Lessons Learned from Building with Terra and Celsius w/ McDavid Stoddard (Aperture Finance)

**Speaker A:** Hello and welcome back to the Strange Water Podcast. Thank you for joining us for another episode. All across the history of modern finance we have dealt with investment cycles characterized by irrational exuberance and moral eroding greed. Crypto takes this phenomena to a whole new scale, both in terms of the sheer size of the bubbles that we create and in the speed in which we cycle through them. And regrettably, we also create some of the most cartoonish examples of fraudsters and charlatans. Let's look back at the last cycle where we can name at least a dozen people who went on a main character arc and and ended up in prison or running from the law after 10 plus figure scams. But let's focus on two in particular. Do Kwon and Alex Mashinsky. Do Kwon was the cult like leader of Terraform Labs, the company responsible for Luna and UST. UST was launched in 2020 and by May 2022 had grown to a circulating supply of over $18 billion, while the Luna token was valued at around $40 billion. Alex Mashinsky was the founder and CEO of Celsius Network, a crypto lending company that boasted over $20 billion under management and hundreds of thousands of global customers. Both of these men built enormous businesses that stood at the very center of our industry during the peak of the last cycle. And both of these men are not only remembered for their violent crashes, but are generally held responsible for the end of last cycle. And these are not just embarrassing professional failures. Both Do Kwon and Alex Mashinsky have been arrested and faced trial for federal crimes and long term prison sentences for as long as they will be remembered. The names Do Kwon and Alex Mashinsky will be forever associated with fraud and failure. But that is only from today's vantage point after we all know and paid for what happened. But back in 2021 and early 2022, these men were titans and the companies they led were the most exciting projects in crypto. Today we're going to look back at those times before it all fell apart and remember what it felt like to be working when with the great heroes of the post Covid cycle. McDavid Stoddard is the growth lead for Aperture Finance. During the last cycle, McDavid and Aperture were working with both Terraform Labs and Celsius Network to build projects, service clients and grow their businesses. During the next hour we walk through what it was like to work with these cursed projects and how these experiences felt when the collapse finally came. While this is an incredibly interesting walk down Memory lane. It's not just an old battle story. It's an important reminder of what's coming during this next cycle. One more thing before we begin. Please do not take financial advice from this or any podcast. Ethereum will change the world one day, but you can easily lose all of your money between now and then. Okay, let's bring on McDavid. McDavid, thank you so much for joining us on the Strange Water podcast, gm. **Speaker B:** Thanks for having me. **Speaker A:** Of course, man. So I'm so excited for this conversation, but before we like really deep dive into it, I'm a big believer that the most important part of every conversation are the people in it. So can you give us like a little bit about yourself, your background and how did you find this kind of absurd industry? **Speaker B:** Yeah, for sure. So I'm McDavid. I am heading up like growth product BD related stuff at Aperture Finance. Been there for, since the basically very end of 2021. So I've witnessed a couple of different meteoric rises and collapses within. Within crypto. We can get into that later. And yeah, I've been, I've been in tech my whole career. And just prior to actually going full time into Defi, I was at a news app where I was heading up sort of like Web3 exploration project for them. And the project was very interesting, but I could tell the company wasn't very serious about it. So I was like, kind of like I need, I need to just go full time into the industry and I live in the Bay Area, so it was like fairly easy to get plugged in with some of the builders down here. **Speaker A:** Cool. It makes a lot of sense. And so it sounds like you've been at Aperture since like your whole, I guess, like jump into Defi. So can you talk a little bit about like when you're transitioning from this company that you can tell, like aren't really that into the thing that you're super into. Like, what are the types of stuff you're looking for? And I guess like, spoiler alert, you ended up at Aputure, but like kind of. How did that happen? **Speaker B:** Yeah, I mean it wasn't like I had some like super long, long drawn out job search and I had like 10 offers and was like strategically picked Aperture. I basically kind of just started like my girlfriend said at the time. I was like manifesting it, but I was sort of just like, yeah, I want to like pivot into crypto. And I started just like telling people my network this. I never actually applied for a job. I Just sort of like, when I was catching up with people, be like, yeah, like, I'm looking to just, like, get full time into crypto and just saying that out loud kind of like, you know, this Aperture job kind of like, shook out of my local network. You know, ex colleagues, you know, a friend of an ex colleague was, you know, plugged in with the company and made the introduction and I was kind of like, yeah, sure. Like, they're local. Like, let's do it. I had no. At the time, I wasn't like, you know, Aperture, we were building these, like, structured product vaults at the time. I had no. That wasn't like, some thesis I was bullish on, per se. It was kind of just the opportunity that was. That looked. I liked the team, that it was close. I was like, yeah, sure. I kind of just aped in, as you would say. **Speaker A:** Nice. Yeah. And I think there's probably a lesson in there about, like, finding something that you're passionate about. And, like, we say it with a laugh, but manifesting is, like a real thing. And I guess, like, it's more the converse that's the true thing, which is, like, if you want something but you're not manifesting it, like, it's just not going to happen. So kudos, and for all of our sakes, I'm glad you made it into the industry. **Speaker B:** Yeah, yeah, me too. It's been a. Like, going back to my girlfriend when I first joined, she was like, yeah, you're kind of, like, getting in bed with the dragon going into crypto. Like, you just don't know if you're going to be riding on the back of this thing or getting, like, fire spewed at you. It could go either way. It could. Both things could happen at the same time. So she was definitely right about. **Speaker A:** I think that's, like, the perfect frame your girlfriend gave to us for this conversation, which is like, she's absolutely right. Like, crypto is like trying to ride a dragon where, like, we can soar really high and, like, conquer the world if we do it right. But, like, every single second is an opportunity to, like, get burnt