Welcome back. This week, Jacquelyn and Anita ran the show while Lucas was out. We recapped a must-watch interview by Coinage with Do Kwon, the now-infamous founder of Terraform Labs whose algorithmic stablecoin de-pegged from the U.S. dollar, sending the crypto markets into chaos. This was Kwon’s first interview since the coin’s collapse in May, which wiped out some $60 billion in value. Is he remorseful? Aren’t the authorities after him? We got into all those questions and more. We also discussed acquisition drama for the second week in a row, this time between Galaxy Digital and crypto custodian BitGo. Finally, we went through news of recent, highly secretive layoffs at Crypto.com as the exchange looks to expand its user base abroad. Subscribe to the Chain Reaction newsletter to dive deeper: https://techcrunch.com/newsletters
Welcome back. This week, Jacquelyn and Anita ran the show while Lucas was out. We recapped a must-watch interview by Coinage with Do Kwon, the now-infamous founder of Terraform Labs whose algorithmic stablecoin de-pegged from the U.S. dollar, sending the crypto markets into chaos. This was Kwon’s first interview since the coin’s collapse in May, which wiped out some $60 billion in value. Is he remorseful? Aren’t the authorities after him? We got into all those questions and more.
We also discussed acquisition drama for the second week in a row, this time between Galaxy Digital and crypto custodian BitGo. Finally, we went through news of recent, highly secretive layoffs at Crypto.com as the exchange looks to expand its user base abroad.
Subscribe to the Chain Reaction newsletter to dive deeper: https://techcrunch.com/newsletters
Helpful links:
https://techcrunch.com/2022/06/16/cryptos-emphasis-on-community-could-lead-followers-off-a-cliff/
https://techcrunch.com/2022/05/25/terra-community-passes-proposal-to-revive-luna-cryptocurrency-following-stablecoin-led-implosion/
https://techcrunch.com/2022/07/27/ftx-ceo-leads-trustless-medias-seed-round-to-help-build-community-owned-web3-shows/
https://techcrunch.com/2022/08/15/galaxy-digital-calls-off-its-1-2-billion-acquisition-of-bitgo/
Anita Ramaswamy 0:00
Hey everyone, it's Anita and Jacqueline. Welcome to chain reaction where we unpack and explain the latest in crypto news drama and trends breaking things down block by block for the crypto curious. So Jackie, and I did a Twitter spaces on Tuesday with Ryan sulcus it was a lot of fun. He is the CEO and co founder of masari, the crypto data firm just to talk about a bunch of different topics. And so we'll be publishing a recording of that and our podcast feed on Friday. Yeah, for
Jacquelyn Melinek 0:31
those of you who missed it, you'll be lucky to hear it again. And for those of you who did hear it, you can listen back if you want, but we talked about crypto prices, the theory emerge, tornado cash and a bunch of other things regarding regulation and like where the market is headed. So feel free to check that out later this week. Yeah, it's
Anita Ramaswamy 0:47
called crypto State of the Union. But before we do all of that, let's get into today's news. Because we have a lot to talk about. Yeah, so
Jacquelyn Melinek 0:53
I'll start kicking it off. I don't know if anyone listening has crypto Twitter on their mind, or they use Twitter. But I feel like my feed was covered with this interview on dou Quan that we saw come out on Monday. And for those of you who don't know or trying to forget it in your memory, I just want to give you a little background on on doe Quan. He's the founder of TerraForm Labs, which is the creator of the now dead algorithmic Stable coin ust and sister cryptocurrency, Luna. And back in May, Tara The not so Stable Stable coin de pegged from its one to one ratio, where we're supposed to remain in line with the dollar. And within a few days, the whole ecosystem for Tara collapse over 99% making it virtually worthless. Since then, there's been like little to no word from its creator dokkan until now, and this NFT TV series called coinage went out to Singapore and interview dough to ask him some questions which mean a native we'll get into, but we actually covered the parent company to coinage trustless media when it announced fundraising in late July. So it's kind of interesting to see them come back on the radar just a few weeks later, but I guess to start and Anita, it was like a 30 minute interview. What was the most interesting parts that you found?
