How to restore the fixed exchange rate between the USTC and the DOLLAR?

Governance & Proposals
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如何重新恢复** USTC **对美元的固定汇率？——How to restore the fixed exchange rate between the USTC and the DOLLAR?

首先，让我们有这样一种信念：Terra一定能够重建，而且基本上不需要花费太多成本，也无需对系统进行大规模的更改。汇率崩溃、人才流失、社区分散，我们已经处于一个低到不能再低的谷底，所以没有什么情况会比现在更糟糕，如果我们有所改变，那只能是向上。

First, let’s have the faith that Terra will be able to rebuild at little cost or wholesale changes to the system. The exchange rate collapsed, the brain drain, the dispersion of communities, we are already at the bottom of a rock bottom, so nothing can be worse than this, and if we make a change, it can only be up.

为什么一定能够重建？我们只需要看一下Lunc和Ustc的市值即可，Lunc的流通市值要比Ustc高出50%左右，也就是说以现在Ustc的市场汇率，Lunc作为Terra的资产储备可以将其完全回收，事实上，Ustc的市值从来没有超过过Lunc。

Why must it be rebuilt? We only need to look at the market value of Lunc and Ustc. Lunc’s floating market value is about 50% higher than Ustc’s, which means that at the current market exchange rate of Ustc, Lunc can be fully recovered as Terra’s asset reserve. In fact, Ustc’s market value has never exceeded Lunc’s.

只不过现在，我们需要拨正几个重要的思路、明确一些基本的概念、团结那些想要有所贡献的剩余人才以及仍然对Terra崛起保有希望的散户们，统一共识与目标比接下来的任何措施都显得更为重要，这也是本篇文章的重中之重。

But for now, a few important ideas need to be set straight, some basic concepts need to be clarified, and the remaining talents who want to contribute and the retail investors who still hold out hope for Terra’s rise need to be aligned with common sense and purpose more than anything else, which is the focus of this article.

接下来，我将分为4个部分对如何恢复USTC对美元的固定汇率展开论述。它们分别是：汇率、抵押、治理和货币政策。

Next, I will discuss how to restore the fixed exchange rate between USTC and US dollar in four parts. They are: Exchange Rate, Mortgages, Governance and Monetary Policy.

1、汇率/Exchange Rate

为了让大家对笔者更有信心，有必要提一下：本人亲自翻译了Terra的白皮书中文版，对于该算法稳定币的核心原理了然于胸，并且有好几年区块链财经记者的经验，对经济、管理和加密货币有比较稳固的认知基础。

To give you more confidence in me, it is worth mentioning that I have personally translated the Chinese version of Terra’s white paper, know the core principles of the algorithmic stablecoin, and have several years of experience as a blockchain financial journalist, and have a solid understanding of economics, management and cryptocurrency.

汇率的本质是两种货币之间的兑换比例，很多人在看过Terra的白皮书之后，其实并没有对Terra有一个深刻的理解。Terra其实是一个经济体，类似于法币世界中的国家或地区。那么对于一个经济体来说，它必然要有自己的货币，否则无法与外界产生经济交易。

The nature of exchange rate is the conversion ratio between two currencies. Many people do not have a deep understanding of Terra after reading its white paper. Terra is actually an economy, similar to a country or region in the fiat world. So for an economy, it must have its own currency, otherwise it cannot have economic transactions with the outside world.

而Ustc就是Terra的货币，它背后代表的是Terra这个经济体的信用，它最初被设计出来是锚定美元的，但并不等于它就是美元，只是借助于美元实现Terra的信用货币化，信用需要有抵押物进行支撑，否则就是一个虚假的骗局。

Ustc is The currency of Terra, which represents the credit of the economy of Terra. It was originally designed to anchor the DOLLAR, but it does not mean that it is the dollar, but to monetize Terra’s credit with the dollar. The credit needs to be supported by collateral, otherwise it is a false scam.

