The Soft Fork Bulletin Issue #1

"The world was my oyster, but I used the wrong fork." – Oscar Wilde

Last week was a terrible week for crypto.  

The price of Bitcoin, which has been declining in lockstep with the overall price of technology stocks since April, plunged to its lowest point since 2020. Every major cryptocurrency followed suit, and horrified hodlers watched as over $300 billion worth of value got wiped from the boards over the course of a few days. Even the optimists tend to agree that the current bear market will be with us for years. Another crypto winter.   

I've been working in blockchain for several years, and that part of the story felt familiar: crypto prices go up and down, buffeted by the winds of speculation. When the world financial system feels shaky — supply chains snarl, inflation rears its head, interest rates get hiked — they often go down, down, down, and stay down for a long, long time. Crypto winter isn't new, and it has its advantages: the spotlight fades, the noise disappears, so it's a good time to focus, put your head down, and get to work. But what does feel new to me is the sudden and catastrophic collapse of Terra. 

Terra is, in the official language of the Terraform Labs website, "a public blockchain protocol deploying a suite of algorithmic decentralized stablecoins which underpin a thriving ecosystem that brings DeFi to the masses." Its marquee token, TerraUSD (aka UST), was designed to retain a $1 value by working in concert with a balancer token called LUNA. From the Terra docs: "To maintain the price of Terra, the Luna supply pool adds to or subtracts from Terra’s supply. Users burn Luna to mint Terra and burn Terra to mint Luna, all incentivized by the protocol’s algorithmic market module." 

Last week, that mint/burn algorithm failed to do its job, and by Friday the price of UST had dipped to 11 cents, and LUNA had cratered to 0. Like many people, I'm still trying to wrap my head around exactly what happened — I've been digging into crypto Twitter threads to understand the mechanics of the "death spiral;" I've been reading posts on Medium that analyze the data — and while I wasn't surprised that a so-called "algorithmic stablecoin" imploded in adverse market conditions, I was surprised at the size of the crater. So I started looking deeper into Terra. 

The Terra ecosystem grew a ton over the past year. Driving that growth was Anchor, a lending protocol at the heart of Terra, which offered users a too-good-to-be-true 20% return on UST deposits. It attracted $40 billion worth of capital to UST/LUNA, all of which disappeared in the collapse. The real-world pain inflicted is evident everywhere: three months ago, the top post on the terraluna subreddit read: "r/terraluna hits 30,000 members…welcome all!" Today, there's a post pinned at the top: "For everyone panicking, here are some National helpline numbers." I tried to join the Terra Discord to hear more from the LUNAtic community (that's what Terra stalwarts call themselves: LUNAtics), but as of Friday, it is "temporarily closed for new members." I've heard that existing members have to wait an hour between posts, so it seems like the Discord is frozen, or at least moving in super-slow motion. What's a LUNAtic to do? 

At this point, Do Kwon, the outspoken Terra founder, is tweeting "Terra is more than $UST," and pointing to the ecosystem directory, which lists 114 projects built on Terra. But what happened to those projects last week when Terra validators halted block production to "come up with a plan to reconstitute the network"? When you rely on public infrastructure, and a gale-wind force knocks it down, what do you do? Do you stick around, hope repairs will be swift and effective? Do you try to regain the confidence of your users? Or do you bail? 

I work in an adjacent ecosystem — I'm the VP of Ecosystem for the Stellar Development Foundation (aka SDF), a non-profit organization founded in 2014 to support the development and growth of the open-source Stellar network — and I am as deep in it as anyone can be. Everyday, I talk to partners and projects built on Stellar. I help coordinate network upgrades, sit in on protocol meetings, interact with engineers, writers, educators, and community members, and generally try to advance SDF's mission "to create equitable access to the global financial system." And watching the collapse of Terra, I'm left wondering: what will the extent of the damage be? How will it affect the blockchain industry as a whole? What can I do to help set things right, to restore the public's faith in a technology that I believe can transform peoples' lives for the better?

One answer I came up with: I can try to ask and answer the type of questions posed above. I can take a hard look at blockchain fundamentals, examine whitepapers and pull requests, think through design decisions and governance models, and try to figure out what I think works and what doesn't. By reading closely, diving into technical details, and exploring ecosystems outside the one I currently inhabit, I can tease out the political, economic, and behavioral assumptions that differentiate one blockchain from another. And every month, I can write down what I find and share it with you, dear reader, in a newsletter. This newsletter. 

Welcome to the first edition of the Soft Fork Bulletin.