We present a confidence restoration plan that aims to rebuild with what we have rather than reset and disproportionately favoring any particular people in the process.
Disclosures: We own both LUNAv1 and USTv1.
Who we are: We are the 1 Terra Community, that includes you. We believe the existing Terra community is more than the sum of its parts. Help us lead with purpose to save our 1 Terra Community.
Prop 1623: Terra Builders Alliance: Rebirth Terra Network [source]
TFA+TBA Terra v2 abandons money, redistributes assets, and cancels debt. The 376.70M LUNAs are disproportionately blocking the 6.5T LUNAs from staking to vote. We, the customers and investors, have been cut from their community.
Prop 1691: A Complete Confidence Restoration Plan (NO FORKING) [source]
- 5/19 12:14am EDT Voting remains suppressed; no one can actually see nor vote for this proposal while the clock runs out
- 5/18 10:42pm EDT Submitted for voting with full 50 LUNA deposit
In this confidence restoration proposal, and given the little reserves LFG has left and low interests from new investors, our summarized ask is for the community to vote for:
- Eliminate the broken minting model between LUNAv1 and USTv1 in the market module and let the free market trade as is;
- Limit the authorized shares LUNAv2 mintable to 5% of the total supply in circulation to keep any Whale (strategists like David Tepper) from immediately seizing the project and liquidating it for its remaining value, and to give time to evaluate whether authorizing additional LUNAv2 in circulation is beneficial to LUNAv2’s value;
- Allow minting USTv2 only from 1:1 bonded stablecoins with any fungible amounts redeemable from the LFG Reserves;
- Create a recovery fund and restructure all USTv1 debts into long-term unsecured bonds that pays out (in USTv2) the $1 par value of the USTv1 plus 30% of the debt’s par value in LUNAv2, and for protection, this contract cannot be modified by general LUNAv2 voting governance and must have a supermajority (66%) vote by the bond holders, and the bond is to be immediately paid in full upon any change of control;
- Create a network insurance fund that consists of USTv2 and additional assets and stablecoins for future stabilization of LUNAv2 and USTv2 market prices;
- Raise 0.1% tax with a 47/47/5/1% distribution to the recovery fund, LUNAv1 burns, network stabilization fund, and TFL and community operations respectively;
- All interests and staking are to be paid in USTv2;
- Reduce Anchor Protocol’s savings program to 3.5% to increase sustainability;
- Allocate $50M from the LFG Reserves remaining for buying stablecoins to collateralize 50M USTv2 to seed the market with some liquidity;
- Allocate the remaining funds ~$37.9M for the governance to pay TFL operating expenses and any community projects on a case by case basis;
- Fix the Terra v1 to incorporate these requests, or if Terra v2 forking is truly necessary to accommodate the changes, then fork as follows: (1) keep minting disabled on Terra v1; (2) announce to central exchanges (CEX) on the upgrade; (3) freeze the networks; (4) clone Terra v1 circulations into the Terra v2 network where LUNAv1 converts to LUNAv2 and USTv1 converts to recovery bonds; (5) have external auditors give the approval with reports published; (6) resume Terra v2 and decommission Terra v1; and (7) announce to CEX.
This enterprise has a narrow window of opportunity to succeed. Running the numbers, there is enough money left to bootstrap this plan without excessively rewriting the distributions as pushed by the executive management.