Ustc如今的崩溃正是由于背后的抵押物消失殆尽，Terra经济体的信用被加密世界抛弃。所以，我们让Ustc重新与美元恢复挂钩的本质是重建Terra这个经济体的信用，而并非是建立一个全新的稳定币机制，也就是说：重建的是信用，而非工具。

The current collapse of the Ustc is due to the disappearance of the collateral behind it and the abandonment of the credit of the Terra economy by the crypto world. Therefore, the essence of our re-pegging of the Ustc to the DOLLAR is to restore the credibility of Terra’s economy, not to establish a new staboin mechanism. In other words, it is to rebuild credit, not instruments.

回到我们在论坛中曾经讨论的问题，Leslie问web3panther：你是要重建UST还是重建一个全新稳定币？这两者具有根本的区别，因为前者代表你要回收Ustc（代表Terra的债务）后再重新开始，而后者则代表回避债务直接开始，显然后者并没有从根本上解决Terra的信用问题。

Going back to the question we discussed in the forums, Leslie asked Web3Panther: Are you rebuilding UST or a brand new stablecoin? There is a fundamental difference between the two, as the former means that you collect the Ustc (on behalf of Terra’s debt) and start again, while the latter means that you avoid the debt and start directly, which obviously does not solve Terra’s credit problem at the root.

接下来我们不得不引用一个著名的现代金融理论——蒙代尔不可能三角。这个理论是说一个国家不可能同时实现资本流动自由、货币政策的独立性和汇率的稳定性，你只能拥有其中两项，而不能同时拥有三项。

Then we have to cite a famous modern financial theory - Mundell’s impossible triangle. The theory is that a country cannot have free capital flows, monetary policy independence and exchange rate stability at the same time; you can only have two of them, not all three.

也就是说，如果我们选择固定汇率的话，那么在资本自由流动和货币政策的独立性上就必须舍弃掉一个。所以，大家可以看到，我们在重建Ustc汇率上的分歧其实就是资本自由和货币政策，到底应该选哪一个。

That is to say, if we choose a fixed exchange rate, we must give up either the free flow of capital or the independence of monetary policy. So, as you can see, our disagreement on the reconstruction of the Ustc exchange rate is really between capital freedom and monetary policy.

同样，大家也可以发现，Terra汇率的崩溃正是由于放弃了货币政策的独立性，整个生态中没有货币小组的存在，导致在大崩溃中手足无措，最终任由资本的自由流动冲垮整个Terra系统。而为了应对这个漏洞，我将在货币政策和治理的章节中展开更详细地论述。

Similarly, it can also be found that the collapse of Terra’s exchange rate was due to the abandonment of the independence of monetary policy and the absence of a monetary team in the whole ecosystem, which led to the collapse of the Terra system at a loss and ultimately allowed the free flow of capital to destroy the whole Terra system. To address this loophole, I will go into more detail in the chapter on monetary policy and governance.

Terra崩溃以后，经济产生了新的变化。现在外面流通着102亿Ustc的债务，尽管它们非常集中，有95%集中在前100个签名中，但由于我们是一个去中心化的社区，无法将这些筹码统一回收到国库处理，所以，直接挂钩1美元是不可能的。

After Terra’s collapse, new economic changes took place. There is 10.2 billion Ustc debt in circulation right now, and although it is very concentrated, 95% of it is in the first 100 signatures, we are a decentralized community and cannot uniformly recycle these chips to the Treasury for disposal, so a direct peg to the DOLLAR is not possible.

同样的道理，尽管我们拥有接近8亿美元的Lunc，但由于我们是一个去中心化的社区，这些资产散落在各个地区，也无法将其集中起来，所以这些资产并不能发挥兑付债务的效用。如我们一开始所说，重建在信念上看起来很容易，但在执行上困难重重。

By the same token, although we have Lunc of nearly $800 million, we are a decentralized community and these assets are scattered across regions and cannot be centralized, so these assets are not useful for debt repayment. As we said at the beginning, reconstruction looks easy in faith, but difficult in execution.

但这并不意味着一点办法也没有。归根结底，现在的Terra没有足够的资产支撑1美元的过高汇率，就好像一个战败的国家没有经济实力与美元挂钩一样。因此，Terra经济体必须要让自己的货币贬值到市场合理水平，这个水平可能是0.01或者0.005，在这个基础上对整个生态进行重建。

But that doesn’t mean there’s nothing to be done. At the end of the day, Terra does not have enough assets to support an excessive exchange rate of usd 1, just as a defeated country does not have the economic strength to peg to USD. Therefore, the Terra economy must devalue its currency to the market level, which may be 0.01 or 0.05, and rebuild the whole ecology on this basis.

