Debate: Will Synthetic Dollars Cause The Next Luna-type Collapse? | DAS London 2025 | Day 1 | Main
Summary
Investment Theme: The debate focused on whether synthetic dollars could cause a collapse similar to the Luna incident, emphasizing the risks associated with tokenized funds and stablecoins.
Definition and Context: A synthetic dollar was defined as a delta neutral strategy that mimics the dollar, raising concerns about their stability and potential systemic risks.
Market Risks: The discussion highlighted the inherent risks of synthetic dollars, including hidden risks, execution risks, and the potential for a false sense of security among retail investors.
Comparison of Luna and Athena: The debate contrasted Luna and Athena, noting that Luna's collapse was due to its reflexive nature and lack of real revenue, whereas Athena operates with a floating rate and bounded capacity.
Market Mechanisms: Athena's mechanisms were discussed, emphasizing its lack of guaranteed yield and its ability to contract supply, which differentiates it from Luna's runaway growth.
Exchange and Liquidity Risks: The role of exchanges and liquidity was debated, with concerns about hard pegging and the importance of considering the entire market for accurate asset pricing.
Key Takeaway: The debate concluded that while synthetic dollars carry risks, the differences in structure and mechanisms between Athena and Luna suggest that Athena is unlikely to cause a similar collapse.
Transcript
Hi everyone. Um, I think for whether it's crypto content or presentations, I feel it's really good if it makes you a better guest at a cocktail party. You have something to hang on to. So, I think this is going to be the best for that. Anything you go to later, you're going to have something hot to say. Um, so it's good we're all here. Um, I'm going to kick off this debate. I think we have Okay. Well, our topic is, are synthetic dollars going to cause the next Luna style crash? I have here Jordy, who's the founder of Seleni, or I should say in white and straight from a lot of experience from high school debating club, we have Jordy. Um, and in gray vest, we have Hib from Dragonfly. Also, maybe not debating club, but but many stages since. That's right. The Upstart. That's right. The upstart. Yeah. No pressure, Jordy. Yeah. Um, I think the first kind of the way to tackle this, we need a a definition, right? What do we mean by synthetic dollar? I think it's best for for the lads over here to do that job. So, Jordy, we're going to kick off with you. Yeah, we've kind of agreed a definition because it's very important to have the right words exactly used in this context. And the definition we've settled at is uh a synthetic dollar is um a delta neutral strategy that is uh in essence like rebasing as a dollar. Um yep. So that's going to be and um in terms of format uh each of the debaters is going to have four minutes to lay out their initial case. They're then going to have three minutes to contest the other and then we're going to have two minutes each for closing arguments. So, how are you all going to vote on who the winner is? Well, it's going to be a victory by clapping. So, kind of loosen up, get ready in those in that final countdown. Um, and we'll see who's prevailed. Okay, Jordy, we're going to kick off with you on my watch. Let's go. All right. You're going to stand up for We got a We have a lect turn. We have a left turn. Oh, we have a thing going on. Okay. All right. I'm going to still walk around. Hi, everybody. Walking is okay. Just no uh no tears and no getting in the face of your opponent. Keep it Let's keep it civil. We'll keep it civil, but animated. Guys, we've had quite a last 72 hours and I think the message that you know, we were going to do this debate anyway, but once this happened, it's pretty clear that what can go wrong will go wrong eventually. That risk that, you know, you think is a tail risk eventually comes and bites you. And we're not going to be talking today about, you know, Etheina or like a specific stable coin. We're talking about this general concept of taking what is something I love, you know, tokenized funds. I mean, a lot of you guys here probably like me love the idea of tokenizing a fund, putting it on chain. Everybody has access, you know, the returns can be transparent. That's amazing. And stable coins, I love stable coins. They give you yield. Even better, you know, like some treasury yield. Get to get something while it's sitting there. Love those two things. If you try to put them together, that's when things go very wrong. So why is the risk of a Luna style collapse? You know, me and Hib were thankfully both, you know, on the right side of that, you know, publicly kind of, you know, being quite careful about Luna. Just because Dwan was trying to bully everybody on Twitter and tell them that one US equals 1 USD did not make it. So you can be incredible at your BD and your Twitter and it doesn't matter. you know, at some point math catches up to you. And now again, I'm not saying that a lot of these strategies are Ponzi like Luna was. I mean, Luna in essence was just this money printing machine that made no sense and just created a large hole. You know, a lot of these products are good products. I mean, we saw uh you know, over the weekend they kind of didn't lose money. They uh they had foresight, you know, very good teams, ADL protection in place. But the reality is that eventually there's no free lunch. If there is any yield over the treasury yield that these tokenized delta neutral strategies can take that will get taken away by the market very quickly and instead what will happen is two things. One is people will go on down the risk curve. They'll be taking hidden risk. That risk will be passed on to the you know the entire crypto ecosystem at some point but that risk is there and as we've seen a couple days ago it will manifest in the right or in the in the in the bad time. So, uh, more risk for more yield is inevitable in my view. Um, number two is treating these things as dollars when they're not dollars. It gives the aura of safety and a lot of retail just assume that all stable coins, anything that looks like a dollar is a dollar. We've seen time and time again how this goes wrong. The problem with the scale of these things