or to fall off the back or to, like, find catastrophic failure. And so over the next, like, hour, I really want to talk about, like, some of these moments and what it was like to be, like, so close to the maelstrom and survive through. But I think, like, we'll start our story in 2021 when you're joining Aperture. So, like, I want to kind of, like, put us in that mind space back then. 2021, I guess, depending on the point of the year, was like, probably a pretty exciting time. And this is like really the, the, the moment where like, SBF is like reaching his, like, most iconic and yeah. **Speaker B:** The height of his powers exactly. **Speaker A:** Like Celsius and like the centralized lenders, like, they just seem like they're running a good business and like, we're all just feeling like a little bit like dumb and slow for not doing that. Like, can you, can you talk a little bit about. As you're entering Defi and like now knowing what's going to come, can you just like give us a little bit about. Into your understanding of the space? Like, did it feel like, as sketchy as it ended up being? Like, how did you feel when you started Aperture? **Speaker B:** So the Aperture team, the three initial team members all came from big tech in the Bay Area. So there was two engineers at Google and then the CEO came from. I think he was at Amazon at the time. It was his last Web2 job. So it's a very Web2 background that the team had. But through some just like chance networking and connections, we got really plugged in with tfl, the Terra, you know, the team running Terra, the blockchain at the time. And that included like, Do Kwan, who is actually like a seed investor. I mean, he never actually paid us. So, like, I don't think it was valid. But like, we had, I think there was a staff out to do Kwon at one point we were in some group chats with him and our kind of initial idea was team has very strong technical background, so we're going to leverage that to build some of these automated vaults on chain. At that time, DEFI was still pretty crazy with all this Ponzi yield going on, all these emissions. That was the peak of DEFI emissions. I think emissions today are still pretty prevalent, but it's not nearly as egregious as it used to be, even a year and a half ago. So we had kind of settled. Like, I show up, I have all this, like, you know, general marketing and business development experience in Web2, but I show up and I'm thrust into trying to like, market and explain this like, kind of complicated, structured product that we were running on Terra. So for any listeners out there that were active on Terra Classic, you probably were. I mean, you definitely were familiar with Anchor Earn at the very minimum, which was that like, super unsustainable yield they're paying out on UST. It was around 19% for most of its history. But one thing, I mean A lot of people in terror, I think were familiar with this, but they had. There was another project that the first time actually DO Kwon ever got in trouble was for this other project that they were running called Mirror, which was like these synthetic stock assets, like, you know, very obviously problematic for a number of reasons. But the way those things worked was there was like a farm token that would incentivize people to short or long the asset. And that farm token, like the weights of the distribution of it would be, were kind of dynamically updating to keep the asset close to the peg of what the real world asset was trading at. So for legal purposes, I will use a somewhat more kosher example. One of the assets on there was just even Bitcoin. So there was a synthetic version of Bitcoin that was pegged to the price of Bitcoin by this emission schedule and Mirror. Anyways, the point being we basically created this delta neutral vault where the user would come in and deposit two thirds of your initial position would go into Anchor Earn. You would take out aust, which was like the receipt token from Anchor Earn. You would use that to short an asset on mirror. And then you would use the other part of your capital that you had not deployed at the start to long the same asset on Mirror. And the end result was you had all these random absurd emissions from various activities. You were getting yield from Anchor Earn not sustainable. You were getting emissions from Mirror for shorting and longing the asset and providing liquidity on the asset not sustainable. And there was also, I think, an additional emissions token from the compound we were using to auto compound the LP position. So it has this absurd laundry list of yield points. And so my first initial foray into DEFI was like, oh wow, this is kind of absurdly complicated. But people at the end of the day would just see this end yield number which was higher than Anchor Earn. So the end yield for the strategy was like 35 to 50%. And the strategy was also pretty well known in the Terra community. There was like lots of YouTubers selling this strategy and a lot of people across the industry. I think basically all the major, you know, blow ups from the 2022 cycle had some exposure to Luna or Anchor Earn or both. And that includes like three arrows had, you know, they had exposure, Celsius had a ton of exposure, which I know for Sam because we like worked closely with their defi team as they were vetting our vaults and putting in, starting to deposit money into them. So this was a very like. I think this was the most important ecosystem in 2022. Because it was kind of like the canary in the coal mine for all the collapses that happened. Like all these often all the stories you see of the major blow ups from FTX3 arrows Celsius, they all kind of started with the Luna ustdpeg. That was the thing that kind of sent the dominoes tumbling and yeah, so like we launched this thing in Apperturch. So I've been there for like less than two months at this point and part of that I was only part time because I was kind of like still had a foot in job a for a while before I switched over full time. And like two months into this thing we, we went from like, you know, being a Nobody to having 120 million of TVL just a few weeks after launching, which was just like an insane roller coaster. You know, at that point we're like eyeing TGE like a few months later, like we're, you know, tripling the, whatever the last valuation was from the fundraising round. Like we're going to easily clear this number in our TGE and everyone was just kind of like, you know, we were on the, the good part of the dragon ride, so to speak. And yeah, it was during this time, like we were like, in addition to the vault being really solid and having good product market fit, we were getting like retweets from Do Kwon and you know, like we're sending him updates and the chats and he was just like pretty point and shoot at the time with like any terror project. I think, like, basically I think he had a, a piece of every single project that had launched on Terra at that like juncture and for him, like really anything and it makes sense, like anything on the chain that does well is like