwon:
Great question. So I think most "Crypto payments" schemes did not really do a good job of giving users and merchants incentives to use the payments option over fiat alternatives, and quite frankly had fee structures and UX that was worse over the incumbent methods. We don't think its interesting to be able to buy Starbucks coffee with Terra; we needed to offer fundamental advantages over Visa. This is why in Korea we 1) registered Chai as a PG / e-money operator with fiat offramp relationships with 13 of the top 15 commercial banks to offer seamless Alipay-like user experience so that consumers dont need the friction of buying coins on exchanges, and 2) we developed an on-chain mechanism for allocating some portion of seigniorage to pay for adoption in the form of discounts and rebates on the payment plaform - we think the results speak for themselves
Do Kwon:
Chai is a fully licensed digital payments provider - it has the PG and e-money licenses, and the only blockchian related firm in the country to have attained such licenses. If you think about it, TerraKRW is the only cryptocurrency in Korea usable as a digital point (at least in the perspective of traditional businesses)
Participant:
Can you explain how miner fees work? I read your WP but it’s a bit complex.
Nicholas Platias:
Turns out doing this robustly is very challenging. Some of the key risks: (1) validators vote dishonestly, (2) validators vote honestly but market prices are manipulated, (3) there is substantial divergence between market and oracle prices leading to arbitrage than harms network participants. While (1) has not been a concern given most large validators are investors/early community members with strong incentives to be honest, market manipulation (2) has ocurred in a couple of episodes with the goal of profiting from oracle price moves. We've taken several steps to address this, including using moving averages of mid-market price for the oracle, implementing circuit breakers and charging a spread for on-chain swaps.
Participant:
Hello! Late and this may have been answered but how does terra fit into the overall landscape?Â
Like if Libra is for web 2, Dai for smart contracts and web 3, how can you make your own inroads? Tyvm!
Participant:
Hello Do & Nick! Thank you for the time. Are there any geographies you plan to focus on in the Chai overseas expansion?
Do Kwon:
I've never been able to follow up with the web numbering. Maybe Terra is for Web 365 to follow the Xbox branding
Nicholas Platias:
good question -- the basic principle is straightforward: provide stable rewards using transaction fees, protecting miners/validators from the volatility of economic cycles. Fees adjust to make rewards stable. Furthermore, Luna earned from Terra swaps is occasionally burned to achieve the same.
Do Kwon:
The key markets we are currently focusing on outside of Korea are Singapore and Japan. Singapore ecommerce is very small (perhaps 4 billion overall) but it provides important regulatory signaling for the rest of South East Asia. Also lots of banks operate across SEAsia are headquartered in Singapore, so setting up relationships there can quickly help us expand. Japan is the largest ecommerce market outside of china in asia, and its payments market is just emerging with lots of interesting players coming out
Participant:
Thanks Do!
Moderator:
Are there emergency mechanisms to defend the peg (e.g. reserve assets)?
Moderator:
*John G: Is Terra a cryptocurrency, or just a centralized payment system that marketed crypto? Don’t understand how payments to e-commerce happens without using banks
Nicholas Platias:
Key question! As a second line of defense to Luna, we maitain an off-chain fiat reserve as well as a network of market makers that provide liquidity and support the peg. As the network matures and Luna pricing becomes more efficient we expect more of the stability burden to be shouldered by Luna.
Participant:
Thanks for explaining this. I liked the scenario you guys used to explain the sustainability of rewards under different transaction volume assumptions. Are there any mechanisms in place to help avoid miner centralization?
Do Kwon:
Well, today chai receives fiat from users and settles to the merchant in crypto (or they could elect to OTC to KRW with us). This will change once Terra is more integrated with crypto wallets where users will also have the option of linking their crypto wallets to Chai to pay for goods. Even today there are some excellent advantages of using chai vs credit card PGs. For the merchant, they could pay a fraction of the fees of Visa and get settled almost immediately. This is especailly useful in SMB platform contexts where the end merchant is always starved for working capital
Do Kwon:
And we wouldnt really market crypto if we werent using it. Trust me, in our part of the world that is actually super value destructive and not worth the effort.
