I don’t think Luna-Terra trading pairs really hold much meaning for the system.
I guess it doesn’t hedge against fluctuations, it just gives you true market pricing for Luna in each currency, which will give you the true exchange rates (as opposed to the direct fiat to fiat exchange rates, which don’t apply to crypto markets).
Risk-free to the trader or not, the system should be agnostic to the quality of the trader and remain fully hedged in the face of any system-exogenous rate fluctuations. This is why I pointed out back in May that the current system is flawed because it is always either winning or losing, when it should always be neutral.
Yeah, I would say even more generally, a consequence of a multi-currency Terra. Let me try to flesh out my thoughts and opinions on this:
First, I don’t think we need to support swaps at a system/protocol level. Foreign currency exposure can easily be built on top of crypto at the application layer.
Second, to me this idea of using the SDR as the mothership currency is, frankly, quite academic. No one uses the SDR, the average consumer has no clue even what the SDR is, no one trades with the SDR. MakerDAO realized this (probably along with the fact that there is no liquid SDR<>ETH market to supply oracle price feeds), which is why they switched to use the much more easily understood and widely used global currency: the US dollar.
The more I think about it, the more difficult it appears to support multiple Terra currencies, given the fluctuating nature of exchange rates and how the system is built to mint and burn to compensate price fluctuations. Minting and burning are supposed to compensate for expansions and contractions of the economy, not forex fluctuations.
Furthermore, I fear oracle incentives might be perverse: stakers are incentivized to vote rates that devalue the relative price of the most heavily issued Terra currency at any moment in time to prevent swaps from inflating their Luna holdings. This surely holds ramifications for Terra’s expansion beyond Korea…
(Edit: I suppose this^ would only happen in the case where there is no independent Luna<>fiat trading pair for an issued Terra currency.)
What do you guys think?