now as uh as they get bigger and bigger is that you know we're seeing things like uh hard coding like a they've hardcoded the one USDE equals 1 USDC. This is hardcoded in the system. Now it might look like a good thing. We just had a big collapse and nobody got liquidated on that trade. People were looping it up. Great. It's hardcoded. While on Binance where it wasn't hardcoded, you know, things went crazy. We had a huge collapse, all kinds of problems. Now, it's not that one of those two things is better than the other. They're both a problem. Either you go the route of treating the collateral as whatever the public market thinks it is. So, you don't hardcode it. You just say, "Okay, it's 95 cents, now it's 93 cents, and then people get liquidated as it moves around," which is what happened over the weekend. Or, you know, you might say, "This is better." you hardcode it on a and you kind of get through these little shocks, you know, you're kind of you're kind of surviving those and then you know as this thing gets big enough when something does go wrong and there are things that can go wrong as we'll discuss later the whole system goes down it's not just the people holding the you know the USD it's like all of a it's like the entire thing so this is a huge risk and I feel like we're on the on the uh slippery slope where if this continues and we treat funds as synthetic dollars, we will have a Luna style collapse. Perfect time. Okay. So, um it's funny because uh Jordy started with the phrase what can go wrong will go wrong, which is which sounds good, but it's it's obviously because there were a lot of things that could go wrong that did not go wrong. And saying what can go wrong will will go wrong invites you to not think carefully enough about the micro structure of what actually will go wrong and why will it go wrong. Right? He also said we're not going to talk about Athena. Then proceed to talk about Athena. All right. Obviously We know what this debate is about. This debate is about Athena. Okay. So first disclosure, we're investors in Athena. We also passed on every round of Luna. In fact, I published my 2018 pass memo where I wrote that Luna would fail when I passed on the seed round. Okay. Now it did fail. Um now Luna is very different. It's extremely different. In fact, it's irresponsible to compare something like Luna to Athena. Okay, let me explain why. First, Luna is reflexive. Why is Luna reflexive? It means that the the collateral within Luna was indogenous. It was its own shitcoin. That means that when Luna is going down, the collateral gets worse and worse and worse in its value. Athena does not work that way, right? The value of Athena is that what's backing it is delta neutral, meaning that it doesn't matter if Bitcoin is going up or down. In principle, the the the collateral should not be tied to the value of ENA or of US. So that's the first thing. There's no reflexive loop. Second, it has real revenue. Luna had no revenue. Luna was basically printing its own equity and using that to backs stop its own token supply. Um, third is that Luna guaranteed a yield. Okay, this is the core sin behind Luna was Ankor. Anker was a lending protocol that guaranteed 20% yield if you minted US. Okay, Athena does not give you a guarantee of yield. That's very important to understand how Athena works. When the yield on Athena goes down, the yield goes down. That's it. It's a it's a it's not a fixed rate. It's a floating rate. So there are times when Athena has yielded less than the the treasury rate. Now Athena now has moved to a model where if the yield goes down enough, they just move into T- bills and they try to create a relative floor of the treasury the treasury rate, but it means that there is no guarantee on Athena. Athena is a floating rate, which is what a normal market mechanism is supposed to look like. Uh and then lastly, Athena had runaway growth. Sorry, Luna. Luna had runaway growth, meaning that it just kept getting bigger and bigger and bigger and there was no way to compress the supply of Luna. Once it became really big, there's no way to to bring it back. Okay, Athena works the opposite way. Athena supply contracted and Athena supply can contract because Athena is bounded by the open interest available in the crypto market. Okay, so when it saturates the open interest, it doesn't get bigger. It can't get bigger. So Athena has a bounded size of the trade, has a bounded capacity. And the natural way in which that bound gets enforced is because the yield goes down. Because the bigger you get, the more the less yield there is. And when the yield goes down, people don't want to be in Athena. And it naturally equilibriates. All these market mechanisms are natural ways that you want a a mechanism like this to work. Okay. One minute. One minute. Okay. Basis trades are very robust across cycles. Uh the these are these are things that are very well understood. They're not exotic financial products like Luna was. And uh notably, I think as as Jordy was alluding to, Athena did not dep. There's a story out there that Athena de Pegged over the weekend. Not correct. Athena suffered a flash crash on Binance, but if you look on Curve, which is the most liquid venue for Athena, uh it never went below 99.7, right? And if you look on Binance, or sorry, on Bybit, which is the second most uh traded venue, it went to 95 cents for about 5 minutes and then repegged. Um so the the answer is what happened on Binance was a Binance specific problem. That's why Binance is reimbursing people who lost money in the USD market over the weekend. No other exchanges are doing that. Lastly, there are controls that exchanges have on USD. They've applied collateral haircuts. They have uh preventions on on auto deleveraging. All these are very important for an exchange that's incorporating USD. These risks, they understand them. People are not stupid. That and so the big lesson that I want to take away is that the last crash is never how the next crash happens. It's very easy to scaremonger and say, "Oh my god, d the same thing happened with the banking crisis." The banking crisis was not the same thing as what happened in the great financial crisis. It was different. The risks are always different. Everybody's always looking at the last thing that