Moderator:
How big is the off-chain fiat reserve? Also, where can I monitor the outstanding supply of SDR, KRW, and USD?
Do Kwon:
https://lcd.terra.dev/treasury/issuance/ukrw --> if you divide endpoints like this by 10^6, you can get the issuance for {krw, sdr, usd}. There are some third party block explorers that track issuances
Do Kwon:
Right now we have more than 100% of the value of stablecoins that are in public circulation - we do not disclose the size of the offchain reserve because we dont want our operations to be a principal component in market confidence in the stablecoin. The stability mechanism will prove itself over time!
Nicholas Platias:
Very interesting question. Centralization in dPoS systems can be approached in several ways. The two key stakeholders to consider are validators and delegators. You can think of the relationship as that of a voter and an elected representative -- voter allocates power using their Luna stake, representative votes on their behalf. Key difference vs the political system being that disgruntled voters can instantly move their vote to a different representative, which gives Luna holders significant control over validators. So decentralization is a function of Luna wealth distribution -- how many holders exert influence over validators, as well as validator distribution and variety -- how many options does a Luna holder have for delegating? With regards to the former, Luna holding is relatively centralized, but decentralizing fast as more investors participate and more network participants want to contribute via delegating. With regards to the latter, we have worked hard to incentivize many validators to join by delegating Foundation Luna as widely as possible. This has incentivized 56 validators already and growing fast!
Participant:
Can you explain the mechanism for which new supply is issued?
Nicholas Platias:
Terra/Luna swaps are facilitated on-chain -- when Terra is issued Luna is burned and vice versa. Incenitves are such that when price of Terra > peg Terra is issued to bring the price down (and Luna burned). Conversely, when price of Terra < peg Terra is burned to bring the price up (and Luna issued).
Participant:
Thank you Nick!
Moderator:
If the peg is doing its job, can new supply be issued?
Participant:
Is there any more information you can share about the new DeFi project "Tank" mentioned in the July community update? If not, I understand! 😄
Participant:
Great explanation, thanks!
Do Kwon:
Tank is supposed to be our banking app, and we want to eventually include sophisticated features like paying bills, processing payroll, etc. But in version one it will include the ability toÂ
1) store Terra stablecoins,Â
2) earn interest on deposits by partnering with third part DeFi providers (e.g. Nexo) andÂ
3) allow users to swap stablecoins with one another to hedge fx risk (thinking of adding a fx bot feature to keep swapping currencies for the user)
Participant:
Thank you again!
Do Kwon:
In fact recently with the KRW tanking against the USD we are seeing really interesting demand for stablecoin swaps, really fascinating to see this in practice
Participant:
Were you able to learn/take anything away from the failure of basis?
Participant:
what tools do you plan to offer developers to gain confidence in their smart contracts / dapps?
Do Kwon:
Yeah. Don't name your tokens Shares and Bonds and ask the SEC if thats ok.
Do Kwon:
Hmm. We don't really have a scripting layer as of this time, so all of the apps that use Terra won't be "dApps" in the Ethereum sense of the word. We only launched a few months ago so we are getting feedback and creating tooling as we go along 🙂
Moderator:
🥶
Participant:
Thanks for answering, have some followup clarification: so currently, the fiat on ramp flow seems to be through connecting user bank accounts. That means that the fiat is held in bank accounts, presumably Chai's. Afterward, it seems like based on what you say, Chai buys Terra, then sends the Terra to the ecommerce company. What's the benefit of buying Terra here instead of just doing a bank transfer to the ecommerce company? Seems to make more sense for Chai to just process payments here that doesn't involve any crypto, since you're still using legacy payment ramps for final settlement
Participant:
Do, makes sense. Definitely want to see future platforms give developers the ability to avoid what happened to TheDAO and Parity’s multisig!
Moderator:
*How do they plan to get more ecommerce adoption (beyond the initial personal connections of the founder)?
