Summary
Here is the Roadmap proposal for USTC to become $1. Nobody is left behind, whoever holds UST assets will deserve to get 1:1 back.
Motivation
Before we go to the point of the proposal, I want the community to involve in this pegging of USTC and restoring the ecosystem. We have thought too much about complicated ways how to solve the problems we do have, but simply thinking will let us resolve the problem.
So, I will make sure even a 5 years old kid understands how the “LUNA” ecosystem work. Then I really want you guys, to jump into the discussion and give your voices.
Look at the following Maze, most Developers and others are trying to solve this maze, but the only solution to reach the finish line of Maze is, simply to go backward from the finish line to start.
So, think about it how you wanna solve the problem of Terra, as a community member, what do you want to have when the USTC price is at $1, rather than getting heated with the current price? So what would you have when LUNC was at $100 price in the ecosystem, what do you think we could have around that time?
Because this is the only solution to bring with the simple method. If you wanna have them, you must have those services on the ecosystem at this point, to begin with right now.
Enough with a simple approach to a solution, let’s look at the market and how our market worked (when it was $1 UST, $100 valued LUNAC).
Terra is programmed with Market Makers itself in the Ecosystem. Meaning, Without exchange (DEX, CEX) and swapping pool parties, the Algorithm of the system can buy/sell. It is called Market Module.
So Terra Foundation intending is, instead of using USD, they create UST, and people want to buy LUNC, they have to buy UST first, and the market module is the only way to create a new UST. With the UST spending, you can get LUNC.
So you have to think about the velocity of the money, you get paid $10, and you used the $10 to buy lunch, the street vendor uses the $10 for the taxi to go home and the taxi driver used it for the babysitter and babysitter used for groceries, see that $10 itself alone produced $50 of economic value.
Now, we have lots of economic value in the system, which is just exchanging hands over hands. And people think about reducing circulation and supply.
Thus, they come up with ideas for burning the LUNC. However, they never think about what impact it made on the system. It doesn’t impact much. Because the true value of the Luna ecosystem is stored in UST, can mint the LUNC coin.
Even though the proposal passed to burn the Lunc via CEX at withdrawing and deposits, it never impact much at all. Because we are not removing the USTC.
Note: UST is the main asset to make LUNC. When money comes into the ecosystem, that money should be reserved in order to pay back. The reserve money should be guarded all time by a community escrow contract, rather than mismanagement of any team.
Terra has Algo system called “Market Module”, To explain to a kid, it is kinda like a wallet, if you go and change your USD to EURO, you will have no more USD in your wallet, EURO will be in your wallet. third-party money exchanger reserved your USD when your money is spent.
If you spend for something, your spending will be burned, you get something as value. So let’s say, if you want UST assets, you give LUNA to Terra Market, and the Market will take your LUNA and give you USTC.
In layman’s terms, at the LUNA circulation stats, you have removed your LUNA from your wallet, and you are now the holder of a new USTC.
If you spend “USTC” to get “LUNAC”, the circulation of USTC reduces in total stats, LUNAC will increase likewise if you spend “LUNAC” to get “USTC”, “USTC” will increase.
In order to spend USTC, you must buy USTC, so you spend money to get USTC, and later you can mint LUNC, your money MUST be in reserve after getting into it.
Note : Reserve system is the major system to peg for $US1. Anytime when money comes into the market, that money must be in reserve, you want to exchange USTC for USDC, the reserve fund is there for you. Otherwise, we are printing free money out of thin air. Our circulation and money flow need to be preserved.
You may be asking what if I am going to trade USTC/LUNAC on Centralized exchanges markets (Binance, and Poloniex, etc) or Decentralized exchanges or Swapping services with Liquidation Pools (Terraswap, Astroport), am I using the “market module” of Terra Network, that will not be true. The title says it all, “exchange and swapping”. You are not increasing and reducing the circulation of Terra Network. You are exchanging coins only, no circulation changed at all, but you paid little taxes and fees over there for now.