went wrong. And if you are fixated on the last thing that went wrong, you're going to miss the next thing that goes wrong. Time. That's all I got for now. Thank you. [Applause] Three minutes. All right. My opponent is trying to uh tell you that Luna and Athena are different. Again, these things are completely irrelevant. I agree Luna had, you know, its own set of problems and I'm not seeing Athena at this size right now is a systemic risk. The point which my opponent has completely avoided is the fact that things are going in a slippery slope direction where, you know, he just mentioned, oh, it didn't depend peeg. Binance just had this little waffle thing. You know, it's their fault. But everything's fine. What Binance should do is hard peg it as well to one. And then, you know, when the next Athena comes that has higher yield because they're, you know, they're they're boosting their strategies, let's just hard peg that as well to one because, you know, it's fine. Like this is this is just how it works. I think this thinking is not first principles. Uh you have to take things to their natural conclusion to like see where things go. So yes, I'm not saying that tomorrow Ethema will cause the collapse of the crypto system, but these synthetic dollars are tokenized funds. Basis trades, my opponent will have you believe, are these things that have been done since the caveman years. They've always been safe. Basis trades are, you know, part and parcel of the crypto industry. I know a lot of basis funds that got their their ass handed to them a couple days ago. It's very unfortunate. A lot of them are my friends. Unfortunately, they did not have the ADL protections that you know Ahina had backdoored. But now that those things are public, those kind of protections are not going to be given out easily and I think they will be taken back. There is ADL risk. There is exchange risk as you are putting tokens on multiple exchanges to chase the open interest. We've seen exchanges go down several times. We've seen FTX go down. We've we've had, you know, Qui, all kinds of exchanges have huge uh issues. So the amount of risks that are being taken, one are not small. Two, even just two days ago, most funds running basis trades had issues. The execution risk of unwinding these trades and somehow just putting it into treasuries are also, you know, very large. And I'll just leave you with this one important thing. Once you rebase these funds and just create more tokens because they made 5% yield, let's give 5% more tokens. You can't put the genie back in the bottle. You can't un un unrebase. There is no word for that. I'm just making it up because it doesn't exist. You can't take away people's dollars that you printed and just put them back. It it doesn't even exist. The concept of pegging or dep pegging doesn't make sense because yes, Athena does not guarantee a yield. It's not telling you it's 20%. But it is telling you that it is above zero. And no one can run a trade forever that has risk in it with above zero. So good luck putting that junior back in. All right. So um once again Jordy opened by saying the difference between Luna and Athena is irrelevant which is a weird statement given that that is literally the subject of the debate. So he he immediately claimed that uh this leads in the direction of a slippery slope. For those of you who remember your uh high school English slippery slope is literally a definition of a logical fallacy. Okay. A slippery slope invites you to think what if what if an infinitely long series of steps were to all happen. Okay, if you're in a market, you cannot think that way. You have to think probabilistically, which is what is the likelihood that each of these things individually will happen and you multiply all those probabilities together saying everything what if everything possibly went wrong. Then yes, of course, Athena would go very badly. Everything in this industry would go very badly. But we actually got to see the real experiment run on Friday. We got to see it, right? The worst deleveraging event in crypto history. biggest day of liquidations and here we are Athena is completely fine. Okay, so the plan was like oh well you know A is cheating a hard pegged their their oracle to one and are you saying Binance should do that that we should all just be hard pegging our oracles to one? No, that is absolutely not what I'm saying and that's not even what guy was saying. So in fact if you look at the other exchanges the other exchanges even though Athena temporarily dipped they did not liquidate. They did not liquidate. Why did they not liquidate? The answer was because they knew that their exchange was not the primary venue for Athena. They were looking at all the other venues including the liquidity on chain which is the correct way to understand the price of an asset. If you are having a bank run on your exchange because your exchange like in the case of Binance is does not have the ability for people to come in and out of it then of course you're going to have price dislocations but you should not be liquidating just because your order book doesn't have the liquidity but that liquidity is somewhere else. Okay, that is why the the answer is not hard peg it to one. The answer is take into account what's going on in the entire market. If in the entire market Athena is deep pegging then of course you should be liquidating right but you your your index design or your oracle design should look at the entire holistic view of the market. That was the problem with Binance. So um so the question is the question he was posing is look is this stuff safe? All right safe is always a relative question. Anytime that you're generating yield above the the risk-free rate you're taking risk. That's why it's called the risk-free rate. No question about that. So what is the risk in Athena? Right. The risk one of course it's a floating rate the rates might go up and down. Um second is that you are not taking counterparty risk in the form of the exchange can steal your money. He was funny oh exchanges have gone down exchanges have collapsed. The whole point of Athena was that it was created after FTX collapsed. Why is that important? It's important because only after FTX collapsed was off exchange custody integrated by every single major exchange. 