Participant:
So this is a really good question. The difference here is quite nuanced, but important. If chai sends 1 bank transaction to the ecommerce platform for 1 inbound tx, then it incurs 2 bank transactions and attendant fees. In short, for n purchases the bank tx cost is 2 * n. Chai will support topups (meaning that we will need to incur a bank withdrawal transaction for only a subset of ecommerce purchase transactions) and the settlements will be in crypto, so the bank transactions will be n / m, where m is topup velocity
Nicholas Platias:
The value proposition we offer e-commerce companies and users has been by far the biggest driver of partnerships -- though Daniel's relationships certainly helped open doors : ) Key value prop to the compoany is saving 90%+ of fees that go to Visa. Value prop to users is long-term promotions like discounts, cash back etc funded from growth in Terra money supply (seigniorage). The latter is a systemic advantage that is very hard to replicate by say the next bitcoin fork with lower fees
Do Kwon:
I think the value proposition we offer to ecommerce platforms is solid. Ecommerce in Asia is very cutthroat and fragmented, so platforms are always hungry for working capital, lower fees and faster settlements. We give them those things, so our integration pipeline has been healthy without having to leverage personal networks
Participant:
Well the solution is just to batch the txs right?
Do Kwon:
Right. That comes at the cost of settlement times
Do Kwon:
Theres a reason bank transfers are slow, and its not because they are lazy
Moderator:
Good stuff. 15-minute warning, get your final questions in!
Participant:
Right, but Chai bank account buys TerraKRW, then sends that to ecommerce -- it's still technically not 'settled' or usable until it's converted into KRW, which will still require bank transfers, so my point is that the buying of Terra and eventual OTC conversion seems a bit redundant
Participant:
Maybe I'm missing something huge here, but have worked in payments before and explored some crypto options -- none seemed viable cause of eventual redundancy
Do Kwon:
Hmm. Pretty good point. I have to err on the side of being optimistic and say there will be pretty good reasons to hold KRT in Korea, SGT in Singapore, but perhaps today you are right. D+1 is still pretty fast settlements here (D+7 not unusual), so being able to liquidate on demand from an exchange instead of having to wait several days to be settled seems like a good deal.
Participant:
Btw, it seems like Chai and Terra are run by the same people? Or what is the exact relationship? Wondering why it wasn't called something simple like TerraPayments, since it's mostly processing Terra
Do Kwon:
Well, a couple of reasons. First, Terra Payments is a terrible name for a payments gateway.
Do Kwon:
Chai means "Difference" in Korean, and the slogan we are using is "Difference you can see" (something gets lost in translation here) which is a reference to the unparalleled ux, terms, benefits you get by using Chai
Participant:
Yeah but ecommerce websites probably aren't liquidating themselves... probably done through Chai right? So still need to transfer over the fiat...😜
Do Kwon:
I think this depends on the ecommerce merchant and what category they are in. There are several merchants who are happy to take crypto and not have to be settled in KRW
Participant:
That's quite extraordinary given that e-commerce companies presumably would want ready access to working capital. Kudos for convincing those merchants!
Moderator:
Alright guys time is up!
Moderator:
Do and Nick, thanks for coming on today! What’s the best way for everyone to stay up to date with your progress and get in touch?
Do Kwon:
hey! so you can either reach nick or myself on Telegram if you want to ask us more questions, and we publish monthly community updates on medium: https://medium.com/terra-money/july-2019-terra-community-update-55dc93bd1763 if you would like to stay updated 🙂
Participant:
What’s the incentive of the payee? Say the merchant fees are 2%, how much of the incentive goes to the payer. I read that there can be incentive up to 10% back. Is that funded from the merchant or the conversion between Luna and terra?
Do Kwon:
We have lots of exciting news and integrations coming up, including opening in new markets outside of Korea, so please stay tuned! (Mongolia and Singapore)
Nicholas Platias:
Pleasure guys, thanks for setting up @spencer
Moderator:
Of course. Thanks everyone for tuning in and asking great questions :)