Dialogue between the two founders of Terra and Avalanche Protocol: The Intersection of Parallel Universes

Source: Twitter Space

Compilation: Rhythm BlockBeats

As the massive financial empire of Terra began to expand rapidly, the stability of its native stablecoin became increasingly important. After announcing the introduction of Bitcoin as a reserve for UST, founder Do Kwon announced on April 8 that AVAX would also become a reserve for UST, allowing UST to support native minting on the Avalanche chain, just like LUNA.

Decentralized stablecoins represent a large-scale experiment, and the successful operation of UST has shown other public chains the potential for stability. The choice of Avalanche to directly use UST was indeed an unexpected scenario for many. In a Twitter Space on April 13, Terra founder Do Kwon and Avalanche founder Professor Emin Gün Sirer shared the story behind the combination of these two parallel universes. Rhythm BlockBeats has provided a transcript, hoping to assist readers.

TL;DR

• UST's choice of multiple reserves is to build confidence beyond the Terra ecosystem;
• UST and Avalanche are mutually beneficial;
• Avalanche's subnets are very attractive;
• The minting and redemption between AVAX and UST is asymmetric;
• How to promote the use of UST within the Avalanche ecosystem and subnets.

Host: First, we need to discuss the partnership announced last weekend and what this collaboration means for both the Avalanche and Terra ecosystems. I believe this partnership will bring the two communities together and further drive the adoption of blockchain technology in new ways. This collaboration is a first in the industry, so many people are very excited and want to learn more about the details of this partnership.

I hope we can discuss a lot of great things today, and thank you all for joining. So, the first question is for Do Kwon. In the past few weeks, you've done many interviews regarding the plan to purchase BTC as UST reserves, and now you are working on diversifying UST reserves.

Can you talk about the decision to diversify reserves and how it will develop, and then we can delve into how Avalanche and AVAX will fit into this plan?

Do Kwon: Sure, this decision is easy to understand; it's like trying to master the languages of different countries. Initially, one of Terra's main purposes was to bring stable use cases. This is not only because the use cases we initially built showed relatively low volatility but also because they were primarily used on the Terra chain, serving its own DeFi ecosystem.

For users in the Terra ecosystem, LUNA is a very good collateral; they have a lot of confidence in LUNA because it is the main staking asset of the Terra chain. However, from our perspective, I believe the potential of UST is not just to become a stablecoin for the Terra ecosystem but to become a decentralized currency that spans all blockchains, similar to the roles that USDC and USDT play in the centralized stablecoin space.

Crypto should have a sovereign currency, which is definitely beneficial for all ecosystems, and this sovereign currency should be backed by industry-leading assets. To achieve this, it makes sense to diversify reserves into assets like Bitcoin and AVAX. Bitcoin provides a neutrality that a single ecosystem asset cannot offer.

Therefore, as we build up more Bitcoin reserves, not only does the economic risk of UST decrease, but it also means that users using UST outside of Terra have more confidence because UST is backed by an asset that is neutral for all ecosystems.

This partnership is equally significant for Avalanche; we have a grand plan for how to increase UST adoption on Avalanche. The growth of UST will also help incentivize other parts of the Avalanche ecosystem. Since UST on the Avalanche chain is backed by AVAX, as UST grows, the supply of AVAX will also decrease.

Emin Gün Sirer: I can add to that. I think everyone is very clear that we are moving towards a decentralized world, and cryptocurrency is at the forefront of this path. In the world of cryptocurrency, we need a unit of account, we need a measure of value that is relevant to the outside world.

Now, we call things that can provide these measures stablecoins. There are many types of stablecoins, some backed by fiat currency, like Tether's USDT, Circle's USDC, and so on. They are great in many ways, but at the same time, they also bring unique risks. The biggest risk they carry is the lack of decentralization, as they have a reserve controlled by a very small number of people. Just one piece of paper can cause the entire asset class to lose its value.

This is indeed problematic. So in a decentralized world, we need a decentralized stablecoin. What Do Kwon just mentioned is exactly what UST was created for, providing a valuation method that no power can control; it is completely and truly decentralized. That’s why we say UST is a stablecoin suitable for crypto. I think this is a great exploration, so when the opportunity and ideas arise, I am very excited, and I appreciate you reaching out to me.