30 second word. Off exchange custody I'm sorry 30 second. 30 seconds. Uh off exchange custody did not exist before the collapse of FTX. That was a prerequisite for Athena to exist in a way that is transparent and safe that doesn't have that degree of counterparty risk. Now, there's still unrealized P&L risk. If an exchange goes down, your unrealized P&L potentially gets wiped out. But that that risk is much less than, oh, what if an exchange goes down, then all your money is gone. Uh, that is not correct. So, all that is to say, and the last point he made, you can't unrease. Yes, you can. Is that there's a there's a reserve fund within Athena. And what happens when all of that money comes out? The answer is that it trades below a dollar. Anything that takes risk has the risk of trading below a dollar. The important thing is that you understand that risk. Thank you. Okay, I see we're close to to standing room only in here. So, packed house that's getting ready to clap. Um, closing arguments, two minutes each. Let's go. Closing arguments, guys. You know, those of us who were here last cycle, the Luna collapse caused a two-year bare market. I don't want this to happen again. Again, my opponent will have you believe that running a basis trade is not like running a hedge fund strategy. It is somehow part and parcel of the crypto industry. This is completely false. We've seen these things lose money over and over again. Even the best managers lose money. And I will remind you that Luna degged once and Jump, you know, this is public now. There have been lawsuits. They repe it for them. And when they first deped, it wasn't that large. It was maybe like it cost a billion dollars. jump came in put the billion dollars cashed out second time maybe the hole was like 1020 billion dollars that was a huge problem caused the catalyst of 3AC and you know FTX everything that happened my opponent will tell you that you know this thing just happened it was just like a little $50 million thing so it's fine and actually this has proved a system this is making us less anti-fragile because he's saying that the fact that you know we patched it up when it was small this in my opinion is completely wrong the risk only gets bigger the next time because you have a feeling of safety. These synthetic dollars give you a feeling of safety because they look like they're dollars. They are not. It is a fake feeling of safety. They should just accumulate like any other fund instead of rebasing which assumes there's zero risk. That is a huge problem. The only thing that could you know allow these things to properly function is if you know the perpetual pairs were denominated in that coin. So, instead of USDT pairs, and I'm sure Paulo will, you know, roll in his grave before he allows this to happen, but if you took the Binance USDT pair and made it a USD pair, then no risk. We're all just trading like little, you know, we're we're all trying to accumulate more of these like tokenized hedge fund coins, and that's fine. And I'm actually like in favor of that. Let's do that. You know, we can we can trade USD pairs, but as long as the collateral is different than the base pair and the collateral has risk, we are just walking ourselves into disaster. So look, I started this argument destroying the comparison between Athena and Luna for a very important reason is that if you don't understand the difference between them, then that disqualifies you from being able to argue by analogy to Luna. Luna was completely different. Luna was a confidence game. Luna was okay, Jump has to come in and save the peg, otherwise this thing is going to collapse. Okay, Athena does not work that way. Nobody came in to save Athena. Nobody came in to say, oh my god, it's trading at 60 cents. I got to come in and save it because I'm an investor in Athena. There was no there were no phone calls. There was no 11th hour, you know, uh, war rooms or anything like that. The thing fixed itself because it is a different mechanism. It doesn't work the same way. And if you compare it by just saying, oh, well, these two things are are not US dollar back stable coins, therefore they're the same thing. Then you fail to understand the difference in microructure. That is going to be the mistake. Not saying that, oh, well, you know, this thing that's uh not a US dollar back stable coin, therefore is is fundamentally insecure. Um look at the end of the day you made a you made a point that's absolutely correct. A lot of people are taking on a lot of leverage. Uh a lot of that leverage of course got wiped out on Friday but there there will continue to be people taking on leverage but the people who will get wiped out from that will be the people who take on the leverage. That's normal. That will happen in every market. Doesn't matter what asset you put in front of them. There will people who who take a lot of risk and some of that risk will be attractive. Some of it will be foolish and those people will get wiped out. But Athena itself as a mechanism, as a protocol, as a token itself is fine. That's not to say that it's riskless. There is nothing riskless that pays above the risk-free rate. That's not the burden of proof I have to I have to meet here. The burden of proof is is this going to lead to the next Luna style collapse. That is the proposition. Is there anything over the last 20 minutes that has convinced you that Athena is going to lead to the next Luna style collapse? Thank you. Okay. So, because they both deserve it and because I think we do have to get warm on the clapping, um, I want you to give both of them a round of applause and I'll come in the middle like a heavyweight. Okay. Okay. Number one, the Should we do We'll do one each. Yeah, do one each. One each. All right. For Hib. All right. Okay. Okay, I think I've got it. And now for Jordy. Um, call. Oh, it's my I think I need one more. I'm sorry. I need you guys to either double down or or flip-flop. So, this is like every vote every vote in the world right now. I need something extreme. Yeah. No wooing. Only no wooing. Hiber clapping. Okay, Jordy sure clapping. I think he got it. Oh, that's cheating. That's cheating. This guy. Um, I still think he got it. All right, our winner. Well done. Thank you guys. Thank you. Thank you everyone.
