How to successfully revive the peg and restore trust

Any stablecoin fails under extreme conditions. Bitcoin didn’t become what it is today because users never lost confidence in the protocol, or because it’s value was never destroyed. Likewise, the dominant stablecoin of the future will likely have endured difficult times as well.

Making the Terra protocol safe again will certainly require modifications, and probably a shift away from the current algorithmic system.

Making UST holders whole

Restoring Terra’s peg can without a doubt be achieved by freezing almost all current UST, and then gradually unlocking small percentages over time.

When the liquidity and stability of non-frozen UST reaches a certain point, additional UST can be unfrozen. It’s only a matter of time and effort to scale the solution.

Expect years to rebuild trust broadly but smaller wallets could be prioritized and 90% of UST holders could potentially be made whole relatively quickly.

People are still looking for an opportunity to profit from the adoption of stablecoins. Some people also highly prefer a decentralised stable one can truly own, without a central party in power of it, or it’s collateral.

There’s also a substantial group of people and entities who would be happy to contribute to a safe, viable path forward, and possibly be part of saving a large user base who didn’t deserve to get rekt.

Demand for UST and Luna will surely come back if solid peg stability can be proven over time. There’s currently no other stablecoin with the same value proposal as the original Terra.

Improving the protocol

One way of making the peg stronger could be to partly collateralize UST with bitcoin, in a fully decentralized manner. Minting 1 UST with $0.5 worth of bitcoin and $0.5 worth of burned Luna would make the peg far more resilient.

Burning 1 UST would either sell bitcoin and mint/sell luna proportionally, or at a fixed rate. Over time, as bitcoin will become more valuable and the dollar more inflated, the btc/usd collateralization ratio will keep improving.

Bounties for de-pegging could help battle test the protocol and regain trust over time.

Making Luna holders whole

It’s much harder to bring Luna back to $100, at least in the foreseeable future, without editing the supply manually. But who would risk buying Luna when UST trades under the peg, if they weren’t sure they’d get to keep their coins? Burning seems risky.

Current fork proposals are also unlikely to save Luna investors, in my opinion. It’s of course speculation but i believe it will be challenging to reach anywhere near the previous market cap without the momentum from the adoption of UST.

Let’s start small instead and gradually build back confidence over time, with the aim of making each and every holder of UST and Luna, whole again.

Cheers,

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I’m all for applying fixes to current system and dealing with chains current state from here. Not sure how I feel about putting a hold on all UST… defeats one of the initial designs/use of it and not sure it can be done.

Another proposal also aims to restore peg, over time, using market incentives among other things: [Proposal] A Better Way Forward™ => Say NO TO THE FORK. LFG must instead take over the liability for the $UST debt

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Yea, perhaps we need to decide on fixing the current system first, and figure out exactly how to do it after the decision is made.

The freezing would be announced beforehand so anyone unsure about holding frozen UST would have the opportunity to opt out and trade their coins in advance. It would also be a democratic process to decide on freezing so i don’t think it would be regarded the same way as if coins were frozen by authorities.

It can be done quite easily. It could also be done as an experiment during a short period if time, to prove the concept.

With regards to the other proposal, it’s unrealistic that TFL / LFG would be able to raise 11B, in my view. It would probably be easier to raise the money without the involvement of a central party. But it still seems far fetched that it would be possible in this case. Only repaying a fraction based on the current value of UST wouldn’t be fair either.

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the problem is they are planning to hard fork Terra, which mean this branch of the blockchain will be left with no devs and no real governance to continue the project.

Or am i wrong? any devs will stay and continue to work on LUNA 1.0?

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Going back to the peg is too expensive considering how many people buy the UST at such a low price. Many people hope that it will recover only to generate a huge profit but have no idea how the system works.

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Well it’s 11bn in UST, so even 1bn usd goes a far way. If UST returns towards peg, well, the debt gets a higher usd value too. Why I like the proposal is it takes this into account and has ideas to manage it…gradual and slow may be best a sudden snap back to peg could also be devasting to many.
I think once we get the ball rolling positive network effects will help a ton as well

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Luna 2.0 feels like abandoning those who wanted to and were led to believe that they could safely put their savings in a high yield account. Luna 2.0 seems to focus on making risk taking Luna investors whole instead.

It’s unlikely that they will succeed though, it’s just another alt-coin without the stablecoin element. Great community still, so there might be a slight chance of reaching previous highs. But apps and devs would probably be better off on competing chains.

It also seems like there’s strong sentiment against the fork in the community so it would be unfortunate if the ship has sailed.

I see your point. Checked the supply on CoinGecko. Is it correct that going back to the peg would require roughly ten times the market cap of Tether?

The selection mechanism for unfreezing coins should take this into account. By unfreezing coins depending on when they were minted, older coins would be unfrozen sooner and newer coins would be unfrozen later.

It will probably take more than 10 years to unfreeze the entire supply but anyone who acquired UST at a low price would at least get their value back before inflation kicks in, potentially.

If they bought UST at $0.1, they’d get their value back if 10-20% of their coins would be unfrozen within 1-5 years.