ultimately was good for them. So that was quite crazy too to see one of the biggest immediately jump into this industry and you see one of the biggest, most controversial figures on crypto Twitter shilling your platform and you immediately seeing a huge upswing in usage right after that happened. So that was all pretty crazy. And then of course we're also now, you know, the Celsius team has like started to reach out to us because they want, you know, they have a defi team. So I said I could go a little bit more into that if you want. Rex. **Speaker A:** Yeah, no, let's for sure go into that. And I really want to get to this moment where the dominoes start to fall. But while we're still talking about this moment, I would love for you to answer the Same question from three different perspectives. The perspectives being like the general community, you guys, Aperture as like people building in the community. And then I'm gonna ask you to think like on behalf of TFL and Do Kwon but like during these early times before the musical chairs stopped, like how well understood do you think it was that like this is like so incredibly rickety and like can't last forever or how much of it. And again from the three different perspectives felt like, yeah, this is obviously a little crazy but like there's something real here and like if we can grip onto the Dragon, like we're going to make it through on the other side with real game changing technology. **Speaker B:** Yeah, this is a great question basically to summarize, if you look at all the major vested parties in the Luna ecosystem, how many of them were somewhat aware or fully aware of the utter risk of this algorithmic stablecoin and the unsustainable anchor yield payout rate. So if you start. I'll start with Aperture. So I think within Aperture we were, to be honest, pretty naive and for good reasons. We're all new to the space. Everyone's kind of left web 2. We've gotten on the crypto rocket ship and now boom do kwon retweet boom TVL0 to 120 million in 60 seconds and we're all like seeing our bags pump before our eyes. And so we're all like drunk off the insane product market fit growth story that I don't think we were being. I mean we even like to back this up, we had a large portion of our treasury, a very large portion of our treasury was in ust. So that shows you that we were not like even remotely considering. I would actually put us at the bottom of this list. Like the most blinded group was our own team. Which sort of makes sense. Like you, you know, you're a startup, you kind of got of. You got to be long whatever thing you're building on. **Speaker A:** Yeah. And I guess like as a developer you're like just as long as the community of the investors regardless if you put money in. Like you're just as long as. But you're even more so because you've like bet your career and your protocol and your company on the specific technology. So it wasn't until you just said it but like you're totally right like the bottom or I guess like the most zealot. Zealot but also means most blinded probably does fall to like the actual developer and the project level. **Speaker B:** Yeah. And you see this like if you read the Michael Lewis book on ftx? Like, I feel so bad for those employees. They probably got the most turbo out of everyone because they had both their like, career and their own brand was tied up in this thing as well as all their personal finances. But yeah, anyways, back to Tara. So like that's aperture. We're heavily exposed, including our own personal money. I had a ton of money in this, this vault myself. I was like 30% yield. Why not? Like, sure, I'll move a large like dumb amount of my savings into this vault, but if you look at the other, I'll talk about the community next. I feel like that's the thing. I'm the second most educated on TFL is a little bit of a black box, but we'll get to that. If you looked in the community, I felt even within the like Terra Die Hards, I would say a healthy portion, maybe even up to half were kind of sus about either the anchor earn sustainability or the potential risk of a death spiral with UST. I read quite a bit of content in Q1 2022 about these pundits, this kind of crypto think boys that were posting like, like doom scenarios for ust and I feel like, yeah, within the community it sort of seemed like there, there was like, there were definitely. Everyone was getting drunk off the the Kool Aid, but half of the people that were getting drunk were kind of like, maybe we should stop drinking this kind of soon. You know, like there was some trepidation and. **Speaker A:** Sorry, just to interrupt you a little bit here. Do you feel like that trepidation with, with, let's call it half of the community? Do you think that came from this, like, true understanding of the system and the vulnerabilities? Or do you think it really came from just like standing in the corner of the party and watching that? It's starting to get like, really manic and like, oh, I see that, like these guys that are dancing like right by like candle station and these guys are like tossing around gasoline and like, I don't really know what's gonna go wrong, but like, I can just tell by the energy that like, I probably need to be ready to dash for the door. Like, what, what sense did you get for like, why people were starting to get bad vibes? **Speaker B:** Yeah. Or like seeing Mike Novogratz get a tattoo of like the Tara logo on his shoulder. That's a good question. How much of it was just like people having some spidey senses about things getting too frothy and bubble, like, versus like an actual understanding of the flaws and the design mechanism for UST or anchor. I would say it's hard to speculate. There's definitely a portion of people that were, I think overall for the entire economy, all risk assets. There was obviously a lot of people at the time that were like, something's off. I mean you famously had like Bezos and Elon Musk selling. I think it was in like the end of 2021 if I'm in fact check me on this. But I think they had, both of those guys had done like you know, huge sales of their stake in Amazon or Tesla. And there were a lot of pundits at the time, like the, the, the all in VC group just kind of calling out that this was like a potential top signal. And like if these guys are selling like what do they know that you don't know? So there's definitely some of that. But there was also a surprising amount of, I think even amongst retail users, like at least an understanding that the ust, the Anchor Earn rate was unsustainable. That was pretty easy to, to grasp. Like you could just look at the amount of money sitting in the like the account that's paying this thing out versus how much UST is locked in Anchor Earn. And then like you can just, there was a very easy, like you could calculate there's 100 days worth of yield left or whatever. And it didn't seem like CFL was being like aggressive enough to cut the rates. So I feel like a lot of people, like since that was an issue, but you could both hold the belief that, you could both hold the belief that Anchor