Hi,
Is it possible to modify the UST algorithm such that if the market cap of LUNA drops below the market cap of UST, the support for the UST peg as well as the minting of LUNA token stops?
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Not without UST stopping from being stable. And by that also crashing Luna.
Going forward i think we should give up the deflation part.
Keep the burn/mint feature
When 1 Luna gets burned > 1 Luna inflation goes to de-peg vault > de-peg vault is used to buy Luna on the market if UST de-peg.
And by that motivating people to buy Luna as soon as it de-pegs because they know the de-peg vault will push up price because of market buy. Avoiding Death spiral.
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The de-peg vault is a good idea, but what happens if the de-peg vault doesn’t have enough to buy Luna?
The death spiral was caused due to hyper inflation, not deflation. The part we should give up is minting/dilution of Luna when marketcap of Luna becomes less than that of UST.
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what is that? a joke? why you have to buy luna se depeg ust ?, on the contrary you have to buy ust and remove it from the market so that it becomes stable again
I think there should be a minimum par value so that if the value of LUNA falls below this value, no more coins are minted. If the coin mint could have been stopped at say $2, this mess wouldn’t be as bad
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It could buy up both. But the point is. If investors trusted Luna not to make a death spiral the MC would have been a lot higher on luna than UST. And by that. If people were selling UST for Luna the inflation would not be severe at all. A lot of investors would have just enjoyed the opportunity to make a “safe bet” on luna when they know the vault would be buying up Luna. It’s like getting a discount on Luna today when you know by 99% the price will be higher tomorrow because the vault sets in.
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If you give up minting/burning the peg cannot regain.
About if i runs out of funds. Yes that would always be a risk. But let’s do a simple example.
When Luna started = 1 billion Luna
Before depeg = 700 million Luna
Therefore = 300 million luna in vault
300 million Luna by the time Luna was all time high = 36 billion dollars worth of Luna
36 billion was more than Luna and UST combined. It would easily have recovered the peg.
The vault could be a combination of Luna buying up UST. And the 10 highest ranking L1 assets. It would force other projects to support it. “either you are with us. Or else you are going down with us”
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i think it is possible, see gov proposal 1309 on terra station: “instead of having a spread when volume from ust-luna market swaps is high, keep the rate at 1 dollar of luna per 1 ust for market swaps from ust to luna, but airdrop the spread amount in luna to existing luna holders.”
at least would avoid getting diluted to 0
I like the idea of the de-peg vault and I think LFG was building that anyway. Except instead of top 10 L1 it had $750M in BTC and $750M in UST (having so much UST to defend UST was a bad idea) which it has loaned out, along with some $65M worth of AVAX. These funds are probably the only reason Luna/UST is alive right now.
While I agree that it is extremely important to have such a vault how it will be used still remains a question (even at this point). Also it doesn’t solve the inflation and dilution of LUNA issue from a systemic point of view.
My suggestion is similar to what @Tarie_Nosworthy is suggesting, i.e. to have par value below which LUNA will not be minted. However, instead of having it as a static value, it can be dynamic where the par value = UST market cap. If Luna market cap falls below this par value (UST market cap), then no more LUNA is minted.
You are right, in such a case the peg would not remain, but the funds from the de-peg vault can be used to buy LUNA which will increase Luna’s market cap.
Once Luna’s market cap goes above that of UST, Luna can be minted again to restore the peg.
This would avoid the death spiral caused due to inflation, while the de-peg vault will help increase Luna’s market cap which in turn will restore the peg.
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Yes TFL was starting to build that. But in my hindsight opinion 3 things went wrong.
1: started to late
2: trusted the mint/burn to much
3: not enough funds.
In my version. The vault would have had 36 billion dollars. Ă—2 UST market cap. It would have been practically impossible to break the peg. And if its impossible, no one would try. And by that. No Luna holder would sell.
About the mint/burn.
I’m not saying it can’t be modified. But i will say
Luna holders er investors.
UST holder are NOT investors.
Investors know full well that risk/rewards. UST holders on the other hand should trust one dollar today is one dollar tomorrow. So if a bad marked has to hurt someone. Let it hurt Luna holders. And I’m saying that as a Luna holder that has lost a lot of money.
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I suggested that mint / burn should only be usable when Terra’s solvency is high (as reported by the Oracle module v2) [Proposal] A Better Way Forward™ = TFL pays back $UST by burning excesses, NO FORK
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I don’t quite completely agree with this. Even with the US Dollar you are taking a risk that the US government backing the US dollar will stay solvent. When governments fall their currency pretty much becomes worthless - as was the case with UST when Luna fell.
The #1 priority should be to protect the government - in this case LUNA. If Luna remains solvent (it’s market cap stays above UST market cap), UST will invariable re-peg. And I’m saying this as a UST holder who has lost a lot of money.
Therefore to re-iterate my suggestion:
- Create a de-peg vault (as per your suggestion)
- Create a dynamic par value which is equal to the market cap of UST
- Stop minting LUNA when the Luna market cap falls below this par value → UST will de-peg as a result
- Use the funds from the de-peg vault to buy LUNA in order to increase its market cap
- Resume minting of LUNA once its market cap is above that of UST → UST will re-peg as a result
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I guess we can pretty much agree on your proposal. If you can and want, Please spread it around. I’m trying to spread awareness on my “luna deflation > Luna inflation > Luna inflation goes to de-peg vault” idea. But when your not big on Twitter. It doesn’t get heard.
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This. The stable should be backed by a partial to full reserve. Rely on the Luna minting method for normal market level control. When the value drop of UST exceeds a limit halt the stable → Luna swaps and replace it with a proportional reserve swap
If reserve is worth .25/USD per UST then that is the swap value. If UST sell demand is really there then holders will use the reserve swap and supply will contract without hyperinflation Luna.
I call this the “burn floor”.
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A cap on arbitrage value would also make sense.
Arb incentive is there when UST is .90, the only difference arbing when UST is .35 is the Luna inflation rate is much larger.
Basically the peg should change from 1ust = 1$ of Luna to 1 UST = the lessor of 1$ Luna or UST value + $0.10(?)
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@Skeyellama both good solutions. Can any of these be implemented?
Option one requires reserves. I get the impression reserves are gone, but there could be a mechanism to build reserves added. I don’t know what that would look like.
The second piece could definitely be implemented and I expect it would be fairly trivial.
The second option could be used to re-enable swaps and allow UST to continue to unwind.
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Also, you could add the outflow tax to the transaction of cex and bridge.
The yield of anchor could be dynamic and raise to defend the suddenly capital outflow.
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reserves is good solution. but it makes luna behave not that differently from liquity/lusd. And ppl not getting 1-1 on their ust guaranteed. their should be a fair exit mechanism in place, as a distributed solution to bank runs to prevent arbitrageurs from taking advantage of bank run: terraclassic.org
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Ideas. UST could be a hybrid stable coin that can de-peg, backed by assets such as gold. [Kind of like bonds.] An example, could be how GYEN fluctuates, and sometimes breaks the peg to the YEN.
Right now, the tranche would be something like junk [CCC-] with high yield. As the health improves, more assets would back UST, and move closer to the peg. [Maybe decrease the yield slightly as the health improves?]
Decoupled from LUNA to avoid minting more LUNA. Let LUNA act like a meme coin for a period of time. Reintroduce a small relationship back to UST. When POS UST, you would earn a small percentage of LUNA. Many ways to improve here.
First you have to stop the LUNA meltdown.
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