Debate: Will Synthetic Dollars Cause The Next Luna-type Collapse? | DAS London 2025 | Day 1 | Main
Summary
Transcript
Hi everyone. Um, I think for whether it's crypto content or presentations, I feel it's really good if it makes you a better guest at a cocktail party. You have something to hang on to. So, I think this is going to be the best for that. Anything you go to later, you're going to have something hot to say. Um, so it's good we're all here. Um, I'm going to kick off this debate. I think we have Okay. Well, our topic is, are synthetic dollars going to cause the next Luna style crash? I have here Jordy, who's the founder of Seleni, or I should say in white and straight from a lot of experience from high school debating club, we have Jordy. Um, and in gray vest, we have Hib from Dragonfly. Also, maybe not debating club, but but many stages since. That's right. The Upstart. That's right. The upstart. Yeah. No pressure, Jordy. Yeah. Um, I think the first kind of the way to tackle this, we need a a definition, right? What do we mean by synthetic dollar? I think it's best for for the lads over here to do that job. So, Jordy, we're going to kick off with you. Yeah, we've kind of agreed a definition because it's very important to have the right words exactly used in this context. And the definition we've settled at is uh a synthetic dollar is um a delta neutral strategy that is uh in essence like rebasing as a dollar. Um yep. So that's going to be and um in terms of format uh each of the debaters is going to have four minutes to lay out their initial case. They're then going to have three minutes to contest the other and then we're going to have two minutes each for closing arguments. So, how are you all going to vote on who the winner is? Well, it's going to be a victory by clapping. So, kind of loosen up, get ready in those in that final countdown. Um, and we'll see who's prevailed. Okay, Jordy, we're going to kick off with you on my watch. Let's go. All right. You're going to stand up for We got a We have a lect turn. We have a left turn. Oh, we have a thing going on. Okay. All right. I'm going to still walk around. Hi, everybody. Walking is okay. Just no uh no tears and no getting in the face of your opponent. Keep it Let's keep it civil. We'll keep it civil, but animated. Guys, we've had quite a last 72 hours and I think the message that you know, we were going to do this debate anyway, but once this happened, it's pretty clear that what can go wrong will go wrong eventually. That risk that, you know, you think is a tail risk eventually comes and bites you. And we're not going to be talking today about, you know, Etheina or like a specific stable coin. We're talking about this general concept of taking what is something I love, you know, tokenized funds. I mean, a lot of you guys here probably like me love the idea of tokenizing a fund, putting it on chain. Everybody has access, you know, the returns can be transparent. That's amazing. And stable coins, I love stable coins. They give you yield. Even better, you know, like some treasury yield. Get to get something while it's sitting there. Love those two things. If you try to put them together, that's when things go very wrong. So why is the risk of a Luna style collapse? You know, me and Hib were thankfully both, you know, on the right side of that, you know, publicly kind of, you know, being quite careful about Luna. Just because Dwan was trying to bully everybody on Twitter and tell them that one US equals 1 USD did not make it. So you can be incredible at your BD and your Twitter and it doesn't matter. you know, at some point math catches up to you. And now again, I'm not saying that a lot of these strategies are Ponzi like Luna was. I mean, Luna in essence was just this money printing machine that made no sense and just created a large hole. You know, a lot of these products are good products. I mean, we saw uh you know, over the weekend they kind of didn't lose money. They uh they had foresight, you know, very good teams, ADL protection in place. But the reality is that eventually there's no free lunch. If there is any yield over the treasury yield that these tokenized delta neutral strategies can take that will get taken away by the market very quickly and instead what will happen is two things. One is people will go on down the risk curve. They'll be taking hidden risk. That risk will be passed on to the you know the entire crypto ecosystem at some point but that risk is there and as we've seen a couple days ago it will manifest in the right or in the in the in the bad time. So, uh, more risk for more yield is inevitable in my view. Um, number two is treating these things as dollars when they're not dollars. It gives the aura of safety and a lot of retail just assume that all stable coins, anything that looks like a dollar is a dollar. We've seen time and time again how this goes wrong. The problem with the scale of these things now as uh as they get bigger and bigger is that you know we're seeing things like uh hard coding like a they've hardcoded the one USDE equals 1 USDC. This is hardcoded in the system. Now it might look like a good thing. We just had a big collapse and nobody got liquidated on that trade. People were looping it up. Great. It's hardcoded. While on Binance where it wasn't hardcoded, you know, things went crazy. We had a huge collapse, all kinds of problems. Now, it's not that one of those two things is better than the other. They're both a problem. Either you go the route of treating the collateral as whatever the public market thinks it is. So, you don't hardcode it. You just say, "Okay, it's 95 cents, now it's 93 cents, and then people get liquidated as it moves around," which is what happened over the weekend. Or, you know, you might say, "This is better." you hardcode it on a and you kind of get through these little shocks, you know, you're kind of you're kind of surviving those and then you know as this