For #4, there is no guarantee the new enterprise will survive. After Chapter 11’s, the debtees usually collect 100% of the project. Instead demanding for 9.5/90.5% ownership which would disproportionately impact the existing community, showing in good faith with the community, we propose the USTv1 ownership of the enterprise could be reduced to 30% par value of the debt and are given unsecured bonds to receive debt repayment from taxes over time. The bonds would work like aUST at an individual account level where taxes paid increases the redeemable amount over the lifetime of the bond, and after paid in full the taxation is to be redistributed as per #5 minus the recovery fund. After burning all LUNAv1 and USTv1 from the LFG Reserves and applying the conversion above, then the overall effect of the LUNAv2 ownership structure becomes 29.6% to LUNAv1 holders and 70.4% to USTv1 holders. The reason for giving the USTv1 the LUNAv2 ownerships at all is because there are no guarantees that the recovery payment would ever be paid in full nor would there be any guarantees that by the time the bond is paid in full that the cash value compared to TIPS (Treasury Inflation-Protected Securities) would not be valued at -30% after 10 years. Note: We make no distinctions between any token within the Terra network. bLUNA unbonded is LUNA. aUST unbonded is UST, wLUNA unwrapped is LUNA. wUST unwrapped is UST. The wrapped mechanism does not matter. It matters that LUNAv1 and USTv1 holders are valued properly to claim LUNAv2.
For #6, is done this way so that when the executive team is successful at driving up value that the amount of funding made to LFG for paying TFL operations and spending on lofty projects could be achieved. LFG governance represented by the new owners to adjust compensations, grants, and loans to various projects.
For #9, assuming a $50M collateralization because Anchor Savings currently has a 44.6M UST total borrow. At today’s $0.1242 it’s only worth $5.6M. Collateralizing $50M to mint 50M USTv2 gives the new environment some liquidity for the LFG Reserves to sell USTv2 currency once bonds repeg to USTv2 which will be at $1.00.
$50M should be converted to bonded USDC and USDT. The new bonding instrument should allow fungible redemption from the LFG Reserves.
For #10, with the remaining ~$37.9M value should allow a nice 2-5 year runway for operations assuming management can exercise good capital controls and no senior executives are to be paid >$175k/yr salaries. We cannot afford them until receiving new investment capital. Lofty Terra projects would have to wait. Have to simply concentrate on the best projects that enables the greatest tax recovery.
For #11, airdrops trigger taxable events in the US. Let us not consider this option until we separately discuss a better plan. It does not make sense to punish everyone for holding massively fallen LUNAv1 and USTv1 coins and then be punished again with taxes for the new airdropped USTv2 tokens after a massive loss. This is an anti-shareholder option and has not been well thought through.
We acknowledge that money cannot remain stable under an undercollateralized algorithmic stablecoin.
A fundamental law of economics dictates that a demand is necessary to allow value to go up when the supply goes down.
When fear catches on, the demand for USTv1 falls which negatively affects LUNAv1 in a feedback loop that makes LUNAv1 mint and drop USTv1’s value even more.
Using falling Bitcoin (BTC) assets to stabilize USTv1 causes further lowering of confidence that a repeg would happen without additional collateralizations added. Fundamentally BTC is not a stable asset. It behaves like stock equities rather than commodities. BTC’s market value currently drops along with the US equities market.
Bonding currencies to stablecoins and bonding stablecoins to mint USTv2 offers a way to keep (semi) DeFi and is the most practical way to achieve the primary utility (demand) of the Terra platform.
The community believes in Terra’s enterprise for 2 reasons:
Terra promises low fees and no limits to transfer money (there are extremely few banks that offer low fees and no limits);
Terra promises an ecosystem for savings and loans.
Money must remain stable for it be useful and a platform that does not have any capital controls to collateralize and stabilize its value becomes a con game.
There is poor leadership skills on display with no actual empathy nor desire to make right what went wrong for so many, and had already claimed several lives. No responsible leader hides for days. We expected PR with the community 6 times a day and continued promise to make things right. Take help. Form representative bodies to get through to the community. A closed war room provides nothing but a large echo chamber.
On May 13, 2022 Do Kwon writes:
On May 15, 2022 Will Chen (@stablechen), a former TerraForm Labs developer last year who now works for Terran.One validator, writes:
Being heartbroken is not the same as apologizing. Hiding behind legalese and giving up the moral high ground stirs up invitations for more attacks, and it will lead to harming the community no matter which product is finally used to restore ecosystem.