Earn was unsustainable and also still be bullish on the ecosystem at large. So that wasn't really enough I think to like fully spook people. It was the smaller group of more analytical skeptics who I think within that group there was also a camp that were purely just based on the fundamental design, had issues with ust. And there's another group that was like this is exploitable. You could gain by shorting ust and like those two camps kind of like work together fighting the like overall design mechanism. **Speaker A:** Yeah, and I did like I remember back to that time and I remember it was like a very common occurrence to like be on crypto Twitter having conversation and like you get to Tara and then like immediately both people would be like, anchor not sustainable. This is going to run out. Check, check. Okay, we've put that in a box. Now we can both safely say that like because we've addressed it, it's no longer a concern. Let's like, continue the conversation and like, I don't know why, just TFL and just Anchor got that treatment. **Speaker B:** It was pretty crazy. Like, I, I mean, I'm probably slightly biased here just because of my exposure, but I felt like Do Kwon was probably one of the most effective cult leaders in like the entire history of crypto, more so than like Vitalik or CZ ever was. I feel like he was able to. He was so crypto native. He was so active. He was so like laissez faire about what he said, that it was sort of like the Elon Musk of crypto in many ways. And as a result of that, you had a very, very, very loyal following that would overlook some pretty obvious shortcomings. **Speaker A:** So what do you think about Do Kwon? And of course nobody can really speak about it, but your understanding based on how everything played out and let's not talk about Do Kwon specifically, let's talk about TFL as a whole. How much do you think they understood that this was like one of the most high stakes games of musical chairs ever invented? Or how much do you think that they were true believers? **Speaker B:** Yeah. And so like, to answer the last part of the question, like how aware they were of the potential risk. So I don't actually have anything like firsthand that I think gives me more insight. We're very far. At the end of the day, aperture is very, very far removed from the inner thinkings of tfl. But like, just based on my speculation on like, what is public knowledge, I think, I think they had a very minimum, realized they were vulnerable to like a short sale type of attack and, and possibly also sort of aware of the general death spiral potential of USC because there was a lot of effort to build up this defense fund that had Avax and Bitcoin and Ethan, like other quote unquote blue chip assets in crypto that they would use to backstop the backstop Luna and ust. And they were doing quite. I think there was even more plans to like that backstop was supposed to be bigger. Like they were like pretty aggressively trying to ramp it up and they just kind of were like too late in the game. So my, my speculation is that they were like bullish on the ecosystem, but they weren't totally stupid. I think they did. You know, they have tons of incredibly smart people around them and they have, they were somewhat aware of the risk. So I think there was a decent amount of awareness of like, what, what could go wrong. They Were just too slow to act, in my opinion. **Speaker A:** Yeah. And I'm not going to ask you to, like, comment on if Do Kwon is like, a good faith actor or not. Like, I think to even categories like that is to, like, miss an important part of human nature. But I do think it's probably fair to say that, like, regardless of what you think of Do Kwon, that project just, like, got. It grew so much faster than it should have. And yeah, maybe some smart guys realized once it was like a $40 billion project that this isn't safe, but it was just too late at that point. And if anything, you could make the argument that building up that defense fund sent the signal to attack now before it's too late. **Speaker B:** Yeah, that's a good way to look at it. There was also some executional mishaps that they had when ust initially, the very beginning of the DPEG that killed them was because there was a temporary blip in liquidity as they were migrating. I think they were moving liquidity onto curve or off of curve to somewhere else. I don't remember exactly the order of events, but they did not do it. In an atomic transaction, it wasn't like the liquidity immediately show up. There was a gap in the blockchain time where liquidity was a lot lower, and that was when the attack happened. So one could also speculate what would have happened had. Maybe it was still inevitable, maybe it just would have bought more time. But there were some executional mishaps as well. Um, and yeah, it's a good point. Like, they were very public about announcing the backstop. Like, to what extent did that also put them in danger? Who knows? **Speaker A:** Yeah, no, for sure. So earlier you kind of, like, gestured that the. The collapse of Luna, like, was more important than just, like, the collapse of this, like, very large protocol and all the retail that was, like, directly exposed to it because, like, it turns out, and we all didn't realize this until it was too late, but, like, basically every large player was, like, playing in that ecosystem as well. And so you brought up Celsius. That's what I want to talk about right now. But, like, as we go into this conversation, I think it's important to recognize that, like, Celsius is one example of somebody who, like, really, really fucked up. And like, that we, you know, we'll talk about how that ended out. But, like, everybody was doing this. Everybody thought that, like, this, like, yeah, we understand it's not safe. We've addressed that. We're going to run out of yield, but, like, because we put it in the box, move forward. Like, everybody from SBF to Alex Mashinsky to, you know, like, very reputable people, Galaxy, the Winklevoss twins, like, everybody was in there. So I want to, I want to start this with the, like, the understanding that the story we're about to tell about Celsius is not a unique story. It like really can be told again and again through every other protocol. But with that being said, can you tell us a little bit about like, at least from your understanding, like, how did Celsius, which essentially just takes bitcoin or whatever, crypto and lends it back out, like, how did they even find themselves in this situation where they're playing again, the most high stakes of high stakes game of musical chairs ever invented. **Speaker B:** Yeah. So I'll start off by confessing I don't actually know the exact set of transactions that Mashinsky took that got Celsius in trouble. That. That whole part of the story to me is I've never gotten like a very clear answer, but I can speak to like, what we saw at Aperture working with a particular team at Celsius that was responsible for managing their defi book. And the funny thing about that team was they did incredible due