thing gets big enough when something does go wrong and there are things that can go wrong as we'll discuss later the whole system goes down it's not just the people holding the you know the USD it's like all of a it's like the entire thing so this is a huge risk and I feel like we're on the on the uh slippery slope where if this continues and we treat funds as synthetic dollars, we will have a Luna style collapse. Perfect time. Okay. So, um it's funny because uh Jordy started with the phrase what can go wrong will go wrong, which is which sounds good, but it's it's obviously because there were a lot of things that could go wrong that did not go wrong. And saying what can go wrong will will go wrong invites you to not think carefully enough about the micro structure of what actually will go wrong and why will it go wrong. Right? He also said we're not going to talk about Athena. Then proceed to talk about Athena. All right. Obviously We know what this debate is about. This debate is about Athena. Okay. So first disclosure, we're investors in Athena. We also passed on every round of Luna. In fact, I published my 2018 pass memo where I wrote that Luna would fail when I passed on the seed round. Okay. Now it did fail. Um now Luna is very different. It's extremely different. In fact, it's irresponsible to compare something like Luna to Athena. Okay, let me explain why. First, Luna is reflexive. Why is Luna reflexive? It means that the the collateral within Luna was indogenous. It was its own shitcoin. That means that when Luna is going down, the collateral gets worse and worse and worse in its value. Athena does not work that way, right? The value of Athena is that what's backing it is delta neutral, meaning that it doesn't matter if Bitcoin is going up or down. In principle, the the the collateral should not be tied to the value of ENA or of US. So that's the first thing. There's no reflexive loop. Second, it has real revenue. Luna had no revenue. Luna was basically printing its own equity and using that to backs stop its own token supply. Um, third is that Luna guaranteed a yield. Okay, this is the core sin behind Luna was Ankor. Anker was a lending protocol that guaranteed 20% yield if you minted US. Okay, Athena does not give you a guarantee of yield. That's very important to understand how Athena works. When the yield on Athena goes down, the yield goes down. That's it. It's a it's a it's not a fixed rate. It's a floating rate. So there are times when Athena has yielded less than the the treasury rate. Now Athena now has moved to a model where if the yield goes down enough, they just move into T- bills and they try to create a relative floor of the treasury the treasury rate, but it means that there is no guarantee on Athena. Athena is a floating rate, which is what a normal market mechanism is supposed to look like. Uh and then lastly, Athena had runaway growth. Sorry, Luna. Luna had runaway growth, meaning that it just kept getting bigger and bigger and bigger and there was no way to compress the supply of Luna. Once it became really big, there's no way to to bring it back. Okay, Athena works the opposite way. Athena supply contracted and Athena supply can contract because Athena is bounded by the open interest available in the crypto market. Okay, so when it saturates the open interest, it doesn't get bigger. It can't get bigger. So Athena has a bounded size of the trade, has a bounded capacity. And the natural way in which that bound gets enforced is because the yield goes down. Because the bigger you get, the more the less yield there is. And when the yield goes down, people don't want to be in Athena. And it naturally equilibriates. All these market mechanisms are natural ways that you want a a mechanism like this to work. Okay. One minute. One minute. Okay. Basis trades are very robust across cycles. Uh the these are these are things that are very well understood. They're not exotic financial products like Luna was. And uh notably, I think as as Jordy was alluding to, Athena did not dep. There's a story out there that Athena de Pegged over the weekend. Not correct. Athena suffered a flash crash on Binance, but if you look on Curve, which is the most liquid venue for Athena, uh it never went below 99.7, right? And if you look on Binance, or sorry, on Bybit, which is the second most uh traded venue, it went to 95 cents for about 5 minutes and then repegged. Um so the the answer is what happened on Binance was a Binance specific problem. That's why Binance is reimbursing people who lost money in the USD market over the weekend. No other exchanges are doing that. Lastly, there are controls that exchanges have on USD. They've applied collateral haircuts. They have uh preventions on on auto deleveraging. All these are very important for an exchange that's incorporating USD. These risks, they understand them. People are not stupid. That and so the big lesson that I want to take away is that the last crash is never how the next crash happens. It's very easy to scaremonger and say, "Oh my god, d the same thing happened with the banking crisis." The banking crisis was not the same thing as what happened in the great financial crisis. It was different. The risks are always different. Everybody's always looking at the last thing that went wrong. And if you are fixated on the last thing that went wrong, you're going to miss the next thing that goes wrong. Time. That's all I got for now. Thank you. [Applause] Three minutes. All right. My opponent is trying to uh tell you that Luna and Athena are different. Again, these things are completely irrelevant. I agree Luna had, you know, its own set of problems and I'm not seeing Athena at this size right now is a systemic risk. The point which my opponent has completely avoided is the fact that things are going in a slippery slope direction where, you know, he just mentioned, oh, it didn't depend peeg. Binance just had this little waffle thing. You know, it's