Dynamic LUNA mint rate

Summary
Giving a dynamic arbitrage incentive could temporarily save both LUNA and UST.

Motivation
I think if we slow down LUNA mint rate, without compromising UST’s progress to re-peg, we could slow down inflation of LUNA.

Proposal
Instead of 1UST = 1USD worth of Terra, we could give a variable incentive, such that 1UST = currentPriceInUsd + variableIncentive worth of Terra.

Assume that variableIncentive is 0.2,

If UST is priced at 0.1, arbs will be able to mint 0.3 usd worth of Terra. This would reduce minted Terra by 70% (roughly) while maintaining same amount of UST burnt.

and if (1 - UST’s currentPriceInUsd) < variableIncentive, 1UST = 1USD worth of Terra.

Wouldn’t this help slow down the mint rate of LUNA hence slow down it’s inflation hence less panic, without slowing down UST’s re-peg?

3 Likes

it’s like why spend 90 dollars when we could spend 20 (which is still very attractive) to burn same amount of UST?

I had the exact same idea. I think instead of increasing incentives as the depeg increases it makes more sense to maximize incentives while the peg is close to healthy.

It could also be maybe tied somehow to the total number of Luna so more Luna means less arb profit.