Host: How did you two start talking? I believe everyone wants to know how these two ecosystems established a connection.

Do Kwon: We have been looking for many different ways to enter the Avalanche ecosystem, and we have had some success. We have been collaborating with various teams in the Avalanche ecosystem, such as BENQI, Trader Joe, and Pangolin. We have also launched some of our own applications on Avalanche, like Anchor. Of course, there are also upcoming applications like Nebula.

One consistent feedback we heard from the Avalanche ecosystem is that they want a stablecoin backed by Avalanche, with at least two backing assets, which would be more neutral and trustworthy.

Thus, the idea and decision to increase Bitcoin and AVAX collateral actually came from carefully listening to frontline feedback.

That’s how we started the discussion. First, we talked about how to better align incentives with the Avalanche ecosystem. Then there were many questions, such as what types of teams we need to communicate with? How should we design the reserve scheme with people and the foundation in the Avalanche ecosystem? That’s how we worked together to accomplish this.

Emin Gün Sirer: Do Kwon, I don’t know if you remember our first conversation, but I remember it very clearly because I was freezing. It was a very cold night in New York, and I was having dinner with a group of friends, and the time zone difference affected our conversation.

When we started talking, it was 8:00 PM on my side, and it seemed to be 8:00 AM on yours. I had to step outside to make the call because it was so cold that I was shivering and my jaw was clenched. But I was really excited because this was the combination of two parallel universes, the Terra universe and the Avalanche universe, merging different knowledge and technologies to create something truly suitable for the crypto space. We are trying to integrate what we have to create something greater than any of its parts.

Host: When you both talked about how these two parallel universes and ecosystems could merge, you mentioned the importance of community and the importance of ensuring that everyone in the community succeeds. As you tried to bring together everyone from the developer and founder communities of these two projects, what similarities did you see, and how powerful could their unification be?

Do Kwon: I saw a very obvious similarity: synergy. When communicating with projects in the Avalanche ecosystem, I noticed a lot of enthusiasm and many community-driven innovations.

In a sense, projects are willing to provide tools and help each other because they want the entire ecosystem to succeed. It’s not because of direct financial incentives or anything like that, nor does it make it easier for you to raise funds. Even if projects overlap in certain functionalities, they still help each other improve rather than drag each other down.

When this happens, the success of the ecosystem will follow. We also see builders in the Terra ecosystem who share the same values. They want everyone to work towards a common goal rather than undermine each other. In the current wave of money and VC frenzy sweeping the Web3 space, this is quite rare.

Now let me talk about my understanding of the Avalanche philosophy, which is one of the reasons I am fond of Cosmos. Every bull market, there are calls to control the wealth gap, but every bear market, we forget about it. I view a blockchain as a city, with green belts surrounding it. To scale, you can only move to satellite cities where you can build more buildings. Now, any sufficiently reliable distributed system has limited block space; even if you build 100-story skyscrapers in each block for vertical scaling, the ground will eventually be filled. Another way to scale is to horizontally scale, like all modern computing systems.

Cosmos has SDKs and IBC to connect many things together. Avalanche currently does not have a vertical scaling solution because its consensus is very elegant and beautiful, and the performance of the Avalanche C chain is outstanding. Avalanche's current scaling method is to build subnets for different applications, achieving horizontal scaling, and I have already seen some successful cases. The DeFi Kingdoms subnet is a great proof of concept that demonstrates the feasibility of this technology.

If the DeFi Kingdoms subnet performs well in the coming months, it will directly tell publishers and independent developers worldwide: Avalanche is a high-performance chain that you can use specifically for your games without sharing limited block space with others, like NFT airdrops or similar things.

So I think the vision of Avalanche scaling and attracting a new hundred thousand Web3 developers is very compelling. We want to be one of the leading decentralized currencies in the future proposed by Avalanche.

Emin Gün Sirer: We are very glad to have you join us, Do. Following your words, I would like to talk about our philosophy. Several different factors contributed to our partnership. As far as I know, such collaboration is unprecedented in the crypto space. One of the most important factors that facilitated this partnership is the team behind Terra. In fact, we have been paying attention to Do and his team for a long time.