你可以将其理解为特殊阶段的固定汇率。有人会提出这样的质疑：不等于1美元的Ustc还能叫稳定币么？你又凭什么认为稳定在这个0.01或者0.005之后，民众们不会继续抛售它？又该拿什么应对进一步的抛售？

You can think of it as a fixed exchange rate for a particular period. Some people may question: Can a Ustc that is not equal to $1 be called a stablecoin? What makes you think that after 0.01 or 0.05, people won’t keep selling it? And what to prepare for further selling?

这些都是非常关键的问题，但我可以负责任地回答它。首先，经过超强度（大崩溃）的压力测试之后，Ustc的汇率在最低谷也没有跌破0.005，基本上这是一个国家破产之后的最低汇率水平；

These are very critical questions, but I can answer them responsibly. First of all, after the stress test of super intensity (big crash), the EXCHANGE rate of Ustc did not fall below 0.005 at the lowest point, which is basically the lowest level of exchange rate after a country goes bankrupt.

其次，Terra崩溃以后已经没有信用可言，它真实的经济水平只能由该水平的汇率表现；最后，Terra并非没有任何资产可言，开发者留下的合约代码、用户基础和社区共识，都是宝贵的资产。

Second, Terra has no credit to speak of since its collapse, and its true economic status can only be measured by its exchange rate. Finally, Terra is not without assets. The contract code, user base and community consensus that developers leave behind are valuable assets.

而且，我们可以拥有充分的信心，在最低汇率水平之下，Ustc的需求会被人们重拾。一是因为Ustc的低水平汇率是暂时的，随着经济得到重建，它最终会回到1美元，这个升值空间会驱使人们大规模地购买Ustc；二是因为汇率被得到固定以后，Terra的矿工套利机制会被重新开启，系统将会以回收Lunc的方式铸造Ustc，Lunc的升值会大大提升Terra的资产储备。

Moreover, we can have full confidence that the demand for Ustc will be picked up below the lowest exchange rate. One is that the Ustc’s low exchange rate is temporary. As the economy is rebuilt, it will eventually return to $1, which will encourage people to buy Ustc on a large scale. Second, once the exchange rate is fixed, Terra’s miner arbitrage mechanism will be reactivated and the system will create Ustc in the form of the recovery of Lunc. The appreciation of Lunc will greatly increase Terra’s asset reserves.

所以，我们要讨论的具体问题是：将Ustc的最低汇率水平固定在什么数字？又该以怎样的幅度让Ustc的汇率上升？该由谁来执行汇率的有序升值？如果社区同意我前面的论述，那么这些问题就可以交由社区讨论解决。

So, the specific question we are going to discuss is: what is the minimum level of the Ustc fixed at? And by what extent should the Ustc exchange rate rise? Who should carry out an orderly appreciation of the exchange rate? If the community agrees with what I said earlier, then these issues can be resolved by community discussion.

下面进入资产抵押的部分：Ustc由什么来抵押？如何抵押？

Let’s move on to asset collateral: What is the Ustc backed by? How to pledge?

2、抵押/ Mortgages

12 Likes
USTC almost naturally pegged at 0.01 USD
A proposal about how to make Ustc re-pegged to $1
关于如何让ustc 重新锚定1美元的提案
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First of all, thanks for thoughtful insights.
I support all what you said.

  1. My question is how can we decentralize the reserve assets backing ustc. Keeping reserves in Terra Lab or in any organizations balance is not decentralization.
    Value kept in LUNC was not enough in the death spiral event.
  2. There are bad actors among in top USTC and top LUNC holders. Even USTC repegged, their position is much better to fail the system than it was before. How to prepare to that event?
  3. Second point, the bad actors can do governance attacks on the system. So LUNC allocation should be healthy, spread out by millions of wallets.

Once we solve these issues, it is going to be repegged by itself.
Still you have point, it is not impossible but very difficult.

2 Likes
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Unfortunately, It’s useless to discuss about LUNC/USTC because there’s no one who can implement our proposals. there are several proposals which is passed, but nothing is implemented.