Anita Ramaswamy 2:04
Yeah, I mean, there was a lot of stuff there. It was. So quants first time, publicly speaking, since all of this happened. And obviously he lost like millions of dollars on behalf of his investors, and then just sort of disappeared into nowhere. So a couple of different things stood out to me. But you know, one really interesting moment was when the interviewer asked, Oh, Quan, like so would you consider yourself similar to Elizabeth Holmes or something along those lines? Right. And doe Quan response was that he wasn't familiar with Holmes's work, you know, her long list of achievements. And then he went on to list what she had actually done. And he was like, Well, you know, I'm not familiar with her work. But Wasn't there some sort of blood test thing? And then, you know, he talks about what Holmes did. But he tried to draw this distinction between himself and Elizabeth Holmes, where he said that he wasn't a fraudster, he hadn't committed fraud, because what he did was just focusing on the positives of the project and basically hyping up Tara and Luna, and not really talking about the negatives, which he said, That's kind of different from actually committing fraud. So I don't know what you think of that, Jackie. But that was one really big thing that stood out to me. Yeah, that
Jacquelyn Melinek 3:06
stood out to me as well. And I think something for me is the way that the host, Zach Guzman asked him to define fraud. And there was a bit of a long pause there. It was so awkward. Yeah, it was definitely rich. But he answered after quote, if you knew something that wasn't true, and then you argue that it was true for personal enrichment, or whatever purpose it may be. And that's fraud. I also think that duquan In the interview, he took on a different persona than the one that he has projected in the past. I don't know if you also felt that way from his outfit, to the way he spoke. And like, yes, it was taking place in this beautiful high rise in Singapore, which I think speaks to his previous character. Yeah, that's definitely something I noticed was a lot more
Anita Ramaswamy 3:51
sober, a lot more serious than the dokkan that we had seen, especially on Twitter before. I mean, the reason the Elizabeth Holmes like discourse stuck out to me is because dokkan really, I mean, he talked a lot of shit on Twitter to his critics before the project failed, he was very bombastic. He had this sort of big personality and, you know, made all these big promises. And now it just seems like he was such a tame version of the person that he once was. You know, I think it's important to note one thing from the interview that I knew this, but it was good to hear it recapped was that all Stable coin projects, all algorithmic Stable coin projects before Terra had failed. So it's kind of wild to me to think that you know, dough, Quan didn't really have any anticipation or any like inkling that this could all go to shit, even though that's kind of what he was saying. Like he was saying, you know, he had no idea he had no clue like, throughout the interview, he was very much trying to convey the impression. I think that he was just as blindsided as the rest of us. Yeah. But if you are building an algorithmic Stable coin and all of the ones before you have failed, like, how do you not anticipate that might be within the realm of possibility? Right. Yeah,
Jacquelyn Melinek 4:51
I think for me, one of the biggest takeaways from the interview was that he didn't think that the unraveling of his ecosystem would happen, considering he spent the last four I have years focused on it. But then he also added that the beliefs and conjectures he made were wrong and he admitted he was wrong. And we talked about his remorseful tone and everything. I think that was dope Juan's attempt to remedy his own image. But like, he was also a little harsh in regards to what happened. He said, like, even though this ecosystem was nearing, like $100 billion, and it fails, in the end, he was like, you can't be emotional about markets.
Anita Ramaswamy 5:24
Oh, yeah. When he said that, that was savage. He looked like, yeah, it's just straight into your soul. And he was like, I can't be emotional about this stuff. I mean, I don't know, I'd be pretty emotional if I had lost like, you know, 1000s of dollars in his Stable coin project. But that's just me. And I
Jacquelyn Melinek 5:38
mean, it's not funny. At the end of day, I'm laughing because it's so ridiculous. And as much as he wants to play this, like soft character now, like, he still will show his true character at the end of the day. And like people have lost millions companies have went up. The host talks about like suicides in it. And so for him to just say, like, you can't get emotional is kind of showing, you know, that Twitter personality come out again, I think, honestly. So yeah, I think those were some of the biggest parts of it. And then also something I wanted to talk about. And Anita was that he studies so the interview took place in Singapore, and he's residing in Singapore now. Right with his family. But some of his employees can't leave South Korea, his home country, and his former co founder of chai, Daniel Shin, his apartment was raided by investigators. And then when the host in South Korea, yeah, in South Korea, not in Singapore. And then when the host asked him, Do you think you would like go back to South Korea, he said he wasn't sure if he'd would return, not because of everything going on. But he also said he hasn't been in touch with investigators. He hasn't been charged with anything. And if that's true, it's pretty interesting, because it's been about four months since this happened. And if his home country hasn't pursued legal action against him, I really don't think this door is closed. Yeah, a lot.