We have been observing their rapid rise, and we know that Terra possesses something that only a small number of projects in the crypto space have: the ability to execute, solve problems, and deliver results, which is the most important. However, when I heard that you were based on Cosmos, my heart sank. I really hoped you would work on top of us. At that moment, I would have done anything to make you choose Avalanche. What happened next was actually quite simple: we worked very hard to find a way for Terra to deploy and operate on Avalanche.

The second point that brought us together is the issue of algorithmic stablecoins. Algorithmic stablecoins are a puzzle; many people harbor great hostility towards them and believe the problem is unsolvable. There was once a group of people who thought that blockchain scalability was also unsolvable; they questioned Avalanche and said that Avalanche's mechanism could never work. Looking back, those words seem very ridiculous because reality later proved them wrong. Both have suffered from skepticism, which is a commonality between Avalanche and Terra.

In fact, Terra's different foundation can play a synergistic role because its ecosystem is different from Avalanche. Terra has a different set of mechanisms and assumptions, different builders, but in spirit, there is not much difference. Terra is somewhat like our cousin, sharing the same values, part of the same family, just slightly different.

So when the idea of collaboration arose, Ava Labs (the developers of Avalanche) certainly wanted to collaborate with Terra, as it would break the existing pattern. We were very, very excited because we had the ability and opportunity to bring the two communities together to build something new, which has never been done before. Of course, I won't reiterate the decentralized stablecoin aspect because the synergy can create much more than that.

Do once promised to purchase $1 billion worth of Bitcoin, and he did. Then he bought another $3 billion worth of Bitcoin, and there may be more purchases to come, which is also very exciting.

So we do not see this as a one-time event; on the contrary, this is just the first step in establishing a partnership. For the reserve, we provide AVAX, which has some properties very similar to Bitcoin, also has a cap, allowing you to enter a vibrant DeFi ecosystem. In return, we get the largest algorithmic stablecoin. So this relationship is fantastic, and I can't wait to see what happens when the communities come together.

Host: Yes, this is just the beginning. Do, can you talk about how AVAX will become part of the UST reserves? Specifically, how will AVAX be placed into the reserve pool in exchange for UST? What does this model look like?

Do Kwon: The model mechanism is relatively easy to understand; you can think of it as a virtual AMM.

At any given point in time, users wanting to obtain UST on the Avalanche C chain can trade $1 worth of AVAX into this AMM to receive $1 worth of UST, and vice versa. As more UST is minted, this virtual AMM will contain more and more AVAX.

When you want to exchange your UST for AVAX, you can use your $1 worth of UST to receive $0.99 worth of AVAX. The asymmetry between minting and redemption is because we want to ensure that reserves are only used when the stablecoin is declining. This asymmetry ensures that people cannot continuously arbitrage using reserves but only use them to mint and redeem the stablecoin.

This mechanism has some properties. First, if you try to use UST and AVAX, it will create a native minting and redemption mechanism on Avalanche, which will be very convenient because you no longer need cross-chain bridges or to operate across this chain or that chain. This can eliminate several steps and is very useful. Second, regarding net worth, if the usage of UST on Avalanche increases, there will be more and more AVAX in the reserve pool. From this perspective, it helps to align the incentive mechanisms of the stablecoin with the ecosystem that holds it.

Emin Gün Sirer: I want to talk about what this really means for ordinary people. This allows people to always hold AVAX; if someone is bullish on AVAX, they can mint AVAX into UST and then use UST in DeFi applications, such as earning yields on Anchor. They can use UST for any purpose, just like using dollars, and of course, users must bear the risks involved. For those looking to explore DeFi, minting AVAX into UST is definitely an interesting opportunity.

Do Kwon: You can think of it as a trade route or a diplomatic channel established between two different countries. On-chain projects have many similar attributes to nations. That’s why many of them call themselves dYdX nation, Sushi nation, or Frog nation, etc. Of course, that’s a bit of an exaggeration, but they do share commonalities.

So, another way to think about the Terra ecosystem is that our biggest export in the decentralized crypto world is the Terra stablecoin, a decentralized currency. For example, if an American wants to sell Hollywood movies in another country, if that country has many popular stars, then the business will be easier to conduct.