Better understanding Do Kwon’s character flaw helps us understand his theory of leadership, his values, and how he will ultimately respond or react to challenges.
May 11, 2022 Do Kwon did not show an understanding that fear, whether manufactured or not, is a fact of life in the markets, and fear often drives down demand which leads to the UST never pegging.
The redemption capacity worked to slow down minting LUNAs by significantly increasing the spreads after the max redemption was reached. Had the market module been disabled earlier it would have helped fixed the problem because it acts like a short-circuit breaker. Typical markets would have regained some level sanity after 4 days even without doing anything. Allowing the minting to increase was pouring water on burning oil. It is not the purpose of the reserves to defend the peg at all costs. The reserves are used for decelerating sell-offs but once momentum overcame the resistance the depeg needed to happen and the reserves needed to wait for buying back cheap debt.
The end effect of leadership’s performance resulted in hyperinflating the circulated LUNA supply to 6.5T tokens and the UST has still not regained its peg.
There is no point to support a Terra v2 fork that has the same demand risk profile as Terra v1.
There is no need to wait for @terra_money to perform analysis in order to understand what went wrong with the network.
The team and co-conspirators do not want everyone to actually digest the full post-mortem report by pressuring the community to accept a half-baked plan starting within 2 days. Do Kwon’s reverse Robinhood forking proposals maximally benefits his VCs (i.e. #hashed validators) to recover faster.
Published 5/13 [The Terra Ecosystem Revival Plan 1]
Published 5/16 Vote on 5/18 The Terra Ecosystem Revival Plan 2
The Terra v1 infamously advertises itself as money first (“a decentralized economy needs decentralized money”). Everywhere you see Terra you see references to money. The smoke is darkening leading towards a legal fire.
We have made it abundantly clear that all advertisements about Terra UST and others instruments being called money puts Do Kwon, his company, and co-conspirators into a new class of legal liabilities, and they are on the hook to repay the debts owed.
The agreement between LUNAv1 holding validators was not inclusive of all LUNAv1 and USTv1 holders. When money is in default, the remaining assets must be liquidate between all stakeholders in the enterprise to provide equitable representation in governance. When in default, the existing governance is no longer in control and must not be in control as their priority changes from a fiduciary responsibility to asset recovery for their strongest supporters.
Do Kwon’s strongest in-house council begins resigning to avoid getting dragged into multiple domestic and international wire fraud cases that everyone knows is coming.
On May 15, 2022, Will Chen (@stablechen) writes:
On May 17, 2022
Justifying to escaping the nexus of debt obligations is not that easy. On May 16, 2022 Do Kwon sought advice on how to provide airdrops to debtees based on snapshots. The intention and the action of seeking advice establishes the nexus that Terra v2 is indeed a derivative or a fork of Terra v1’s value and hence the benefits drawn by Terra v2 entirely belong to the community owners of Terra v1.
Terra v2 was designed with the intention of carrying over Terra v1 from Do Kwon’s proposed Terra Ecosystem Revival Plan and Terra Ecosystem Revival Plan 2 with new ownership redistributions.
Discussions should have been about addressing the problems of Terra v1 instead of pressuring everyone to agree to new ownerships in Terra v2 and disregarding debt from Terra v1. The team had given up realizing they themselves were incapable of saving everyone and their backers, and chose rebooting the project for a third time.
“A Victim in Singapore Accuses Do Kwon of Running a P-o-n-z-i. The victim claims that over 1000 people have been left holding mud”
Additional pressure is coming after the entire DeFi community beyond Do Kwon and his Terra. The DeFi community must be fully motivated to fix the problems the right way, even when Do Kwon does not accept help, because this responsibility is unfair to ask an inexperienced young gentleman to handle.
Almost 90% of the community rejects Do Kwon’s proposals. Do Kwon’s character will be further tested to see if he is really committed to the community’s will, or whether he will opt to run away from his own problems. He could still repair his damaged image and brand by working for the community, or he can follow through to save his friends and give up his integrity. The outcome is simple for everyone outside the TFL war room.
