Do Kwon
Photo: Woohae Cho/Bloomberg via Getty Images

Sometimes failure is an option

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Tuesday: salvaging a stablecoin, crypto sanctions, and Sam Bankman-Fried vs. Jack Dorsey.

Off the chain

“Just because you dreamt it doesn’t make it any less real.” No, that’s not Do Kwon trying to reassure UST buyers: It’s RuPaul, my muse, in her 2018 advice book, “GuRu.” Crypto investors might find some words of consolation therein, and some common ground. RuPaul first suggested tipping drag queens in bitcoin in 2013. Can we call her a girly adopter?

— Owen Thomas (email | twitter)

Can this stablecoin be saved?

For a brief moment on Monday, UST appeared to be rallying. After sinking to as low as a penny, the stablecoin’s value climbed back up — to 12 cents. That’s not going to cut it: It’s still well below the $1 peg UST was supposed to maintain. Meanwhile, its sister cryptocurrency luna somehow fell further, to two-hundredths of a cent.

An effort to save the beleaguered token appears to be going nowhere, marking the biggest implosion of 2022’s crypto crash. Even Do Kwon, the co-founder of Terraform Labs, seems ready to give up on UST — though he’s still, improbably, holding out hopes for luna.

The reserves have run dry. The Luna Foundation Guard, the nonprofit launched by Kwon to back luna and UST, squandered the bitcoin reserves it had built up.

  • LFG said Monday it was running out of bitcoins after frantically swapping the cryptocurrency for UST and making other maneuvers to defend the dollar peg. From over 80,000 bitcoins as of early May, it had only 313 left.
  • The foundation said it hoped “to use its remaining assets to compensate remaining users of UST, smallest holders first.” Kwon also proposed to essentially abandon UST. The Terra blockchain on which UST and luna operated, he said in a tweet, “should be forked into a new chain without algorithmic stablecoins.”
  • He urged Terra developers to support the new fork, saying Terra “is my family. I will always be here, no matter how hard it gets.”

The fallout for other stablecoins is still ongoing. Circle CEO Jeremy Allaire, whose company backs the rival USDC stablecoin, said UST was “literally a ticking time bomb.” Many in the industry believe it’s too late to save it.

  • The fall of UST put a harsh spotlight on stablecoins that use algorithms to dynamically control the supply of tokens in order to maintain a price peg. USDC and tether, by contrast, maintain monetary reserves to back their pegs.
  • There was “curiosity” around algorithmic stablecoins, Allaire said, but the industry is now retreating to “the stuff we understand, which is these fiat-backed, dollar-backed, full-reserve models like USDC.”
  • Other crypto leaders suggest Kwon’s efforts to salvage something from UST just aren’t worth it. “Failures can/will happen,” Binance CEO Changpeng Zhao said in a tweet. Binance lost $1.6 billion on paper from the UST it received as part of an early investment in Terraform Labs, and Zhao said Binance wouldn’t try to retrieve any of that.

Maybe failure needs to be an option. The UST crash actually might have revealed “a new found [sic] resiliency” in the crypto market, Zhao argued. Even some critics of stablecoins agreed. Bill Nelson, chief economist of the Bank Policy Institute, said if “everything settles down in a few days,” crypto advocates could argue that it shows how a crypto ecosystem “could implode safely.” It’s a Darwinian vision of the market. But if failures are what it takes for crypto to evolve, so be it.

— Benjamin Pimentel (email | twitter)


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On the money

On Protocol: The first case of crypto sanctions enforcement has appeared, and a D.C. magistrate judge is reveling in the proof it offers that digital assets aren’t as anonymous as some might think.

Cannabis banking is still problematic, but lawmakers might act this year. There are a few different ways Congress might resolve the tension between state-level legalization and federal prohibition to untangle financial services for the sector.

Portugal is considering imposing capital gains taxes on crypto. The lighter tax treatment of crypto as a currency had made the country something of a tax haven.

Also on Protocol: Everything you need to know about the crypto crash.

MiamiCoin’s price has cratered, and there still aren’t any real uses for the city-linked token. There are also concerns that the city’s crypto-friendly mayor, Francis Suarez, may have skirted securities rules in promoting the cryptocurrency.


Sam Bankman-Fried slighted bitcoin in an interview with the FT, and Jack Dorsey wasn’t pleased. The FTX CEO said bitcoin was useful as a store of value, not for payments, and the Block head and noted bitcoin maxi asked him why he didn’t bring up the Lightning payments network.

Adrienne Harris, superintendent of the New York State Department of Financial Services, wants to be cautious in regulating fintech that expands access to the underbanked. “There’s a need for liquidity for underserved communities,” she told We want to be careful to use a scalpel and not a hatchet.”

Deal flow

The Flow Blockchain raised a $725 million ecosystem fund.Dapper Labs created the blockchain, which powers Dapper’s NBA Top Shot, NFL All Day and UFC Strike NFT marketplaces, in addition to other Web3 apps. A16z, Coatue, Liberty City Ventures and Dapper Ventures all backed the fund.

Solidus Labs raised another $45 million.The crypto asset monitoring firm says the series B funding will help it bring in traditional financial institutions looking to expand into DeFi. Its investors include Liberty City Ventures, Evolution Equity Partners, Declaration Partners and angel investors Brian Brooks and Christopher Giancarlo.

Paddle raised $200 million in series D funding. The London payments infrastructure company has now reached a valuation of $1.4 billion, with investors such as Notion Capital, Kindred Capital and KKR.

Paymob raised $50 million in a series B round.PayPal Ventures, Kora Capital and Clay Point led the round, bringing the Cairo payments startup’s total raised to $68.5 million.

Co:Create raised $25 million in seed funding.A16z led the deal in the remote-based NFT minting company, joined by VaynerFund, Not Boring Capital and Amy Wu.


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