their fault. But everything's fine. What Binance should do is hard peg it as well to one. And then, you know, when the next Athena comes that has higher yield because they're, you know, they're they're boosting their strategies, let's just hard peg that as well to one because, you know, it's fine. Like this is this is just how it works. I think this thinking is not first principles. Uh you have to take things to their natural conclusion to like see where things go. So yes, I'm not saying that tomorrow Ethema will cause the collapse of the crypto system, but these synthetic dollars are tokenized funds. Basis trades, my opponent will have you believe, are these things that have been done since the caveman years. They've always been safe. Basis trades are, you know, part and parcel of the crypto industry. I know a lot of basis funds that got their their ass handed to them a couple days ago. It's very unfortunate. A lot of them are my friends. Unfortunately, they did not have the ADL protections that you know Ahina had backdoored. But now that those things are public, those kind of protections are not going to be given out easily and I think they will be taken back. There is ADL risk. There is exchange risk as you are putting tokens on multiple exchanges to chase the open interest. We've seen exchanges go down several times. We've seen FTX go down. We've we've had, you know, Qui, all kinds of exchanges have huge uh issues. So the amount of risks that are being taken, one are not small. Two, even just two days ago, most funds running basis trades had issues. The execution risk of unwinding these trades and somehow just putting it into treasuries are also, you know, very large. And I'll just leave you with this one important thing. Once you rebase these funds and just create more tokens because they made 5% yield, let's give 5% more tokens. You can't put the genie back in the bottle. You can't un un unrebase. There is no word for that. I'm just making it up because it doesn't exist. You can't take away people's dollars that you printed and just put them back. It it doesn't even exist. The concept of pegging or dep pegging doesn't make sense because yes, Athena does not guarantee a yield. It's not telling you it's 20%. But it is telling you that it is above zero. And no one can run a trade forever that has risk in it with above zero. So good luck putting that junior back in. All right. So um once again Jordy opened by saying the difference between Luna and Athena is irrelevant which is a weird statement given that that is literally the subject of the debate. So he he immediately claimed that uh this leads in the direction of a slippery slope. For those of you who remember your uh high school English slippery slope is literally a definition of a logical fallacy. Okay. A slippery slope invites you to think what if what if an infinitely long series of steps were to all happen. Okay, if you're in a market, you cannot think that way. You have to think probabilistically, which is what is the likelihood that each of these things individually will happen and you multiply all those probabilities together saying everything what if everything possibly went wrong. Then yes, of course, Athena would go very badly. Everything in this industry would go very badly. But we actually got to see the real experiment run on Friday. We got to see it, right? The worst deleveraging event in crypto history. biggest day of liquidations and here we are Athena is completely fine. Okay, so the plan was like oh well you know A is cheating a hard pegged their their oracle to one and are you saying Binance should do that that we should all just be hard pegging our oracles to one? No, that is absolutely not what I'm saying and that's not even what guy was saying. So in fact if you look at the other exchanges the other exchanges even though Athena temporarily dipped they did not liquidate. They did not liquidate. Why did they not liquidate? The answer was because they knew that their exchange was not the primary venue for Athena. They were looking at all the other venues including the liquidity on chain which is the correct way to understand the price of an asset. If you are having a bank run on your exchange because your exchange like in the case of Binance is does not have the ability for people to come in and out of it then of course you're going to have price dislocations but you should not be liquidating just because your order book doesn't have the liquidity but that liquidity is somewhere else. Okay, that is why the the answer is not hard peg it to one. The answer is take into account what's going on in the entire market. If in the entire market Athena is deep pegging then of course you should be liquidating right but you your your index design or your oracle design should look at the entire holistic view of the market. That was the problem with Binance. So um so the question is the question he was posing is look is this stuff safe? All right safe is always a relative question. Anytime that you're generating yield above the the risk-free rate you're taking risk. That's why it's called the risk-free rate. No question about that. So what is the risk in Athena? Right. The risk one of course it's a floating rate the rates might go up and down. Um second is that you are not taking counterparty risk in the form of the exchange can steal your money. He was funny oh exchanges have gone down exchanges have collapsed. The whole point of Athena was that it was created after FTX collapsed. Why is that important? It's important because only after FTX collapsed was off exchange custody integrated by every single major exchange. 30 second word. Off exchange custody I'm sorry 30 second. 