We have outlined what the basic problem was and proposed a solution that would restore confidence. We may actually need Do Kwon removed from leadership if he remains persistent on finally wrecking more lives.
The previous proposal revisions are provided for transparency and discussions.
Terra v1 is closest modeled after the traditional tried and true savings and loans enterprise. The savings and loans model works with some adaptations needed in Terra v2. Here is a 10-point genesis plan to kickstart the Terra v2 with value.
USTv2 must be eventually fully collateralized (i.e. bonded USDC), but initially at Terra v2 genesis it needs to be partially collateralized (i.e. FRAX). The only method of minting USTv2 should be by bonding foreign stablecoins. Bonding external stablecoins to average peg to the USD provides a practical method to achieve decentralization.
LUNAv2 is a variable-valued asset who’s value should approximate the market value of the total unlocked value (TUV) + the total near-term interests earning from the total locked value (TLV). LUNAv2’s value increases as the TLV increases and falls as the TLV decreases. This instrument becomes no different than how banks and financial institutions buy mortgages and discounted distressed assets.
Terra v1 minting ends. No more Robinhood pegging. When USTv2 depegs, LUNAv2 depegs. Property values are relative to its country’s currency. This eliminates aggravating an already stressed economy as it should.
Terra v2 shall integrate automatic market makers (AMMs) to trade USTv2 and LUNAv2 on a curve so that they are valued like traditional crypto assets and stablecoins on the market that is driven by supply and demand pressures. The convenience of having both on-chain for trading is still immensely convenient to users. The market module, Terraswap, and Astroport have been very convenient.
A network insurance fund to absorb LUNAv2 shocks during times of dramatic liquidations to help reduce any shocks and aftershocks that could lower the demand for USTv2. Since USTv2 will eventually be fully collateralized and LUNAv2 helps drive some USTv2 demand that arbitrageurs are expected to fix the price of USTv2 off-chain.
Add a 0.05 to 0.1% network tax fee. The distributions will be 47% towards fully collateralizing the USTv2; 47% to buy back LUNAv2 to help drive up its value over time assuming the daily market volume remains high–this is specifically to help assist LUNAv1; 5% towards the network insurance fund; and 1% towards paying for community projects such as paying TFL to continue operations. The tax and redistributions to be revisited monthly to help react ahead of macro government monetary policies (i.e. US Federal Reserve interest rate hikes).
Reduce the USTv1 debt by asking enough community members to help take unsecured LUNAv2 bonds with considerations for tiered (favorable) interest rates, with increasing lock up periods (remains out of circulation), and staggering the size of bonds. Avoid a mass exodus of unsecured debt all at once. 7, 14, 30, 60, 90 days, 6 months, and 1-4 years. Staging unlocks help control contractions in the LUNAv2 economy.
Apply similar lock up periods for Anchor Savings. 7, 14, 30, 60, 90 days, 6 months, and 1-4 years. Staging unlocks help control contractions in the USTv2 economy. Reducing interest rates to 3-5% APY would help reduce the debt burdens and help sustain the market.
Add additional strength to the enterprise from new LUNAv2 investments with a 4 year lock up (locked at current price) specifically to help accelerate towards a 1:1 bonded foreign stablecoins to USTv2 collateralization, and partially to periodically buy up LUNAv1 supply to drive up its value and benefit those USTv1 holders who take the unsecured LUNAv2 bonds (locked at current price).
Any remaining USTv1 reserves could be sparingly used for controlled burns with the condition that the rest of the plan is in place, otherwise uncontrolled burns under a broken system provides limited leverage before the entire system collapses permanently. Any remaining BTC reserves must be switched to bonded foreign stablecoins so that USTv2 can start becoming collateralized (ref. #1). In this enterprise the baseline value is the UST but generating interests comes from LUNAs. Without value in the currency the interests from loans are worthless.