diligence. They were very smart, very thoughtful, and seemed like truly like a very blue chip prop shop sort of team operating this massive, massive book on behalf of Celsius. So you contrast that with Mashinsky who like, I watched some of the lives I had money in Celsius as well. And I watched some of the, like, there's like AMAs they would do once a week. And those things to me, always, that was where I got the sense of like, there's something off about this. Like his wife is on this ama. They're like showing random customer service people they're trying to overhype this sell token burn thing they're doing. I'm like, what? But at the time I'm also new enough to crypto and everyone's kind of still drunk on the bull market that I'm not putting A and B together. But now if I saw something like that going forward for the rest of my life, I would immediately be like, no, I'm not touching this with this 50 foot pole. But yeah, basically my comment overall on Celsius is that there were clearly some inexperienced people in that company, but the team that was actually deploying on the defi side was very, very competent to the point of they could do their own smart contract audits on A chain like Terra, which has some nuances. It's not just like a standard EVM chain. It was still pretty new back then. But yeah, the team was incredibly competent. Very, very like cautious. They were, they like would do test amounts of capital first and then would slowly scale that up. And I think like at the time they had gotten up to like 10 million worth of UST into this like aperture vault and were telling us they were targeting like 100 million or more was the kind of their end goal if, if like they thought the like strategy itself could even hold that much, hold that much capital. But as we've now come to see, like somewhere else in the company, someone was like deciding to put rates on UST that were not sustainable long term. Because I was seeing like, one thing I could kind of speculate is like they were offering the UST rates that were slightly above Anchor Earn for quite some time and the expectation would be that they're like, they need to be taking a cut. Like I would, I wouldn't expect them to be like fully passing that rate through to the users. And then furthermore the rate was above that of Anchor Earn. So I'm like, okay, then they were definitely doing other stuff where they were rehypothecating the UST to some other market. So there was definitely some like some breakdown within that company. But I would say, like, not the entire, like, I would. Similar to fdx, there were tons of very competent people working inside that company that kind of got fucked by some bad decisions that were made at the top or in some other department. **Speaker A:** Yeah. So let me, let me tell me if this is fair from what you just said that like from your actual work with the Celsius team, like you were impressed, like these guys knew what they were doing. And like you sounds like you still only have good things to say to them. **Speaker B:** I would say to even go a step further, we were actually taking advice from them on what vault to build next because they had such a deep and nuanced understanding of what sort of structured products could be built across Defi, anywhere, Solana, on EVM chains or elsewhere in the Cosmos ecosystem that we were actively getting them to tell us what should we productize next. And their advice there was like incredible. Like they had like some of the best knowledge of like what strategy could hold the most amount of capital for the longest amount of time that would justify building a vault. So yeah, very impressed with their team. **Speaker A:** So you're super impressed with the team, you're working with them and then like you're watching AMAs, or you're watching YouTube or maybe you're going to conferences and you're saying Alex Mashinsky and there's something there where you're like, the work that I'm doing doesn't feel like it's the same company as, like, what I'm saying in front of you. And like, unfortunately, like, we all learn this at some point in our life. Like, our gut is actually, like, smarter than all of us and is trying to tell us something and we all ignore it the first time and then we never ignored ever again. But I guess, I guess, like, with this understanding that, like, you have so much respect and like, admiration for the Celsius people, like, you. Can you talk, sorry, the. The Celsius Defi team. Can you talk a little bit about, like, that moment when Luna is blowing up and then it's like, pretty shortly afterwards, like within a month that Celsius, like, the game's over at Celsius as well. Like, working with them, like, what was it? **Speaker B:** What. **Speaker A:** What were their reactions like? Were they reacting in a different way than you expected? Because, like, there was other things going on, I guess, like, take me to the, like this like, catastrophic moment. And like, what was it like working with the Celsius people? **Speaker B:** Yeah. So I don't know. I don't have any specific memories of what our communications were with the Celsius team, but one bit of history that I think kind of got swept under the rug a bit in this whole story was that when ust depegged, it became. We sort of realized at that moment that there had been an exploit in Mirror that had happened many, many months prior. And there was like, basically a contract that held like, the collateral for the short positions, something of this nature. And that contract had been drained. And so the only way people had. The way people had actually been withdrawing from Mirror was like, just based on new capital coming in. A lot of Ponzi. A literal Ponzi. Yeah. And because there was enough new capital coming in, there was never an issue withdrawing. It wasn't until the entire thing needed to revert to zero that we realized there wasn't enough money in that smart contract. Not ust in the smart contract. And so what happened when the DPEG people, everyone's trying to flee Terra. So exiting anchor urn, exiting Mirror, exiting the aperture vault. And the way the exiting worked was basically like if you were a super large position, you were fucked up. There just like, was not enough liquidity possibly flowing in to help you out. But There were enough like speculative people on the other side that were like depositing ust into the vault. Even as things were going down. There was a period where like people were buying the dip, right? Like it took, it took like well over a week before the, it was kind of inevitably doomed. And so those, it was those people that were providing exit liquidity for basically smaller retail users because it was like 1,000 here, 5,000 here. It was never like 7 million worth of UST that was coming in. So Celsius and all the other larger institutional users of that vault were just like, they were totally sol. And we did have. This wasn't Celsius. We did have this other. There's this other gentleman, I won't name his fund or his name, but he had set up this company that basically would invest the treasury of some