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Τhe proposal is in the testing phase. I know that there was a bug, which is easy to fix.However, the code needs to be resynchronized and this requires a little time. After that, the implementation on-chain will begin. We all have to understand that we are not programmers and the creation of a code is not done by pressing two buttons.Also is very important that everything works perfectly without errors.

1 Like
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where is this information came from ?
somehow, validators should apply patch for that, but there is no leader now. would they implement the patch ? I don’t think so…

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Terra rebel is not a official dev team… would validator apply patch ? I don’t think so…

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下面是关于这些问题的一些具体担忧：

Here are some specific concerns about these issues:

第一：重新固定Ustc的最低汇率时，我们要看到Ustc的集中程度，这意味着巨鲸们有足够的筹码重新发起做空，这个问题也是社区担心的重要问题。但是以目前的情况来看，这个问题并非不可解决。

First: when refixing the minimum exchange rate of Ustc, we should see the concentration degree of Ustc, which means that whales have enough chips to re-launch short selling, which is also an important issue for the community to worry about. But as things stand, the problem is not insurmountable.

不妨让我们回到web3panther提出的一个建议：锁定住前100名的巨鲸钱包，而只让Ustc总量的5%-10%流通，尽管这会损害Ustc的流动性，但这只是暂时的，我们需要暂时消除巨大的做空风险。至于这个建议能不能得到实施，我认为比较有难度，因为巨鲸们完全有理由拒绝它。

Let’s go back to one of web3Panther’s suggestions: lock in the top 100 whale wallets and keep only 5%-10% of the TOTAL Ustc in circulation. Although this will hurt Ustc liquidity, it is only temporary and we need to eliminate the huge short risk for the time being. As to whether this proposal can be implemented, I think it will be difficult, because whales have every reason to reject it.

让我进一步解释这种方案的合理性。还是根据蒙代尔不可能三角理论，将汇率重新固定在最低水平实际上已经放弃了与美元的联系汇率，而暂时采取浮动汇率，锁定巨鲸们的钱包本质上是在实施一种收缩的货币政策，防止Terra债务的进一步恶化。

Let me explain further the rationale for this approach. Again, according to Mundell’s impossible triangle, refixing the exchange rate to the minimum level effectively abandoned the peg to the DOLLAR and temporarily floated the exchange rate. Locking up the whales’ wallets is essentially a contractionary monetary policy that prevents Terra from further worsening its debt.

第二：我们仍然需要准备一定的基础资产储备，来应对最低汇率水平出现脱锚的风险。不管是巨鲸们同不同意锁定自己的钱包，这个基础资产储备都需要具备。我们有两种方式去获得，一是可以从外部获得风投资金，规模要足以覆盖做空的力量，至于这个做空力量的强度可以由量化团队去模拟测试；

Second: we still need to have a reserve of underlying assets to deal with the risk of an unanchored floor. Whether orcas agree to lock their wallets or not, this base asset reserve needs to be there. We have two ways to obtain it. One is to obtain venture capital from outside, and the scale should be enough to cover the strength of short selling. As for the strength of short selling, the quantitative team can simulate and test it.

二是可以团结鲸鱼，说服他们分周期地解锁自己的Ustc，我认为这非常重要，这是建立在Terra的最低汇率水平已经得到固定，铸币机制重新开启之后的基础上，这个时候来自Ustc需求的扩大会使得Lunc升值，Lunc的升值会充实国库，国库有了钱就可以赎回巨鲸们的Ustc。

Second, we can rally the whales and convince them to unlock their Ustc periodically, which I think is very important. This is based on the fact that Terra’s minimum exchange rate has been fixed and the minting mechanism has been restarted. At this time, increased demand from THE Ustc will lead to the appreciation of Lunc, which will replenish the Treasury. The Treasury could redeem the Whales’ Ustc with money.

第三：建立紧急熔断机制。这个部分严格来说属于治理的章节，也是A.E.提出的建议。如Marventus所说：一个好的提案需要综合社区的各方面建议。由于我们拥有一个共同的目标，提出的建议肯定都有其合理性，只不过需要将其进行一个正确地整合。

Third: establish emergency circuit breaker mechanism. This section is strictly a chapter on governance and is also the recommendation of A.E. As Marventus says, a good proposal needs to incorporate input from the community. Since we have a common goal, the proposals are certainly reasonable, but they need to be properly integrated.