If you want to use the Market Module “The True Algo” for minting/burning, you have to use Terra Station Wallet, and click on the “Swap” option to find the market value of swapping, Select appropriate assets to swap around, and after putting your numbers, you will get three market options “Market, Terraswap, Astroport”. If you choose “Market” options, that will allow your assets to change in the circulation of Terra Network.
Note: So if you spend one thing, another one will go decrease, and another one will increase. If both are increasing meaning, the money is coming into the market. The reserve should be large by that time.
If UST gets burned, the chain thinks it is a withdrawal of USDC, but the reserve must be increased since it is pegged for USD, that increase of LUNC is economic growth.
Market Module is intended to use for Reserve, Minting, and Burning.
So you may be wondering, why too much circulation happened. I will get to that.
Back then, the price of $UST peg at $USD…. Market Module doesn’t stop MInting/Burning.
There is a mechanism, arbitrage which acts as a market maker itself.
if the UST price is going above $USD, Algo will sell UST to reach $USD back.
If $UST is below $1, it will buy LUNA by spending $UST, until it reaches to $1.
They think it is pegging, however, they are trying to supply and demand to balance the market.
What went Wrong
At that time, the minting has a limit rule of US$50M ([Special Drawing Rights (SDR)])) to mint. We have billions of markets in the ecosystem but limited to use daily $50M was the disastrous issue to buy back with arbitrage. After that market sell-off, the minting capacity from $293M to ~$1200M was increased.
So we do have a capacity of just $1200M of minting. However, that time was just $50M.
When it is trying to force demand without assets pooling, it creates the number of coins based on the volatility market, and we spend with limitations. That caused was so slow to catch up with the buying back.
The problem is It is not swapping 1:1, it is swapping $1 valued LUNA: $1 value of USTC.
Additionally, There is a limit cap on how much new UST mint every day.
In May 2022, about $8B UST were withdrawn from Anchor Protocol ($14B.- $6B = $8B)
And later on, we saw the burning of 1B USTD, which mints about LUNC for UST.
Since we have volatile market, that panic sell has a huge impact on the market, and TFL didn’t catch up with the reserve and the limited minting was $50M when 1B got burned. The liquidity is too low.
When the trust of UST loses, and UST goes below the peg, it did not mint and it will buy on market with SRD, but there is no reserve to back up.
The market makers at OTC are selling off to make profiting off when there is a huge gap with no reserve to backup. When reserve system and financial management for reserve are not strategical at the place to work for pegging. Changing the reserve amount couldn’t save at that time when the trust is lost.
The on-chain redemption capacity is roughly $50 million at 2% spreads during high volatility, it was too high and insufficient to absorb the cascading sell pressure from LUNA.
Terra tried various methods to fix the spread and provide a low liquidity cap for the billions of dollars market. As the off-chain liquidity grows, they should have put more than 70% of off-chain liquidity.
Since Jan 2011, they should have learned about how limitation doesn’t work so far. But they kept changing parameters and ended with an attack by big runners, with small liquidity for minting.
Additionally, the trading firms were working for brokers fees, and sometime they could sell off insider news, and those firms are tied with large capitals, getting help from firms to create market cause the big crash and getting help. Trying to reserve BTC when your ecosystem is crashing is a simple mistake.
BTC price is huge, and your ecosystem asset value is low. The risk and rewards are huge.
If you have bought BTC for 1 Million you could end up with not more than 100 coins. If you have bought LUNC or USTC you could have around huge zillions of assets. That is a huge upside when you are buying dust. That is how bad a financial decision is to go BTC when the market is bearish with the reserve funds.
When reserve management was a failure, they are very limited to use in hard times.
When trading firms with all access to big capital realized how to market module works, it is for them to burn a huge amount of USTC, which will mint slowly for a huge amount of LUNC because the daily cap was only $50 Mln to mint, others will backlog and keep minting.
Speaking of trading, let’s look at how trading works and how the attack works:
We do have a market module that will decide to trade for minting/burning (LUN/UST), they work with the order book of Oracle. That is what the price is set for burning and mint. On-chain price is set with Oracle price.