Host: Do you think there are more solutions regarding the stability of stablecoins? Is it possible for stablecoins to de-peg and drop in value in the future? How does having another asset reserve, besides Bitcoin, help the stability of stablecoins?

Do Kwon: Good question. People always talk about the operational mechanisms of algorithmic stablecoins but rarely discuss the economic capabilities behind stablecoins. If you look at how central banks operate around the world, you will find that the dollar is the currency that receives the least value support in the central banking system, at least from a mechanistic perspective.

One intuitive point is that the Federal Reserve does not maintain foreign exchange reserves for different currencies, although there are some, but they are relatively small because they do not need to do so. However, many weaker economies have much higher foreign exchange reserves; it’s just that no one thinks their currency is important, not comparable to currencies like the euro or the dollar, which indicates that mechanisms do not fully resolve currency issues.

The dollar is strong not because the people working at the Federal Reserve are the smartest. (I think the monetary mechanisms and policy leaders exercised by various countries are very similar in many ways.) But because the underlying economy of the United States is stronger.

Therefore, I believe that for Terra, what truly matters is the current health of the Terra ecosystem, whether the apps in the ecosystem are sufficiently decentralized, whether the ecosystem is continuously growing, and how Terra UST can achieve growth and adoption across different chains. From this perspective, regarding whether to increase AVAX as a reserve asset for UST, my view is that it is very helpful for both the Terra ecosystem and the diversification of UST reserves.

More importantly, through this partnership, we can see UST growing faster within the Avalanche ecosystem. Collaboration strengthens the economic systems of both ecosystems, which is what we aim to achieve.

Emin Gün Sirer: Yes. I have reason to expect the realization of this goal. But the story of stablecoins is still being told; we are still in a very early stage. You just mentioned central banks and state-issued stablecoins; central banks have missed the opportunity to take a leadership role in this area. About a year ago, China realized the importance of blockchain and began to vigorously develop and promote CBDC. In the near future, I believe that existing participants will become emerging participants, and UST is currently in a leading position in this field.

Host: In the best-case scenario, due to this partnership, the adoption and usage rate of UST could grow exponentially, far beyond anyone's imagination.

So Do, when you consider which blockchain ecosystem to collaborate with, do you think there are ways on Avalanche that could further promote the adoption and usage rate brought by UST across chains? For example, using stablecoins to interact with different protocols, payments, or using stablecoins for different trading mechanisms, etc.

Do Kwon: I think the first step is to coordinate incentives to ensure alignment of goals, and the second step is for Terraform Labs to put in significant effort to research what can be done to help develop the Avalanche ecosystem. Essentially, we believe that the Avalanche economic ecosystem is growing faster than other projects. One way to ensure this relationship develops faster is to help its economy grow more quickly.

So recently, we announced that Avalanche projects accepting UST will become part of the platform capital brand program. This means we will fund their auditing work and also subsidize the initial launch costs of the protocol. The purpose of this is to help Avalanche projects and ecosystems eliminate some flawed protocols and offset some early initial costs.

This means that more community-based fair launches can be optimized to avoid unnecessary economic expenditure. We are pushing this forward and believe it will be very helpful for Avalanche.

Secondly, we will also integrate a suite of apps supported by Terraform Labs for Avalanche, such as the passive asset management protocol Nebula Protocol. This protocol defines top asset clusters across different blockchains. Covering the Avalanche ecosystem means there will be a basket of assets from that ecosystem for users to trade easily, allowing for targeted bets on the Avalanche ecosystem.

I believe the application space in the Avalanche ecosystem will receive a lot of attention. And this anchored form of yield protocol has already been implemented. We are working to simplify the user experience and provide services for native use cases that have obligations. We are happy to collaborate with the best builders in the ecosystem and help them achieve greater success.

I believe that even if you have USDT or USDC in hand, you should try to hold decentralized stablecoins to hedge against various risks. Even if it’s not needed now, it may be useful in the next two, three, or five years.

Host: Well said. Avalanche certainly has a lot of work to do, and there are many great ways to integrate UST into existing protocols or upcoming new projects.