总而言之：回收债务，充实国库，是开启重建的第一步。我们要以一种政治家的身份去说服Terra最大的债权人们，让他们有利可图，从而重拾对系统的信心；同时要以一种建设者的身份告诉Terra的散户：Ustc值得重新投资。这样，我们便实现了一种正向循环。

In short: collecting debt and replenishing the Treasury is the first step towards rebuilding. We need to be statesmen to convince Terra’s largest creditors to make a profit, thereby restoring confidence in the system. And, as a builder, tell Terra’s retail investors that Ustc is worth reinvesting in. In this way, we achieve a positive loop.

接下来进入资产抵押的部分：Ustc由什么来抵押？如何抵押？

Let’s move on to asset collateral: What is the Ustc backed by? How to pledge?

2 Likes
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2.抵押/ Mortgages

我在前面一个部分里提到：Terra崩溃的一个原因是TFL/LFG放弃了独立的货币政策，事实上，他们从来没有拥有过。如果它们只负责买进或者卖出资产储备，而不拥有强制执行系统参数的权力，那么货币政策就是不独立的，没有独立的货币政策将无法应对后续的黑天鹅事件。

I mentioned in the previous section that one of the reasons for Terra’s collapse was that TFL/LFG gave up an independent monetary policy, which in fact they never had. If they are only responsible for buying or selling asset reserves without the power to enforce system parameters, then monetary policy is not independent and will not be able to deal with subsequent black swan events without independent monetary policy.

即便LFG的资产储备无法应对剧烈的兑付危机，但如果他们能够及时停掉系统的铸币机制，还是具备能够挽救这场危机的一线希望的，最起码也能够减轻崩溃的程度，拖延崩溃的时间。因此，在考虑抵押品的问题之前，更改系统的参数、建立货币小组、执行紧急熔断机制等问题更加重要。

Even if LFG’s asset reserves cannot cope with a severe redemption crisis, if they can stop the minting mechanism of the system in time, there is still a glimmer of hope that they can save the crisis, at least reduce the extent of the collapse and delay the collapse. Therefore, before considering the issue of collateral, it is more important to change the parameters of the system, establish currency teams, implement emergency circuit breakers, etc.

这个部分属于A.E.正在研究的范畴，而且似乎取得了实际性的进展，在治理部分可以结合他的研究进行讨论。

This part belongs to the category that A.E. is studying now, and it seems to have made practical progress. The part of governance can be discussed in combination with his research.

现在，让我们聚焦到抵押品的问题上来。

Now, let’s focus on the question of collateral.

一个简单的银行系统是资产等于负债，储户存放进多少钱，银行就要准备多少的存款准备金，但现实世界和加密世界都不会这样做。

A simple banking system would have assets equal liabilities, with banks setting aside reserves for as much money as depositors put in their deposits, but neither the real world nor the crypto world works that way.

现实世界中的银行系统，不会准备100%的存款准备金，因为不会发生们储户们100%兑换的事件；而加密世界中的银行系统，要准备超额的抵押品，因为抵押物的价值是不稳定的，在发生黑天鹅事件的情况下，抵押物会急剧贬值。

In a real-world banking system, you don’t have 100 percent reserves, because you don’t have 100 percent convertibility from your depositors; Banking systems in the crypto world, on the other hand, have to prepare excess collateral because the value of the collateral is unstable, and in the event of a black swan, the value of the collateral can fall sharply.

在这里需要引入Leslie的话：一种稳定币不能依靠盯住一揽子不稳定资产来获得稳定。

To paraphrase Leslie, a stablecoin cannot achieve stability by pegging a basket of unstable assets.

