Do Kwon, What would it take to buy you out of Terra1?

Twitter: @jofo_real
IRL: no comment for now. I work in crypto full-time.

Summary
Buy out Do Kwon from control of the Terra1 network & retire 90% of Terra1’s bad debt for $450M, largely restoring the solvency of the system.

Motivation
To recover lost funds, restore the most ambitious ecosystem in crypto, and keep skin in the game for Terra1 builders.

Proposal

Facts:

  1. Most if not all Terra2 builders are moonlighting on other chains as well as Terra2.
  2. Terra2 has no legitimacy, even–maybe most of all–among TFL insiders, there’s no confidence in the Terra2 project. TFL never paid people well, it’s known in the industry, double salary for 6 months is nothing compared to the financial losses suffered.
  3. The path to financial redemption for Kwon, TFL, and all the rest of us lies through Terra1, not Terra2.
  4. I estimate that Kwon controls 70-90% of all staked LUNC. Therefore, Kwon personally controls whether any Terra1 proposal reaches quorum, let alone passes.
  5. Kwon is currently incentivized to support Terra2 at the expense of Terra1. Kwon needs to be bought out of Terra1, or enlisted in the Terra1 recovery effort in a non-governance capacity, in a manner that respects his contributions and opens a path for him to participate in Terra1 recovery.
  6. The ‘undercollateralized algostable’ is what gave Terra1 unique potential. Terra w/o an algostable is just a Cosmos fork with a crippled reputation and builders halfway out the door. The algostable should be significantly modified, but not abandoned.
  7. The Terra1 recovery proposals thus far have been sorely lacking.

My proposal basic outline:

  1. All USTC in circulation now (11B) has a USD $140m market cap. If 10B out of 11B USTC were bought back at a VWAP of 300% of current price, it would cost ($140m) * (10/11) * (300%) = $375m USD before swap taxes.

  2. The most important thing for all USTC & LUNC holders is to restore the solvency of USTC by retiring the bad debt (buying USTC and burning it into newly hyperinflated LUNC).

  3. The Angel Syndicate negotiates with Kwon / TFL for the burn to be conducted at a 25% swap tax rate which largely accrues to Kwon, since Kwon controls the large majority of staked LUNC on the network. Kwon secures the agreement with personal off-chain assets.

  4. Once this agreement is made, the Angel Syndicate buys 10B USTC in the open market. Kwon initiates a new megaburn-megamint. (This could be done via a smart contract tender offer if necessary) Another round of LUNC hyperinflation ensues. Kwon, by collecting ~80% of the swap fee that accrues to staked LUNC (since 80%+ of the staked LUNC is his or TFL’s), is effectively paid USD $60-70M by the Syndicate to surrender control of the Terra 1 network.

  5. In a matter of days, for a cost of appx $450M, a) solvency of the Terra 1 network has been restored; b) Kwon has been bought out for a level of consideration that’s meaningful but not budget-busting; c) 10B out of 11B USTC of bad debt has been retired; d) due to another round of LUNC hyperinflation, the Angel Syndicate will now own c. 99% of LUNC in circulation.

  6. An airdrop and reverse token split of LUNC takes place, undoing some of the hyperinflationary impact on prior LUNC holders. The most valuable asset of Terra 1 is its user community and we want them to stay bought in. The second most valuable asset is the Terra builders, whom we’d like to reward with a portion of proceeds to come back and rebuild.

  7. The system will now be way closer to solvency, with around $1B of USTC remaining in circulation.

  8. At this point we can talk about next steps; creating an algostable with c.70% exogenous collateralization (BTC and cross chain working capital) and decentralizing the reserve.

Do Kwon, does this interest you? What price would it take to buy you out of Terra 1 network control?

You created something amazing, but you let the Anchor mercenary capital ratio ( [Anchor deposits - Anchor loans]/total Terra TVL) spiral from <10% thru all of Terra’s history to 30%+ in March/April 2022 (peak of $11B out of $30B). Deposits that aren’t invested in real-world assets are just a time bomb as we all found out. The $11B overwhelmed the $3.5B of reserves.

The monetary system needs to be decentralized at t-zero or the project will have no credibility.
The network needs to be reopened and decentralized as well.

N.B.

  1. The Angel Syndicate would not assume any liability for prior TFL representations or promises.
  2. The Angel Syndicate would have a goal of ending up with 25-30% control of the revitalized Terra1 network.
  3. The community would shoulder most of the subsequent burden of collateralizing the reserve. In a normal market, exogenous reserve collateralization is accretive to valuation, but due to severe lack of liquidity we can’t count on this. The Angel Syndicate would be open to some additional capital injection to support this effort. Eg, for $1B of USTC in circulation, $700M of LUNC would need to be minted and exchanged for BTC in the open market, to achieve a 70% BTC collateralization ratio.
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just implementing 1.2% burn tax so all dapps will be forced to leave lunc

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He had gone private after Luna crashed 20%.

His quick fix is fast becoming a bad fix.