traditional non crypto company that had a bunch of cash on their balance sheet. And he would basically tell them, hey, I can get you 15% or 20% on this cash, just give it to me. And he was literally just like taking those dollars from their treasury and like on ramping into these like defi strategies, one of which was Aperture. And we, I'll never forget we got an email like sometime during that, like the deep, the like deep week where he was basically just like, you know, dear my name and our CEO's name, like I'm so fucked. I've lost all my investors money. I don't know what to do. I think my career, my career is over. I think I'm legally in a world of shit. That was sort of verbatim what the email was. And we were just like, oh my God, talk about being caught with your pants down, like when the tide goes out. That was pretty awful to see that. And it was those sorts of people that I feel the worst that like I, I feel for the most like the djens that had 10k, 50k, 100k, you know, tied up, caught up somewhere in like some ust based strategy, like I. Those people like whatever, like you know that most of those guys were playing around with money that was made on the back of it, like incredible bull run. So I don't feel as bad for those types. It was the people that had like, I mean what was in hindsight like an incredibly stupid business idea, had set out to like bet the house on ust. Those are the ones who, I think, you know that that's like a, like a major type of event. Like you know, Aperture, we, we ended up taking a hit to our treasury. We got out of UST at, like, 72 cents on the dollar. Painful, sure. But, like, there's still money. Like, we're able to keep building. We're still alive, you know, well over two years later and thriving and doing quite well. So, you know, despite the fact that we still had a. Posted a pretty big L, it's not as bad as some of these people that had sort of, like, at the house. **Speaker A:** No, man, I totally feel you. And I, like, I remember back in 2022 when this started. Like, you know, when Terra went down, it took my bags with it, which were nothing to do with Terra, but were Ethan Bitcoin and all. Just, everything went down. And I remember my first thought was, like, well, this is what I signed up for. And like, every single tweet I see on Twitter, it's just like, you whiny fucking babies, like, welcome. And then, like, all of these stories started coming. Like, the story you just told is, like, definitely sad, but I'm also like, well, you kind of were, like, a little bit doing fraud there, so suck it. Like, your chickens came to roost. But, like, there were just so many stories that immediately came out about, like, people that had built, like, consumer savings apps or just, like, payment apps or, like, just so many people that didn't even understand that crypto was, like, invented, like, lost money in this. And, like, that's the thing where, like, we all need to sober up about. **Speaker B:** Yeah. It's actually the number of companies and products that were purely built on top of anchor earn 20% at the end of the day, like, the number of names on that list is, like, shockingly large. And the amount of money that those projects raise is not trivial. So just, like, seeing all those companies get nuked at the same time is insane. **Speaker A:** Yeah. And so I guess final point of conversation on Luna, So depending on who you are, you hear what happened as described as the collapsing of an unstable mechanism or an attack on a vulnerable mechanism. And I guess I just want to hear your perspective as someone who is building in the system, really understood it and had capital at stake and lost from that. I'm sure you were paying attention. What did actually happen here to turn the music off and start the scramble for musical chairs. **Speaker B:** Yeah. What was the mechanism by which it pulled. Died on. **Speaker A:** Yeah. And like, you said this, like, maybe it always had to happen. Like, I don't know, maybe. Maybe we could have survived. Maybe it. Maybe it always had to happen, but, like, it happened this way. And my question is, like, well, what did happen? **Speaker B:** Yeah. So it's hard to orally describe the algorithmic stablecoin mechanism for us, but the like for any listener out there that I guess wasn't familiar with the general setup. I recommend you Google it to read about it. But basically the, the gist was that UST never had a like a. There wasn't like an account holding dollars that was one to one with ust. UST was minted from Luna. Like the two assets were inextricably linked and there was a conversion you could do between UST to Luna that was always kind of like set at a certain price. And if the market rate for either of those assets deviated from that price, you could just arbit. And there was always people just arbing the market rate by doing the direct conversion between UST and Luna. And so that's all fine and dandy if either of the assets is still worth something, but if one of the assets is worth nothing, then that arb and the whole process kind of breaks down. That was essentially what happened was the value of USC started collapsing and the value of Luna also started collapsing, which meant that Luna could not be used to repeg the price and Luna could also mint. There's just this infinite mint structure where Luna could continually be minted to cover USC was sort of meant that the price would just further go down if there was no market demand to buy Luna. So it's basically just a case of both assets go down very fast if there's no demand for either of them. **Speaker A:** And super clear how this mechanism allowed for this to happen. But is your understanding that in this moment when liquidity was pulled out of a curve pool to migrate it to another curve pool, did SBF come in and just hit the short button and start this death spiral? Like was there a third party actor that like launched an attack? Or like was this just like somebody broke first and like once somebody saw the first person running the second person running the third person and then the stampede started. **Speaker B:** I think the general consensus on this is that it was a third party actor that strategically struck when the liquidity was at an unusually low point and sold a shitload of UST probably. I think like I've seen people talk about this. There's like a handful of firms that could have done this. It's one of the big players from the 2022 cycle. Most likely we don't know which one exactly. Maybe like Arkham or someone has kind of deduced exactly who it might have been or has like a. A more data backed theory. But yeah, my understanding is it was definitely an attack. Someone wanted to profit from shorting ust and they placed a pretty large bet. Like, it was still a, like, very, very large sell order of UST that triggered like, you know, people then to start panic selling. And of course, this is all timed alongside like a Fed announcement about like, rates coming up and inflation. And so the whole economy was quite vulnerable. It was very easy. Like, you know, there's a lot of dry