Terra犯下的一个巨大错误就是用Lunc购买BTC作为自己的资产储备，这让大空头嗅到了猎物。本身Anchor中高达20%的年化已经让Ustc岌岌可危，而不稳定的资产抵押更是压倒Terra的最后一根稻草，一旦汇率脱锚，整个系统就进入到死亡螺旋。

One big mistake Terra made was to use Lunc to buy BTC as its own asset reserve, which allowed the big bears to sniff their prey. The 20% annualization of Anchor itself has made Ustc vulnerable, while the unstable asset mortgage is the last straw for Terra. Once the exchange rate is unanchored, the whole system will enter the death spiral.

关于Terra有什么资产可以作为自己的抵押物，大致可以分为两个思路。一个思路是借鉴香港的港币，购入usdt或者usdc等稳定币作为自己的外汇储备，因为usdt或者usdc本身已经足够稳定，发生脱锚的概率很小，使用它们可以减少Terra的抵押成本。

There are two main ideas about what Terra has as collateral. One idea is to borrow Hong Kong dollars and buy stable currencies such as USDT or USDC as its foreign exchange reserves, because the USDT or USDC is stable enough to reduce the probability of unanchoring. Using them can reduce Terra’s mortgage costs.

当然，我们也可以加入Dai，Dai是一种去中心化稳定币，稳定性也比较好。

Of course, we can also join Dai, which is a decentralized stable currency with good stability.

但这种方法也存在弊端，Ustc的规模将会被usdt或者usdc所束缚，在Terra没有崩溃之前，Ustc的市值一度飙升到稳定币前3名，如果超越抵押物，就会变得债务大于资产，没有抵押物可用；此外，Terra会变成Usdt或者Usdc的最大债权人，产生不稳定风险。

However, this method also has drawbacks. The scale of Ustc will be bound by USDT or USDC. Before the collapse of Terra, the market value of Ustc once soared to the top three stabocoins. In addition, Terra could become the largest creditor of Usdt or Usdc, creating instability risks.

不过这是比较后期的考量，在前期重建阶段，这种方法并没有太大弊端。

However, this is a relatively late consideration, in the early reconstruction stage, this method is not too bad.

另一个思路是采用多元资产的方式，比如一部分资产以稳定币做储备，一部分资产以商业票据做储备，一部分资产以美国国债做储备，一部分资产以加密资产做储备等，至于这其中的比例需要货币小组和整个社区讨论确定。

Another idea is to adopt a multi-asset approach, such as part of the assets in stable currency reserves, part of the assets in commercial paper reserves, part of the assets in US Treasury bonds reserves, part of the assets in crypto assets reserves, etc. As for the proportion of these needs to be discussed and determined by the currency team and the whole community.

需要明确的是，Lunc代表了Terra的资产，但并不能作为一种资产储备，因为它是根据Ustc的发行规模来此消彼长的资产虚值，它包含一个双重性：对内代表了国库的资产，对外则代表债权人的持债规模，Terro1.0没有重视这个问题，最终导致自己资不抵债无法兑付Ustc的抛售。

To be clear, Lunc represents Terra’s assets, but it does not serve as a reserve of assets, as it is an imaginary value of assets that fluctuates according to the issuance size of Ustc. It contains a duality: It represents the assets of the Treasury internally and the debt holding scale of creditors externally. Terro1.0 did not pay attention to this problem, which ultimately led to its insolvency and could not meet the selling of Ustc.

为什么我不担心Terra会没有资产储备？因为只要Ustc的发行需求在，Lunc就会增长，它会给到Ustc（债权人）持有者一种幻象：Lunc就是国库的资产。但其实不是，它的本质是对债权人征收的铸币税，他们不会意识到这一点。

Why am I not worried that Terra will run out of assets? Because the Lunc will grow as long as Ustc issuance demand exists, it will give Ustc (creditor) holders the illusion that the Lunc is an asset to the Treasury. But it’s not, it’s essentially a seigniorage on creditors, and they won’t be aware of it.

但Terra必须要认识到这一点，随着国库里的Lunc增多，必须要将其购入为其他资产形式才可以。

But Terra must recognise that, as Lunc grows in the Treasury, it must be bought into other forms of assets.

