terraclassic.org
During the bank run, arbitrageurs destroyed the system instead of restoring it
Despite the goal of arbitrage being useful in upholding ust peg, during the bank run, all arbitrageurs did was damage the system, and the holders of both ust and luna
- to ust holders: they kept the spread high, and the market swap price of ust low, preventing legitimate users of ust from cashing out near 1 dollar value of luna, while making money/profit for themselves
- to luna holders: they inflated the supply of luna like crazy,at a profit for themselves, and a loss to luna holders, while having no effect at restoring the peg whatsoever
- to the system: forced validators to centralize and turn off further staking of new luna holders because risk of 33% attack,
and to turn off market swaps , to allow centralized exchanges to not take it down due to excessive inflation, keeping system in a frozen state
arbitrageurs, during this bank run, could almost be said to have served no purpose whatsoever to the benefit of ust/luna. they were a total nuisance.
When a bank run happens, the system needs a distributed way of dealing with it.
during a bank run, system cannot allow arbitrageurs to make profit ahead of legitimate users just trying to escape ust at a slight loss. System must Inflate supply to ppl exiting ust fairly, rather than allowing only arbitrageurs to profit while ust is off peg
Fair exit mechanism
system can know when a bank run is happening, by calculating via oracle difference in ust supply/debt and luna market caps
- the peg is immediately restored internally by getting rid of the spread (ust is worth exactly 1 dollar of luna):
- market swaps turned on fairly to existing ust/aust holders (snapshotted holders of ust/aust at bank run detection block):
inflation is only allowed to be created for non arbitrageurs, - amount of allowed market swaps per day per wallet at snapshot is set at limits that are acceptable to current luna holders (< 100% inflation / yr):
instead of having an amm that gets replenished per block for the purpose of controlling arbitrage inflation, inflation is reserved per wallet per block at limited amount of ust, 1 to 1 of luna - The adjustable by governance parameters are
bank run trigger: difference between outstanding debt and luna market cap, default to 300%
allowed inflation of luna for fair exit: default: 100%/yr