Not many will dare trust him ever again

Steady lads. deploying more capital.

6 Likes

Billionaires in my following, try this attack, see what happens

Your proposal makes sense.
Decentralization of reserves is what was lacking in the first place. As a community if we can restore this project, it becomes even stronger than before.

Kwon probably does not answer to this. How we can think of enforcing this, we should contact to validators of LUNC.

1 Like

Why you havent done any proper proporsal if you got LOT of ideas about what’s working and whats not. Ofc burning tax propourses alone its not working to make works any asset class. You have to incentivate devs/validators and entire ecosystem to revive it. But you aren’t helping at all raging in each post. Try to contribute with any proporsal and stop being a kid

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Backing this. Start a crowdfunder, we’ll have a whip round

3 Likes

But aren’t you asking USTC holders to sell you at current market price and realize a mega loss ?
What are they getting in return ?

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Yes, exactly. As soon as you start buying ustc on the market, people will speculate to make a fat gain at your expense.
Ironically it can push ustc back toward its peg, but at a hefty price.

I am not sure about the solution here though

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No.

The vast majority of the USTC needs to be converted into new LUNC. By that process, the bad debt is retired.
However, the LUNC which USTC holders hold will be hyperinflated/worthless until an uncertain point after which a large majority of the bad debt (USTC) has been minted into new LUNC, because at that point, most of the bad debt will have been retired and the system’s solvency will be restored.

That’s why an Angel Syndicate needs to appear. The bad debt can’t be retired without an infusion of outside capital.

However, from the standpoint of an outside angel, the network is worthless as long as Kwon has total control over it, as he does today.

USTC holders who hold USTC and don’t burn it will ultimately see their USTC return to $1/USD. However, a large majority of USTC does need to be sold at a large realized loss (I assume $.06ish). That is the only way to restructure any FX debt crisis. A “debt restructuring” – bondholders, ie USTC holders, taking a huge haircut – must happen.

The market has already created a 98.5% haircut for them. This proposal gives them 3x the current market price. It sucks, but it’s way better for them than the status quo.

So you need to get rid of USTC holders in this part and make it clear this only benefits LUNC holders.

It could be implemented as a smart contract tender offer, ie the offer does not go through unless X billion of USTC sell themselves to the Angel Syndicate at the agreed-upon average price.

Your observation isn’t wrong, and an Angel Syndicate probably isn’t going to be interested in recapping the system for $1.5B when they had budgeted $450M. If other outsiders start speculating, the market will effectively recapitalize the protocol at a higher price (better for LUNC/USTC holders) than the Angel Syndicate proposed price.

Wrong. You completely misunderstand my proposal.

USTC is currently $.01/token ($100-110M FD market cap, assuming USTC token supply in the 10-11B range). For $400-440M ($.04 buyout price), if 90% of USTC is bought out at $.04, and the remaining 10% USTC trades up to $1 as systemic solvency returns, USTC holders get 3x what they own today on 90% of their USTC and 99x on 10% of their USTC. That’s a net 11.7x return ([.9 x 3] + [.1 x 99] - 1) for them compared to status quo. So USTC holders get a lot, which they are entitled to as the bondholders in LUNC’s defunct capital structure.

Current LUNC holders are screwed by this proposal, since this would start another round of LUNC hyperinflation. That was why I mentioned a subsequent airdrop, to give them post-hyperinflationary LUNC back (that is presumably much more valuable once solvency has been restored).

LUNC today is worthless no matter what happens, except insofar as it’s a token of long-standing ecosystem commitment which results in an airdrop later. If the USTC algostable is not rescued, LUNC dies with it. If the algostable is rescued, another round of LUNC hyperinflation must occur.

At the same time, to an Angel Syndicate, engaged LUNC & USTC users represent the long-term value of the network. So any Angel Syndicate is incentivized to give them something significant if it gets them to stay and be financially engaged.

Anybody who thinks they can/will get 100% on 100% of their USTC (99x return vs status quo) is better off believing in Santa Claus. Delusional.

Kwon staked 244m LUNC out of 610m total staked to the various validators just before shutting down validator delegation, to “protect from a network attack.” Kwon/TFL, Jump, and Hashed probably controlled at least 125M LUNC staked before the meltdown as well…

Since then, the total LUNC staked has dropped from 610M to the mid-300M range, which suggests that Kwon controls the vast majority of LUNC staked today (275-300M out of 350M-ish). If my guess is correct, nothing can happen without his agreement.

The prosecutor’s office will help him make the right choice

2 Likes

shouldn’t we just force validators to enable staking? then we can get rid of do kwon for free?

2 Likes

How do we “force” it?

Kwon has all the “votes” (currently staked LUNC). It can’t happen without a new governance vote.

Kwon needs to be persuaded, not forced.

Since when has Do Kwon leadership on Luna ?

You guys even understand DPOS ?

It’s not Do Kwon who is in power but validators.

So talking how to kick out Do Kwon is nonsense since validators are in power and not the other way arround