Oracle price is reported by Validators which supports the Ecosystem. Sometimes, manipulating the oracle price can take big benefits. In this year alone, Mirror protocol gets drained $2 Mln dollars when the new Luna v2 is out, due to the dev not using the correct path for the pricing they get drained from it. And sometime validators who are reporting different pricing can get attack any protocol on the chain.
Oracle Chainlink is the data feeder. When the oracle price is suspended or paused, various attacks can happen as well to drain any protocols as well. Some protocols had been attacked as well. So we are using a private data feed, and we are calling decentralized chain. Chainlink usually will put the circuit breaker, when there is abnormal volatility in the market. That will keep on happening because we are on crypto market trading which is normal to have abnormal volatility.
And now we have Centralized Exchanges rates which are from Binance, coin base, and so on. That is called off-chain.
And there was wash trading going go with.
- Raise LUNA price off-chain without a large volume
- Sell large amount of LUNA on-chain at a high price
- Lower LUNA price off-chain
- Buyback LUNA on-chain at the reset lower price.
How it works is:
- A whale trying to manipulate the oracle price would — bid off-chain markets up without too much size, pushing up the LUNA/UST oracle price.
- Sell LUNA → UST on-chain at the increased Oracle price.
- sell a small amount of LUNA on the off-chain markets to bring the Oracle price back down
- Buy large amounts of LUNA on-chain (UST → LUNA) at the lower Oracle price rate.
- End up with more LUNA, diluting other holders.
Market module Algo tries to buy and sell when the price changes without looking at volume and support and resistance. Algo is just nothing, it is not supposed to be in production in the first place. It is using “AI Algo” but it has nothing at the backend to back up with any trading strategies.
Proposal
Go into detail on how this proposal will help tackle or resolve the issue.
Lay out the action items in clear terms with defined timelines.
Here are road map designs as follows:
- Reset the chain UST (the great burn)
- Reserve System (Building the Reserve / Trust)
- Redesign the Market Module (Algo Upgrade with real market maker module)
- Restructure Anchor (Loan/borrowing Services)
- Buyback USTC
Reset the chain
We would like to wipe all of USTC from the formal reserve fund.
LFG wallet still has 1,847,079,782 ustc
(terra1gr0xesnseevzt3h4nxr64sh5gk4dwrwgszx3nw)
Ozone Treasury wallet has 800,000,000 ustc
terra1qyw695vaxj7jl6s4u564c6xkfe59kercg0h88w
Oracle Wallet rewards pool has 1,101,136,517 ustc
terra1jgp27m8fykex4e4jtt0l7ze8q528ux2lh4zh0f
All the community wallets which hold USTC must be burned. So LUNC holders will find peace and worry-free about getting mint when we roll out the next new market module.
And we would like to request trade on-chain/off-chain trade tax burn 1.2% assets to buy back at market USTC and burn USTC. If LUNC trade taxes receive LUNC as tax, they must exchange directly to USTC at the current market rate, and burn the USTC in the end. Because we want to stop the velocity at a high-speed rate.
-
Reserve System (Building the Reserve / Trust)
When USTC circulation is reduced, when new investors try to buy USTC, that money will go to the community reserve system, which will be used for pegging and buying back at USTC when accidents happen. If LFG would like to transfer their reserve BTC to new community reserve escrow, we will make sure to that 100 % money to buy back USTC at the market rate. We are not begging them to transfer, but if they would like to contribute to society, they could use that remaining at supporting teams and utility funding programs as well. That’s how we would like to repay back to the community, and we would strongly build later our reserver system from money coming into UST. -
Redesign the Market Module (Algo Upgrade with real market maker module)
Since we are classic, we would like to maintain what we had whitepaper are, what we would like to do is we would like to upgrade new module with a better market maker to repeg. -
Restructure Anchor (Loan/borrowing Services)
We would like to restructure the anchor and monitors all of the swapping services to understand our market liquidation. We would like to secure our data feed for all the upcoming protocols and utilities to support. -
Buy Back USTC
Yes, from beginning to end, we will be buying back USTC and burning completely without minting LUNC with the market module. We will make it to $1 to the end.
Please correct me if I am wrong in some of the above contents… I am looking forward to hearing your feedback.
