I think there are many interesting point in the design of Tera network. However, the UST-pegging part was clearly flawed as in a death spiral scenario, there is no clear market equilibrium other than everything goes to 0.
Convert all remaining UST into Luna at a fixed price, say 24-hour average market price.
The current peg mechanism is clearly flawed, during a market crash, death spiral happens and even people who believe in Luna will stay away because of expected future dilusion. So, I think Luna should act like equity of the network, where the holders have voting rights and share of the network revenue. The UST should act like bond where the holders receive fixed rates. In the event when the market cap of Luna and that of UST falls below the market cap of Luna, a bond-restructuring event should happen where UST converts to Luna automatically.
- Convert all UST into Luna, where the UST holders shall control 95% of the new total Luna supply.
- In future, we should make this process automated, my suggestion is that a debt restructuring event will occur automatically when, say,
the Luna market cap + UST market cap < total UST supply.
In such an event, all UST will be converted into Luna automatically, such that
UST holders will control (total UST supply) / (Luna market cap + total UST supply) of the total Luna supply.
- To incentivice people hold UST, we should create an UST staking pool, where the rate paid to UST holders shall be decided by the Terra governance.
So, when market cap of Luna >> market cap of UST, people should still have trust to hold UST.
when market cap of Lunna and UST falls close to the total outstanding UST, e.g. Luna market cap is 100 million, UST market cap is 100 million, and total UST supply is 200 million, when debt restructuring gets triggered, UST holders will control 2/3 of the Luna network rather than 1/2, this gives people incentive to buy UST before the debt restructuring event and keep UST closer to peg.
After the debt resttructuring, UST holders may sell off Luna and there will be a lot of FUD, but the network can still operate and a new equilibrium will eventually be reached.