Anita Ramaswamy 6:53
They probably have something in the works, I would imagine. Yeah. You know, they're just sort of waiting for their moment. Yeah, I don't know. I mean, there were a lot of details that were missing. For me. Like I sort of came out of the interview with a lot more questions than I had answers, but some answers and some insight into how dokkan feels like one question I had was, he was talking about the 20% yields that they were offering, which obviously they weren't able to deliver on. And those are insanely high yields for any any sort of like project to be offering. And I know that's kind of commonplace in defy, but still, you know, DOE made this comment about how the team originally wanted to offer like 1000s of percentage of yield to their users. And he said, like the compromise was offering 20%. So there wasn't too much clarification from him on, like, how that conversation actually went. But I just thought that was an interesting window into, you know, some of the exuberance that we saw in the earlier days of defy
Jacquelyn Melinek 7:42
Yeah, definitely. And I don't think this is the end of dough, as we said before, and coinage, the NF TV series that put this out, so they're gonna be releasing more footage about doe Quan in the coming days or so like about his involvement and bases cash and what they're going to do with Luna foundation guard reserves for people who lost money on Tara and Luna 2.0, which is dough quants, newest project, among other things. So it's definitely isn't the end of the dough Quan conversations, and yeah, we'll see what else he has to say.
Anita Ramaswamy 8:11
Right. But in the meantime, there's another piece of news that I want to talk about, which is yet another acquisition gone wrong. You want to give us the details.
Jacquelyn Melinek 8:19
Sure, another acquisition gone wrong. I liked that Anita, but basically, on Monday Galaxy digital share that it terminated its $1.2 billion proposed acquisition of the crypto custodian bitgo and a deal they announced last year of May 2021. Galaxy said in a public statement, they terminated the deal because it alleged bitgo failed to provide its audited financial statements for 2021, which violated the terms agreed upon so they wouldn't have to pay a fee for breaking the deal. vicco as expected, was not happy about this. And they also put out a statement saying that galaxy Digital's actions were improper. And it plans to hold the firm legally accountable while seeking over $100 million in damages.
Anita Ramaswamy 9:02
Okay, okay. Wait, so So let's backtrack for just Just one second, like there's a lot there's girls are frightening. And Anita, the girls are Friday, right? So Galaxy said they were gonna they announced the acquisition in May 2021. So they were going to do it asked for the financials. Bico allegedly, according to Galaxy did not provide their financial statements, the audited statements. And so normally what happens if you're the acquirer and you don't actually go through with the deal is you have to pay a really big fee for terminating the deal. Because once you agree to it, and the you don't acquire the target company, like it's not great, they need to get something in return. So Galaxy doesn't want to pay this fee because they're saying it's not their fault, and that Bidco is the one that didn't actually hold up their end. Yeah, hold up their end of the bargain. And now I guess Bico wants damages from galaxy for calling off the deal. I think the most confusing part of this to me was like it still seems unclear whether Bico actually did provide these audited financials or not like they're saying one thing Galaxy saying another thing and it's turned into this like he said, she said situation Yeah, one
Jacquelyn Melinek 9:59
of our porters, Manish Singh actually spoke to becos lawyer. And he said that it was an attempt by galaxy to blame the termination on Bico was, quote, absurd, and that victo honored its obligations providing those audited financials. It's kind of interesting, because it's unclear, I think whether or not they did that, and regardless of the rift that's going on Galaxy shares, which trading in Toronto jumped higher at the time when the news came out. And this also comes at a time that it's super interesting that their shares were up. Yeah, so I guess the shareholders were happy question mark about it. But this comes at a time when Galaxy digital reported its q2 earnings earlier this month with a loss of over $550 million. So, so yeah, they're not doing too great. It
Anita Ramaswamy 10:46
sounds like
Jacquelyn Melinek 10:47
Yeah, I mean, that's quite a loss. But the CEO Mike Novogratz also said, the firm has about a billion dollars in cash on hand, and the company is waiting for sec review and Stock Exchange approval for the US based NASDAQ Listing. So it seems like regardless of what's going on with Bico, Galaxy is extremely tied up and other things, they got
Anita Ramaswamy 11:07
to focus on themselves. They're in there like self care era, I
Jacquelyn Melinek 11:09
got it on from this relationship, whether or not that go has or has not, and someone close to Bico told me that the deal was supposed to close in q3 2021, which is not a secret. But they said while all of this happening, it became more and more clear that galaxy couldn't close the deal, and wanted to extend it further than the original date, which they in turn did. And during that timeframe, the source told me that Bayko has had a number of entities reach out to them that are now looking for a deal. And there's been a number of offers, and multiple of them are acquisitions.