timber and like, any match could have started this, this fire, so to speak. **Speaker A:** And then we haven't really talked about it. But the other thing that's going on in parallel throughout this time is like the great collapse of the GBTC trade. So for those who weren't around, essentially there's the grayscale bitcoin trust. And for a while you could mint these shares. And the shares were trading at a premium over Bitcoin. The reason why is not relevant, but there were a bunch of firms, specifically Three Arrows Capital, that were just realizing they could just run that play over and over and over and over again and they made a ton of money. But the problem is eventually that premium flipped and was no longer a premium. It was like a negative amount. So one share corresponded to less than the equivalent amount of Bitcoin. And like, it is hard to overstate just how much capital was locked up in that trade. And so I guess my question for you is like, is your understanding that, that whatever was going on with Three Arrows Capital and gbcc, was that like a direct stressor and a direct component in what happened in the collapse? Or was that more just part of like the macro background news that like, you're talking about when you refer to like, you know, the, the S and P frothiness and the billionaire selling major stakes? **Speaker B:** Yeah, I don't remember the exact timing of all these things, but my memory was always that, like, Luna was really the first domino that fell, if I'm remembering correctly. **Speaker A:** Yeah, okay. Yeah, it makes sense. And, and then, you know, I think we all know what happens from there, which is like, Luna collapses. Then we have the first wave of crypto bank failures. But SBF is like our Rockefeller or our JP Morgan and says, like, I am going to bail out all the crypto banks and make sure that this industry survives. And then we find out six months later that the reason he did that was because he had like a bunch of fraudulent loans and stakes and whatever, and if everything collapsed, then like FTX would have collapsed. And so I think, yeah, like, that, that is the story of like, what ended the party in 2022 and like basically the. The story of the 2022 bull cycle. But yeah, so man, such a wild story and I'm so happy that you shared it with us. So I want to spend the last 10 minutes talking about like what's happened to Aperture since and like where you guys are at now. But before we go there, do you just have any like final reflections or thoughts or even stories that you want to share about that crazy May in 2022? **Speaker B:** I guess one final thought for me is that like for anyone out there who's familiar, like now that we're it's two years later, no one's touched an algorithmic stablecoin, that idea has not garnered any traction and there are a lot of projects that had algo stable coins that like basically like undid that design mechanism to have it be fully pegged for good reasons. But I did see something quite recently that I was like the cycle starting again, which was the announcement of Athena, which for anyone who's not familiar Athena launched this basically had tons of blue chip investors. All the major centralized exchanges have invested in them. There's a reason why I'll get to that. And including some very blue chip vcs like Dragonfly were in the round for Athena. And what Athena has basically done, it's created a stable coin that they quickly retraced and have decided not to call it a stablecoin but it's called usde. The name of it is very Stablecoin esque. You're not fooling anyone if you try to call it a tokenized vault asset or whatever their marketing name for it is. But the way this thing works is it really reminded me of Aperture and our vault and 2022 which was this delta neutral vault. And basically Athena has made a delta neutral vault using a different kind of finance play called the cash and carry trade. Which the way it works for Athena is basically there's a lot of demand right now to go long on futures markets, on centralized exchanges, or on chain places like GMX, DYDX, etc. And what it means is that if you want to short the assets on that chain, you can collect a funding rate for doing so and you can be quote unquote, delta neutral if you have simultaneously have an equal amount of long exposure to that asset. So you just basically collect the spread for the funding rate, the longs, pay the shorts and everyone wants to be long right now. And so Athena has basically created this like on chain, off chain, like hedge fund vault that they've turned into A stable coin that's supposed to be equal. It's basically this thing that's supposed to be equal one to one to USDC or usdt. But if you stake it, you get this yield that's like somewhere from 20 to upwards of 60%. I think this week it's been around like 50 to 60%. And this is all fine and dandy except when the funding rate flips and people overall want to be short assets. And then now this whole thing kind of breaks down and Athena has claimed they've done some similar hand wavy in our back tests. This was only ever an issue for three weeks over the past two years and based on our understanding this would be totally fine. Anyways, all of this, there's lots of great FUD out there if you want to read about people like myself who had a very knee jerk reaction to seeing this thing come to the market. It reminds me of UST to be frank. And my thought is like, wow, this is really just going to come back every cycle. There will be some kind of someone who just pushes the edge a little bit on what is sustainable and viable because they can tap into just the inherent, the greed. Like the crypto core audience right now is just inherently a much more greedy risk on audience than any other subset slice of humanity. And until we have a lot more users on chain that can kind of rationalize the whole ecosystem, I'm like we're going to keep seeing this stuff. Maybe Athena works out, I don't know, but it could very well. There's a very plausible path to that thing like blowing up and deep hacking to zero. **Speaker A:** So without like, like what are, what are the echoes of Luna that you see in Athena? Let me guess and you tell me if this is right. So one like too much like suspicious amount of institutional buy in by like blue chip people. Like too many people getting way too excited about yield that's obviously unsustainable and a mechanism that like seems viable on paper but like has this like one weird scenario where if it happens like the whole thing falls apart and it feels like those are the three ingredients. And then you layer on the mania of a bull run that like creates the terrors. **Speaker B:** Exactly. And I would even go a step further. Like this doesn't apply to Dragonfly. I think they're truly bullish and believe in the, the product. But the centralized exchanges, if I was being a little bit cynical, if you're binance, even if you cut a check for like $3 million, a million dollars or so to put into this like early stage defi protocol. Even if that goes to zero, Binance, I'm pretty sure will make