这里又需要引用4lex_4sh4w的观点，保持债务和资产的动态平衡至关重要。比如说：什么时候开始购入资产储备？购入的幅度和规模如何确定？如何以去中心化的方式量化这一过程？这些都是国库和货币小组需要确定的具体事项，我在这里只抛砖引玉。

Again, to quote 4LEX_4SH4W, it is important to maintain a dynamic balance between debt and assets. For example: when do you start buying asset reserves? How to determine the magnitude and size of the purchase? How do you quantify this process in a decentralized way? These are the specific issues that the Treasury and Currency Panel will need to determine, and I am only throwing stones here.

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Please see my following thread, which should answer your question to some extent

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Why did I initially say that Terra’s algorithmic stabilization mechanism was not flawed? There are plenty of currencies in the real world that use algorithmically stable and pegged exchange rates, such as Hong Kong’s Hong Kong dollar. Soros’s Hong Kong dollar bet is based on the same logic as Terra’s big short, based on the core idea that the system can no longer support a high exchange rate.

So why can’t the system support a high exchange rate? Because the economy is weak, there’s too much debt and assets are shrinking. In other words, too much leverage. Tron’s Sun Yuchen correctly pointed out Terra’s collapse: There were no major design problems with the algorithmic stablecoin, but Terra’s leverage was too high.

Let’s analyze Terra’s leverage before the crash. As I pointed out earlier, Lunc is the false value of assets based on the issuance scale of Ustc, which contains a dual attribute: internally, it represents the assets of the Treasury, and externally, it represents the debt holding scale of creditors. That is to say, Lunc’s growth is achieved by issuing Ustc on a large scale, which is the first leverage – excessive issuance of debt.

In addition, Lunc has been slow to buy its own asset reserves in the mistaken belief that Lunc itself represents assets, which creates a second lever – zero reserve requirements. When the system collects the Ustc with Lunc, it is essentially collecting the debt with the debt, and there is no end to this until everyone demands redemption of the Ustc and Terra’s system crashes.

Often, people do not realize that Lunc is also their debt and simply ask the system to redeem their Ustc. This illusion can mask some creditors’ demands to pay Ustc. But the fact that the system bought BTC with Lunc opens up the illusion that the big bears can open up Terra’s Treasury by repeatedly shorting and pushing down Terra’s exchange rate, and then they go in and rob it. This is the third lever – unstable reserves.

This is where Stabocoin Dai has done well. After several runs, Dai has attached great importance to its leverage, strictly enforced excess mortgage, set up liquidation red lines and not overextended, which is the core reason for its survival. It is therefore important for Terra to de-leverage all three as it builds its portfolio of assets.

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Let’s discuss the most important governance link. Why is this the most important part? Because we can’t move forward with any of our subsequent proposals without addressing the governance issue.

There are five problems facing community governance:

First: the verifier problem. Due to the fact that voting rights can only be held by pledge, after Terra crashed, it was disabled, resulting in 99% of voting rights out there not being able to participate in the pledge. The original verifier controls the system with 1% of the votes. Restarting the pledge is undoubtedly the most important issue at the moment. But restarting the pledge carries the biggest risk of all: governance attacks.

Like a power attack, a governance attack causes the chain to be taken over and the original verifier to lose validation. So the verifiers are doing two things: persuading Orca not to attack the network, and concentrating their votes. Hopefully the verifiers are prepared to make sure that the probability of governance attacks is zero or they will have to fork.

Second: voting rights. In the world of decentralized governance, especially the POS consensus, votes are voices. How many votes does Terra Els have now? Is it a verifier? Can I get a verifier seat? Can the retail vote be pooled? If we fail to solve these problems before the resumption of pledge, we will lose the right to speak and make proposals in governance.

Third: the establishment of a council and a monetary group. The council was the executive branch and the monetary group the central bank. The two departments are independent, dealing with community governance and monetary policy, and both are elected by community vote. The specific rules need to be discussed in great detail. The monetary panel, for example, would have to be given emergency powers to bypass a vote on a proposal and shut down minting, reserve purchases and cross-chain conversions. Of course, exercising this power comes at a cost, and it must face subsequent community trials on whether the currency panel acted appropriately.

Fourth: modify system parameters. This parameter includes exchange rate anchoring, arbitrage mechanism, fiscal allocation, dynamic reserve purchase and debt recovery. Community discussion is followed by a vote on the proposal. The fine-tuning and revision of subsequent parameters will be discussed by the monetary panel and then submitted to the community for approval.