Anita Ramaswamy 11:42
So Galaxy couldn't afford it. I said, Yeah.
Jacquelyn Melinek 11:45
Hopefully someone else could put a ring on it is what I'm right.
Anita Ramaswamy 11:50
Yeah. Oh, my gosh. But that's totally wild. I mean, it's not the first like disputed acquisition, we've seen in recent weeks. I think, as the downturn sort of rages on, like we're gonna see a lot of companies, I think, go back on their promises that they made decide that they don't want to put a ring on it, after all break off their engagement. Yeah. And it's pretty similar to like, last week, we talked about with finance and with your ex, where they had announced the deal, and then they were like, just kidding, the deal never actually happened. So I don't know. It's pretty wild
Jacquelyn Melinek 12:17
stuff. Yeah, I think this is a sign of like long lasting impacts that the bear market has had on crypto companies, especially those with like bigger pockets. Because sure Galaxy might have the capital even if they had 550 million in losses in q2. But to carry out a previously agreed upon commitment might be harder as the market continues to suck, for lack of better. That's the way to put it. Speaking of things sucking. Earlier this week. crypto.com did a second round of layoffs to crypto reported and you know, you wanna tell me a little bit more about that.
Anita Ramaswamy 12:51
Yeah. So this obviously, like hate covering layoff news, because it sucks. And it's sad. But you know, what happened@crypto.com was that they caught about 5% or 260 employees from their workforce in June. And they blamed on the bear market and crypto and at that time, they said, that was it, there's no more layoffs happening, like we're done cutting staff. But obviously market conditions have persisted and continued to be tough. So essentially, what it seems like happened here, and this is sort of between the decrypt reporting, and you know, me speaking to a source of the company as well, it's just that they had been letting people go since June, very quietly, like people were getting fired, but there was sort of no public announcement of it, right. And a lot of these big exchanges when the downturn first really started kicking into high gear announced these huge layoffs, and they actually said, like, Hey, we're letting go of X percent of staff and they'd send like an internal memo, and then obviously, media would get a hold of it and then be able to report on it. What crypto.com is doing here is actually a little different. And they're trying to move in silence. So the CEO, he ended up addressing the second wave of layoffs in this company, wide townhall this past week, after a lot of the layoffs had already occurred. He didn't provide any numbers. And he apparently according to my source said something along the lines of You know, the company isn't public. So we don't need to announce these layoffs publicly. And I've heard that what's basically going on is like they're engaging in really aggressive cost cutting, they're really concerned about the bear market. And there's a lot of internal initiatives to sort of pinch every penny and make sure that teams are as lean as possible. So I think the big takeaway for me here, at least on this layoff side of things is that the downturn is getting worse crypto companies are continuing to fire their employees, but we're not always going to hear about it unnecessarily.
Jacquelyn Melinek 14:31
Yeah, and this isn't the first company to do this. So it's just another one that happened to come to surface through sources. I mean, we've seen this in the past with Coinbase, Gemini and other companies who not just in the crypto industry, but beyond the crypto industry that have done two rounds of layoffs, as you mentioned, and it's just becoming this trend that we're going to continue to see unfortunately, and I don't think this is the end of it, but crypto.com Even though they are doing this layoffs, they did have some good news on Wednesday that they registered with the UK is financial service regulator, which means it has approval to offer crypto assets and services for users in the UK. compliantly. Right, right. Yeah, I guess that speaks to maybe a positive turn for the company. Yeah.
Anita Ramaswamy 15:17
Or maybe just sort of a refocusing and are almost like a restructuring. Their CEO mentioned that UK was super important to them strategically, and they're trying to get users there, right? Like if they're really so concerned about tightening their belts and pinching every penny and doing these layoffs and secrecy. I mean, obviously, things are not looking great behind the scenes, but maybe the UK could be another market for them. And I know there's sort of like a regulatory advantage to them getting this approval right now, too, right?
