I am an undergraduate student of economics and have thought of this idea … needs to be fine tuned so experts of both code and econ please tear it apart …
since $LUNA has inflated incredibly over the last days we need a plan of action to contract the economy
- $LUNA is already being burned as fast as possible and nothing more can be done atm
- the cheapest way to save $UST is by decreasing the circulating supply as much as possible to decrease the amount of reserves needed to bailout
- Combined market cap of $LUNA and $UST is roughly 3.5B at the time of writing
- proposal cost = 2B note: hopefully there is more capital than that but i don’t think anybody knows for certain right now (unless we have updates on this please followup)
I believe the solution is simple : once the markets have settled … maybe end of weekend … maybe end of month … begin with following protocols
- mint LUNA 2.0 , a token that can be minted by burning 1 $UST and 1$ of $LUNA
- e.g. price$LUNA = 0.0002 , mint 1 $LUNA2 burn 10000 $LUNA and 1 $UST
- back $LUNA2 to 2 stablecoins ($DAI/$USDC/$BUSD)
- support $UST peg with .5 $LUNA and .5 $LUNA2
from my limited understanding in the pegging mechanism … this should alleviate peg pressure significantly and this would reinstall confidence in $UST investors. this would mean confessing that your $UST peg failed but committing to not letting the $LUNA2 peg fail by revealing that is will be reserved (cost = 2B) maybe @CZ likes this idea and willing to give the 2B $BUSD
this removes 1 trillion $LUNA and 1 billion $UST from circulating supply, what more? deploy Keynesian effect:
- those who mint $LUNA2 should commit to keep the system afloat by not selling and rather STAKING, each staked $LUNA2 can be used by the algorithm to arbitrage on $LUNA and $UST until equilibrium is reached (pls fact check me).
- the sharp reduction of $LUNA supply would inevitably leave many $LUNA speculators post-crash with capital gains that hopefully can flow back into the economy.
you could consider this a stimulus check to support consumption … in this case consumption is burning and facilitating an equilibrium state in the algorithm.
assuming all $LUNA2 are minted and all are staked, this would give the algorithm an extra 1B in wiggle room.
note: these protocols should also facilitate reversion to equilibrium.
who gets to mint?
should be from smallest to largest $UST wallets … note: it is mostly in the interest of lower end of the distribution pre-attack $UST to holders to save $UST
this would also align with ideas from @FatMan as described in Tiered Repayment as the smaller holders are made right first and it is up to them to show solidarity to the chain by staking their $LUNA2.
i could be delusional but it makes sense in my head and if I had the opportunity to convert some of my old $UST and newly acquired $LUNA to support the mechanism I would be happy to allocate parts of my holding to this idea. also I am no whale of any nature just a college student trying to pay his bills next month.
$LUNA market cap as of writing 1.5B
$UST market cap as of writing 2B
$UST price reflects confidence people have in restoring the peg
$LUNA price on the other hand reflects people’s willingness to pay to defend the chain
if for 0.15c (p$UST) + 1$ (4,264 $LUNA (p$LUNA = 0.0002345) you could get 2$ in return … that is a spicy 2x and for the humbler speculators might be good enough to stake.
the more people are incentivized to do this the more the burning mechanism perpetuates (from my understanding)
in the future p$LUNA2 could start at 2$ and then be allowed to float upwards as confidence in the environment as a whole is restores following the re-pegging of $UST and contraction of $LUNA .
just an idea please feel free to comment/argue it through