Do, when you announced the partnership, you wrote in your tweet: "Web3 will run on multiple chains, including many Avalanche subnets." I believe subnets will be a truly blossoming technology. What are your thoughts on subnets?

Do Kwon: I am very excited about Avalanche subnets because they will allow people to easily launch their own block space. Current mainstream blockchain networks are great, but people have to share block space with others on these networks. This means that once something notable happens, like an airdrop, the network becomes exceptionally congested. For other applications running on that chain, it is unacceptable for block space to be occupied in this way.

Because those games usually have a large number of users but relatively little capital to handle. It’s not hard to imagine that in the future, some Web3 games will have 5 million or 10 million daily active users. To cope with this, they need their own dedicated block space; they cannot share it with others, or they will not be able to maintain service quality.

I just spoke with the founder of a gaming company in Seoul; one of their games has 1 million daily active users, and he told me about the importance of network performance for a large gaming company. So having your own blockchain and the ability to scale it is really important.

Because of Avalanche's outstanding performance, some of its subnets are very meaningful. Additionally, just as users can own bandwidth, they can customize consensus mechanisms and execute work in various ways without adhering to a single tech stack.

Emin Gün Sirer: I’m glad to hear you say that. As a core member of Avalanche, I want to add that, in fact, the breakthrough in consensus protocols is what led us to create Avalanche. We have the fastest consensus protocol in the world, and it is also the most decentralized, accommodating millions of validators within the protocol itself, and all these validators play a role in every decision. The pursuit of vertical scaling is what drives us.

We introduced the concept of subnets to enable horizontal scaling. And I have to say that one of the rarest things in this field is having a clear mindset and a correct framework to evaluate distributed systems or economic activities. There is a lot of useless information and poor frameworks that can lead people down rabbit holes.

If the wrong framework is chosen and ultimately strange technical characteristics are adhered to, it will make the network unscalable or fail to produce anything effective. I don’t intend to list all these errors, but many of them are familiar to everyone. For example, some people are pushing fully centralized projects that either cannot detect and respond to fraud on the system or cannot scale because they ultimately share the same hardware or some critical bottleneck hardware with other chains.

The starting point is crucial; if the first step is wrong, the subsequent steps will also be wrong. This is why we have successfully built Avalanche, the fastest blockchain in the world.

It’s great to have a partner like you, Do. Algorithmic stablecoins are very difficult to achieve, and having a currency that can maintain its value through various market corrections is extremely challenging; it requires actual successful experience to validate. It’s fantastic to have a partner that has successfully done this.

I didn’t have the chance to interject earlier, but I actually wanted to say that the first thing we want to do is to build and use UST as cash in our ecosystem and increase its usage.

Another thing we want to explore is what we can do within subnets. As Do mentioned, we can customize solutions, and we can bring in millions of new users. We can do this by separating different games, different subnets, and different use cases. Therefore, this will be an exciting future.

Host: Yes, the future is certainly exciting, and we look forward to it. Some information from Twitter and other sources suggests that Avalanche may see a gaming subnet. Can you talk about that?

Do Kwon: I used to spend a long time in Seoul, which is one of the places in the world with the highest concentration of large gaming companies. Koreans are avid gamers; I was obsessed with it back in high school. Given some studies showing that up to 1/3 of the Korean population holds or trades cryptocurrencies, combining gaming with the highly prevalent Web3 in the crypto space will enhance the appeal of gaming. That’s why all game publishers nationwide are rushing to launch Web3 games.

What’s interesting is that we have been discussing with some of these game publishers about using UST, KRT, or other different types of stablecoins to allow players to transact within the game, which would be very appealing. Because we support multiple types of stablecoins and provide APIs and SDKs to support various currency use cases.

From the perspective of game developers, this is particularly useful because it addresses two issues. First, it allows publishers to release games to a global audience. The stablecoins recognized by users in different countries vary. Our multi-stablecoin system, where different stablecoins are anchored to various things, undoubtedly helps achieve this goal.

Second, if you release a game in the crypto space, this will be particularly helpful because if you make traditional mobile games, game developers will have to pay a large fee to platform providers, such as Apple’s iOS payments. If game developers execute transactions on the script, they can avoid this situation. So what’s needed now is to propose a compelling technical structure that allows game companies to actually build these things.