Jacquelyn Melinek 15:41
Yeah, actually, I feel like this gives them the ability to kind of like fit into the framework of what needs to be done in order to operate. And when there isn't a framework, if that makes sense. Yeah, regulators globally are trying to figure out how to regulate the crypto space. And then the companies on the other side are trying to register within the financial frameworks available to them today. So I think even though there has been a round of layoffs, this could potentially provide clarity for the business in the UK, and maybe give them that like extra push that is needed to get that next round of users and adoption going forward.
Anita Ramaswamy 16:19
Yeah, which is going to be super important and super crucial that they do that, you know, it reminds me a little bit like this combination of bad news and good news of the sort of conventional wisdom in HR that's usually repeated, which is like, if you're gonna do layoffs, do them one time, make it short and don't like extend the pain if you're gonna cut, cut deep and cut once? And it seems like crypto companies are doing the opposite. I'm sure that's not intentional. I'm sure it's more of like, they have been sort of forced to do this, because market conditions are just so shitty right now.
Jacquelyn Melinek 16:46
Yeah, they're doing a bunch of little stabs and letting like everything come out in small ways, but I just feel like they knew this. I feel like it was almost like, and I say they as in like everyone across the industry, not just crypto.com. But those who have done these double layoffs, like I think they knew that it was more than what they did initially. And going back and having to do that definitely affects morale. I mean, I've spoken to sources at these companies who say like, they're just waiting, it's a chopping block, and they're just waiting for their turn to be cut. And it honestly affects morale. Like can you imagine working somewhere where so many people were laid off? And they tell you it's the end? And then you find out? It's not the end? It's like, yeah, it almost feels like a lie, honestly.
Anita Ramaswamy 17:25
Right, right. And that's the sort of shady part is like not really announcing this and not giving your employees any clarity, but instead silently, sort of letting people go until it becomes big enough that they can't help but notice, it's definitely a stressful time to be working in crypto, for sure.
Jacquelyn Melinek 17:38
Before we get out of here, Anita, I wanted to highlight a few of our stories that we're working on this week, or publish and also just give a shout out to our next guest on chain reaction. For me personally, I put out a story on polygons head of investments who I spoke to, and he told me that they're still highly bullish on web three, and that their long term mission in the space has not changed. But they're also hoping to get more web two institutions and companies into the web through space. So we'll see how that pans out. Yeah,
Anita Ramaswamy 18:08
bullishness is the theme of the week here, I guess. Because my week has been focused on Adam Newman, the WeWork founder who just came out with a new funding round for his new real estate startup. I know it's only tangentially related to crypto but the reason I went down that rabbit hole in the first place of sort of chasing the story and figuring out what's going on with his new venture and chronicling some of the reactions to it, which I did. And a story that I co wrote with my colleague Natasha is because Adam Newman's last venture was announced in May and it was supposed to be this crypto carbon credit startup that was putting tokens on the blockchain for carbon offsets. And so he seems to have done a complete pivot since May. And the announcement of this new venture from Andreessen Horowitz, who was the big backer says that this is actually his new venture. So it's crypto company was called flow Carbon Health new company is called flow. It's all very confusing. If you want to learn more about it. You can check out my articles, but we are also releasing a guest interview on Tuesday. So make sure to tune in next week, we are going to be releasing our interview with Devin Luton, who's co founder of web three media production studio mad realities.
Jacquelyn Melinek 19:13
We'll be back every week with the top news on the crypto ecosystem. Catch us on Tuesdays for interviews with experts in the web three space you can keep up with us on Spotify, Apple Music or your favorite pod platform and subscribe to our companion newsletter also called chain reaction. Links to the newsletter and the stories we talked about can be found in our show notes. And be sure to follow us at chain underscore reaction on Twitter
Anita Ramaswamy 19:36
chain reaction is hosted by myself Anita Ramaswamy along with my co hosts Lucas Matney and Jackie melanic. We are produced by Yashad Kulkarni on our associate producer as Maggie Stemettes with editing by Cal Keller Bryce Durbin is our Illustrator Alyssa stringer at leats audience development and Henry pic about manages TechCrunch his audio products. Thanks for listening and see you next week.