30 seconds. Uh off exchange custody did not exist before the collapse of FTX. That was a prerequisite for Athena to exist in a way that is transparent and safe that doesn't have that degree of counterparty risk. Now, there's still unrealized P&L risk. If an exchange goes down, your unrealized P&L potentially gets wiped out. But that that risk is much less than, oh, what if an exchange goes down, then all your money is gone. Uh, that is not correct. So, all that is to say, and the last point he made, you can't unrease. Yes, you can. Is that there's a there's a reserve fund within Athena. And what happens when all of that money comes out? The answer is that it trades below a dollar. Anything that takes risk has the risk of trading below a dollar. The important thing is that you understand that risk. Thank you. Okay, I see we're close to to standing room only in here. So, packed house that's getting ready to clap. Um, closing arguments, two minutes each. Let's go. Closing arguments, guys. You know, those of us who were here last cycle, the Luna collapse caused a two-year bare market. I don't want this to happen again. Again, my opponent will have you believe that running a basis trade is not like running a hedge fund strategy. It is somehow part and parcel of the crypto industry. This is completely false. We've seen these things lose money over and over again. Even the best managers lose money. And I will remind you that Luna degged once and Jump, you know, this is public now. There have been lawsuits. They repe it for them. And when they first deped, it wasn't that large. It was maybe like it cost a billion dollars. jump came in put the billion dollars cashed out second time maybe the hole was like 1020 billion dollars that was a huge problem caused the catalyst of 3AC and you know FTX everything that happened my opponent will tell you that you know this thing just happened it was just like a little $50 million thing so it's fine and actually this has proved a system this is making us less anti-fragile because he's saying that the fact that you know we patched it up when it was small this in my opinion is completely wrong the risk only gets bigger the next time because you have a feeling of safety. These synthetic dollars give you a feeling of safety because they look like they're dollars. They are not. It is a fake feeling of safety. They should just accumulate like any other fund instead of rebasing which assumes there's zero risk. That is a huge problem. The only thing that could you know allow these things to properly function is if you know the perpetual pairs were denominated in that coin. So, instead of USDT pairs, and I'm sure Paulo will, you know, roll in his grave before he allows this to happen, but if you took the Binance USDT pair and made it a USD pair, then no risk. We're all just trading like little, you know, we're we're all trying to accumulate more of these like tokenized hedge fund coins, and that's fine. And I'm actually like in favor of that. Let's do that. You know, we can we can trade USD pairs, but as long as the collateral is different than the base pair and the collateral has risk, we are just walking ourselves into disaster. So look, I started this argument destroying the comparison between Athena and Luna for a very important reason is that if you don't understand the difference between them, then that disqualifies you from being able to argue by analogy to Luna. Luna was completely different. Luna was a confidence game. Luna was okay, Jump has to come in and save the peg, otherwise this thing is going to collapse. Okay, Athena does not work that way. Nobody came in to save Athena. Nobody came in to say, oh my god, it's trading at 60 cents. I got to come in and save it because I'm an investor in Athena. There was no there were no phone calls. There was no 11th hour, you know, uh, war rooms or anything like that. The thing fixed itself because it is a different mechanism. It doesn't work the same way. And if you compare it by just saying, oh, well, these two things are are not US dollar back stable coins, therefore they're the same thing. Then you fail to understand the difference in microructure. That is going to be the mistake. Not saying that, oh, well, you know, this thing that's uh not a US dollar back stable coin, therefore is is fundamentally insecure. Um look at the end of the day you made a you made a point that's absolutely correct. A lot of people are taking on a lot of leverage. Uh a lot of that leverage of course got wiped out on Friday but there there will continue to be people taking on leverage but the people who will get wiped out from that will be the people who take on the leverage. That's normal. That will happen in every market. Doesn't matter what asset you put in front of them. There will people who who take a lot of risk and some of that risk will be attractive. Some of it will be foolish and those people will get wiped out. But Athena itself as a mechanism, as a protocol, as a token itself is fine. That's not to say that it's riskless. There is nothing riskless that pays above the risk-free rate. That's not the burden of proof I have to I have to meet here. The burden of proof is is this going to lead to the next Luna style collapse. That is the proposition. Is there anything over the last 20 minutes that has convinced you that Athena is going to lead to the next Luna style collapse? Thank you. Okay. So, because they both deserve it and because I think we do have to get warm on the clapping, um, I want you to give both of them a round of applause and I'll come in the middle like a heavyweight. Okay. Okay. Number one, the Should we do We'll do one each. Yeah, do one each. One each. All right. For Hib. All right. Okay. Okay, I think I've got it. And now for Jordy. Um, call. Oh, it's my I think I need one more. I'm sorry. I need you guys to either double down or or flip-flop. So, this is like every vote every vote in the world right now. I need something extreme. Yeah. No wooing. Only no wooing. Hiber clapping. Okay, Jordy sure clapping. I think he got it. Oh, that's cheating. That's cheating. This guy. Um, I still think he got it. All right, our winner. Well done. Thank you guys. Thank you. Thank you everyone.