I believe if we can have one of these Web3 games launch on an Avalanche subnet while using UST and other stablecoins as payment and transaction methods, then in this case, it would be the best embodiment of this partnership. If this attempt is successful, we can replicate this experience and significantly enhance use cases.

Emin Gün Sirer: Allow me to interrupt; this is very interesting. I have been fascinated by programmable games for a long time. Some people in the audience may remember that you used to be able to enter MMORPG games using programmable code, designing your own weapons and uploading your own code. But you couldn’t just create an atomic bomb that kills everyone; you had to make some trade-offs, etc. Therefore, what we see is that studios struggle to create a hit game, hover, and then collapse; they are just making these things. From the user’s perspective, the experience is not great.

You ultimately get stuck in some games, ensuring that you always have fun. You have to ensure that you don’t end up in a situation with a low user count. It’s a survival of the fittest, and due to the Matthew effect, you have to play the games that all your friends are playing; only a few popular games will survive.

But with the emergence of blockchain and the ability to upload code, as well as the improvement in the ability to build virtual machines that can safely execute code, and with the emergence of different styles of games, there will be interoperability between different types of games written by different people. I think many games actually look very similar, but in any case, if you are in the world of Zelda, the world of Mario will have nothing to do with you.

These emerging genes are clearly compatible with each other; blockchain allows you to build things in one universe and bring them to another universe. The opportunities are enormous. So right now, I think we are seeing the emergence of the first games. They have economic systems, but perhaps the economic systems are not very advanced or complex, and they will ultimately encounter the collapses and economic issues you see in small countries.

I think we will strive to overcome these issues and establish a more stable dynamic within the economics of the games themselves. We will see these types of games start to share space on the same chain so that elements can be transferred from one game to another.

Most importantly, for someone like me, I am very much looking forward to the day when "we can upload and customize certain features of games." So this is just an exciting emerging field. Some of the evolutions involved present a huge opportunity for everyone in our community.

Host: I think a lot will change in the next year or so: building games, constructing economic models, and I believe the integration of UST is crucial for these gaming ecosystems. I think subnets are a perfect place for this, so I really look forward to seeing how UST will play a role. We are looking for more opportunities on how to grow. And I know besides that, you mentioned getting more projects and protocols from the Terra ecosystem to deploy on Avalanche; is there any particular project or platform that excites you? This is also a topic of great interest to the community, and everyone is asking on Twitter.

Do Kwon: There are some projects in collaboration, but I want to talk about some new things. As we all know, Terra is a huge Web3 ecosystem, and we will have many innovative use cases. For example, in the future, you might be able to import your NFT into your profile picture and then like each other; once you link to your wallet, it will turn into a 3D avatar. Then you can use it to interact with other characters in the 3D space.

When you first enter, it’s a bit like a street; when you enter each building, you enter a different virtual world, and you can program every aspect of these sub-worlds. Therefore, developers can create one of these buildings as a small arcade game, just like when you enter. Right? Or it could be like a store where you can browse different types of fungible tokens or NFT merchandise. Avalanche will be able to support a whole NFT system and allow instances in the ecosystem to deploy.

There are also many interesting DeFi projects, such as PRISM Protocol, which can essentially break down any yield-bearing asset into a structured token and bring monthly yields; on the other hand, if you want to bet on the yield of a specific yield-bearing asset, you can sell pToken and buy more yToken, thus holding leverage; if you just want access, you can also sell yToken and then just bet on p. All of these make DeFi more rational because it allows people to bet on the yield or price appreciation of the principal. So I think this is really interesting.

Host: It will be exciting to see these things. The ecological cooperation on Avalanche will bring a lot of new innovations, and some of the gaming content and the idea of 3D avatars you mentioned are really interesting; everyone is looking forward to how some of these things will develop and be realized. Next, I have one last question, and then I think we will spend a few minutes answering some questions from the audience. Another question we received from Twitter is that it sounds like the initial stage of adding AVAX to the UST reserves, so what will be the mechanism for purchasing more AVAX as reserves in the future?