much more than that on their futures product. If they have. If it's very, very cheap to go long on Binance, which is what they want. They want someone to come in and arb this funding rate as close to zero as possible so that it's even more cheap for the core users of Binance to go long. And I suspect for them it was some pretty easy math to see. Like, oh, even if this Athena token is never worth a dollar, we could probably greatly profit from this in the short run by just having better pricing for our futures product. Like you said, I think that it's 100% the ingredients for things to go wrong. We have bull run mania, we have blue chip institutional investors, we have frothy yield, and we have just one little design flaw that could send everything tumbling to zero. **Speaker A:** All right, well, let's walk away from that very scary conversation and end on a high note. So McDavid, you told of this story of like Aperture, like literally entering the inferno and like you've gestured this a few times that like you walked out the other side and like made it through the last two years still building. So I guess like now in 20, March 2024, like, there's no. There's. I guess there is, but for all intents and purposes, there is no Luna chain. There's no anchor. The things that you were building before just don't exist. So can you just talk to us about what was the journey to get from walking around the wreckage to where you are at today, which, spoiler alert, is building products for uniswap. **Speaker B:** Yeah, so basically our kind of journey post Luna was like a flight to safety, which wound us on top of Uniswap, which is one of the oldest, longest standing, unhacked protocols within dfi. And yeah, what we do today at Aperture, basically we use solvers to help the lps on Uniswap V3. And shortly we'll be soon to be announcing other concentrated liquidity dexes that we'll be deploying on as well. And basically if anyone who's LP'd on a concentrated liquidity decks, you know, the actual management process for those positions, it's very, very tricky and cumbersome. And so like, what you can do with solvers is basically just have a much simpler user experience, but also get some better pricing and execution on some really basic concepts like rebalancing or moving the range of your liquidity position from point A to point B to, from point C to point D and yeah, and that's what Aperture is today. We've just launched a points campaign. We're gearing up to TGE almost two years post USC death spiral. We're hoping to TGE here at the end of April. And where we're going from here in the future is kind of further. So I mentioned solvers. We are in the kind of intense space and our kind of grand vision is to build out some more generalized intent infrastructure that will be from the user's experience. Your interaction with the front end will actually be through a chatbot where you will basically work with the chatbot to figure out what your declared intent is going to be. And the chatbot will help you translate that intent into a highly readable language that can be posted into a mempool for solvers to look at to compete on finding the best solution for whatever defi action it is that you want to do. And yeah, so that's where we are, where we're going. It's been quite the journey. We've really tried to get out of the space of selling APR and selling yield and just instead giving people world class execution and tooling to go out and do something very conservative or do something very degenerate. It's up to you. **Speaker A:** That's a super cool frame. I love that that you're getting out of the business of selling a PR and you didn't say this but let me try it out. You're getting out of the business of selling APR and you're getting into the business of providing functionality. **Speaker B:** Exactly. Yeah. Cool. **Speaker A:** And I just like, I'm the biggest believer, like I understand why literally the only thing we can talk about in crypto is money and finance. And like that's a huge part of like our history and it's a huge part of just like crypto economic security is inherently about money. But like I am so confident that in the long history of blockchain, like this is technology that's meant for other stuff other than like saving, trading and speculating. And so I like, I can totally see this world that you're talking about where Aperture, starting with like we're going to use solvers to do the uniswap and thing and then we're going to grow to different defi protocols. But like the second you said you interact with a chatbot to help make your intent, like what I'm saying is like a world where these solvers and these intents aren't just about like how to do financial operations. They're about, like, really, what do you intend to do on the Internet? And like, how can Aperture help that happen? And so, like, that's the future that I'm super excited for. **Speaker B:** Yeah, likewise. I mean, I'm also very bullish on a future where almost all of our any kind of complicated decision we have to make that involves allocating a resource. So usually money will be kind of managed this chatbot like interface where you can work with some sort of smart agent or solver to get you much better pricing or execution. I mean, the obvious example is travel. You know, I spent like an hour earlier this morning trying to book a flight. I had like a specific budget and there were some other constraints and it was just like the amount of like little mini decisions you have to make on that journey is still mind boggling for 2024. And I think, you know, I look forward to a future where we offload a lot of that computational load to our, you know, AI overlords. **Speaker A:** Awesome, man. Well, I could keep going. Like, there's so much to continue to unpack about, like, the history of how we got here and Aperture and all the exciting stuff you're doing, but for the sake of your schedule and everyone's attention span, I will cut us off here. So, McDavid, thank you so much for, for coming in and taking the time to just, like, talk through perhaps, like, hopefully what will be one of the most traumatic things in this industry and like, really help us think through, like, what do we need to take away from this? What do we need to be looking for? And like, what. What can we fix? What. What doesn't need to happen? Again, so just, again, so grateful, so thankful. McDavid, thank you for coming on the show. **Speaker B:** Yep. Thanks for having me. **Speaker A:** Of course. And before I let you go, can you just share with the audience if they want to find you or they want to find Aperture, what's the best way to find you guys? **Speaker B:** Yeah, I mean, Aperture. We're Aperture Finance on Twitter and you can find me on Twitter. OB MC Stoda S T O D D A or I'm McDavid on Farcaster, if anyone's doing that. **Speaker A:** Cool. Yeah. No, the best part about Farcaster is we are all able to get the names that we wanted. **Speaker B:** Right. **Speaker A:** All right, McDavid, thank you so much and have a great rest of your day. **Speaker B:** Sweet. Take care, y'. All.