It is worth mentioning here the order of working and non-working reserves raised by A.E. This is an important question because the Lunc is not a working reserve per se, but a mirror debt generated by the Ustc. In the face of large-scale redemption of Ustc, working reserves should be used first, and then non-working reserves should be used when reaching a certain level.

In addition, there is a throughput problem with the working Reserve Lunc, you can’t recycle the Ustc from the system cast Lunc right away, and the delay will destroy the system if it is too long, as Terra’s crash shows. This is what A.E. is working on, and he has come up with practical solutions.

Fifth, establish the exchange rate circuit breaker mechanism.

Because of the Terra minting mechanism, large fluctuations in exchange rates and long periods of de-anchoring can cause a currency to collapse. Therefore, it is necessary to establish an exchange rate circuit breaker mechanism: when its fluctuation exceeds a certain percentage, the system will be turned off in an emergency manner, stopping the coinage mechanism and miners’ arbitrage, leaving room for the actions of the later currency team.

  1. Monetary Policy

Monetary policy builds on the fact that the first three components have been resolved and implemented, and is the framework for action of the Monetary Team, the Central Bank of Terra. For example, whether to adopt a tight monetary policy, or a loose monetary policy, or a neutral monetary policy, etc. These are the contents of monetary policy. We could call it the Terra Fed.

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Please see this proposal

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Hey bro, your proposal is exactly on the right track to slowly bring Ustc back to $1 with a floating exchange rate. However, you need to make it clear why you set this parameter. And it’s a simple proposal with some details to work out. For example, does it have to go up 0.0015 cents a day? Can we accelerate the previous rise and let the exchange rate rise in the form of a logarithmic function? How to control the marketability of Ustc in the process of rising?

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Hi Kaniki, thanks for your reply.

The 0.0015 cent is the amount it needs to raise to get back to peg in the proposed 700 days.

There is also a max burn amount per day as not to put pressure on lunc

It will also only raise the next day when the burning function didnt reach its max. If it did reach the max burn for that day, it means there is still too much outflow and we should let the people flow out for that same price until the outflow has stopped again.

The marketing side for the ustc;

Well quite frankly I believe it is a good thing for the community if the holders get out asap because it will lower the debt at a large discount.

The people understanding this proposal will buy and wait for peg. Once it has reached its peg, there will be a pressure again so it will hover just below the 1 usd as long as there is no trust or any other usecase or incentive.

We should restart the anchor protocol at that stage again and start with healthy but worthwhile apy’s for ustc holders. This will remove the last bit of selling pressure and will, depending on the apy on the market, even create more demand then supply.

For this we should indeed look at other solutions; which should be in the form of new collateral. I would propose renbtc as the decentralized gold standard.

Im drifting off again.

I would love to see your view on the proposal

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Are you in Terra Rabels’ group? We can refine this proposal and get it approved. In addition, I think your secondary market estimates may be on the conservative side. You see, the current anchoring mechanism has not been restored, but the MARKET exchange rate of Ustc has risen to the level of 0.05. Therefore, it is obviously not practical to re-anchor at 0.01 at this time. Expect to see you in groups in TerraRabel, where a dedicated quantizer team can test metrics. Here is the invitation link: Terra Rebels 🍌

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Thanks for the invitation link, i was not in the group yet, just joined.

When making my initial proposal the ustc was hovering around 0.01, but yes I would agree that we could start with the current market rate of 0.05. At least we can burn up some cheap ustc as a community to bring down the debt.

You can contact me on discord im #5321 on the channel now.

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I really like your idea, but I have some questions regarding details.

For example, you say 0.0015 cents. But I think you mean $0.0015, or 0.15 cents. Right? Also, you mention max burn per day. Does it mean max allowed burn per LUNC per day or per USTC?

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Yeah non developers will understand it lesser what was supposed be be accomplished by the relelase

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If anyone can point out why not to implement this proposal which looks more sensible in all approaches . Would be great and helpful

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Finally someone, with some sense, that is a good plan, similar to what I have proposed in the past… let’s get back as quickly as we can, let’s peg at a realistic level, USTC almost naturally pegged at 0.01 USD

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