Do Kwon: We are researching how to develop the reserve process based on the final use of the reserves. Currently, we are in the late stages of standard formulation, and the initial types of current standards can be found in our developer forum. We have already published the current mechanism in the community, including how to mint UST and redeem AVAX. I encourage everyone to take a look. For the minting instructions, both BTC and AVAX have a specification document, which I think is interesting.

At the same time, we will place the AVAX we purchase into a liquidity pool. Since it is not yet a fully collateralized reserve mechanism, there will still be liquidity in it, and we will conduct deep testing for liquidity. But I think this will be a gradual process. I believe that in a few months, we will launch and operate the reserve mechanism so that users can use it.

Host: Thank you for your answer. If everyone has the opportunity to read that specification document, they will see how this mechanism is constructed. Next, we have a few minutes to answer a few questions from the audience. I’m sure everyone has many different questions about these two projects. We hope to focus on this special partnership in the mechanisms being built. The first one, Joseph, hello.

First Guest: Hey, thanks for having me. I was going to ask you some questions about Avalanche subnets. Specifically, UST is a very unique and interesting system; stablecoins are an interesting value pillar that could even establish economic structures and payment structures for entire city governments.

I want to know if Avalanche subnets can integrate local administrative transaction systems so that they can create their own subnets for their local currencies, transfers, payments, and so on.

Emin Gün Sirer: That’s a great question. I lived in Ithaca, New York, for many years. Those familiar with local currencies may have heard of Ithaca Hours, which is a local currency. When I was in Ithaca, I could pay my gardener with Ithaca Hours, and he or she could ask you to spend an hour helping them with their laptop or anything else. Yes, local currencies are fantastic and can even create miracles for communities. I have many interesting stories about the early governance of Ithaca Hours, but I won’t go into detail.

What I want to say is that any new financial link we establish is not independent; the core mission of any new platform proposed by anyone is absolutely important, not just enriching the token it builds but creating a platform for others to create digital assets. That’s what we are building in Avalanche, and that’s our slogan. The network digitizes everything, and I think what follows is empowering everyone to create their own digital assets.

We have certainly talked to various people excited about local currencies and have had discussions with some places about issuing their own tokens, all around the world. However, I can say that there is still a lot of regulatory uncertainty, and what ultimately happens often forces local administrative systems to consider using fiat currencies, with pressure coming from official discrepancies; the considerations of the upper and lower levels are different.

And due to this tension, regulatory issues are very real; if you succeed in some small jurisdictions in any country, you may conflict with the central authority. The central authority has the right and ability to shut down your network.

So this is a very attractive field, and I personally find it very, very interesting, aligning with my values of building things that serve people and building countercultural things. But at the same time, it’s fraught with challenges, and I’m glad to be able to do something. As you pointed out in your question, subnets have excellent infrastructure.

They allow you to have a set of independent validators, and aside from needing to connect to the Avalanche network to operate with others and tools, they won’t force you to make technical decisions based on whatever rules you have. So this is a fairly lightweight design, and if people have ideas, I will be all ears, and the entire lab team is willing to help.

Second Guest: I have a question; I want to know about the decision-making process behind Terra's choice of Avalanche, why not other Layer 1s?

Do Kwon: Avalanche is many chains, not just one chain. Haha, just kidding. But basically, I think I have already explained this question earlier.

Just from the unity of the builders currently active in Avalanche, I don’t think there is any reason to deny that the fastest-growing public chain today is Avalanche. I think this trend will become more apparent as some higher-performing DApps start to go on-chain. I believe subnets provide an incredible opportunity to meet these needs without having to share block space with other applications. People love to customize and build their own services and infrastructure without being limited by the performance of others.

Third Guest: Still some questions about subnets; have you thought about using UST as the gas fee for Avalanche subnets? Or further, providing a virtual machine for Luna? Is there a plan to have a stable gas token?

Emin Gün Sirer: Good question. This is something we need to think through carefully; we have provided some example code for different virtual machines.

We now have many customized virtual machines that are even faster than EVM. I’m not sure if we have launched a virtual machine for gas, but more directly: people want to use their own tokens as gas, and we have some related example code that is already public and will be made public soon.

If you want, you can also write the same example code and propose it to the community. Stablecoins are very suitable for gas; they eliminate uncertainty and the reflexivity of value, making everything more predictable, so I would love to see such subnets thrive.