A community driven Luna Classic revival plan by combining existing user base with new strategic partners to help recover losses by extracting value from the platform.
We create a virtuous circle by focusing on generating value rather than destroying it.
In this document we explore the following ideas:
Turn Luna Classic into a L1 blockchain with LUNC as its token
Buy back and burn the excess supply with cash + options to lower the cost
Convert UST into LUNC using the same options
Attract option market makers and arbitrageurs to revive the DEFi platform
A fund raising idea for the bail out
This is a unique opportunity to show that DAOs are not a meme and that they do work since anyone can step forward and make proposals to revive the network when/if it collapses or simply to make it better.
By committing to secure the network and to honor the outstanding debt (at least partially), we aim to keep the existing user base allowing builders to rejoin and generate value again.
A share of the revenue will be redistributed to LUNC tokens as a yield or a burn.
We make the following assumptions:
UST Outstanding debt: 10B$
LUNC Supply before depeg: 1B Tokens
LUNC Supply after depeg: 6.5T Tokens
At least 70% of the supply is very concentrated, between 10 holders or less
“We” means the community
Many people got lured into investing in UST because they considered a stable algo coin equivalent to a risk free asset and/or for its very generous 20% APY.
The exact same thing led us to the GFC and the collapse of Lehman brothers in 2008: Investment Banks were selling AAA rated CDOs with high yields which investors believed to be risk free assets because of the rating. Sadly collateralized debt obligations turned out to be not so collateralized and so did UST.
But the analogy stops here: As much as the collapse of LUNA/UST has been a disaster for the stakeholders, it is important to highlight that the network and the underlying technology have reacted perfectly well and as expected. In fact these events have demonstrated the extreme resilience and robustness of the LUNC network and the ecosystem it belongs to.
It has shown for example that blockchain is the technology of choice when it comes to handling defaults and collapse of financial markets (which sadly do tend to happen from time to time).
Is there actually any value left in the LUNC network ?
Or rather, how much do you value a digital platform which is open source, where anyone can participate and contribute, which has proven it can handle a ridiculously high throughput at a low cost and which is part of a rich ecosystem with many functionalities readily available ?
Furthermore, how much do you value it if we add on top a vibrant community, an existing user base and all the visibility it has recently gained ?
Back to the GFC analogy, not all investment bank divisions were bad: Some Lehman Brothers’ creditors ended up receiving more than they were owed.
Here we believe it could be similar, and plus this is crypto so anyone from the community can contribute to the revival; they can contribute financially, by building apps, by securing the network, or simply by holding/delegating tokens and believing in the project. And anyone who contributes will get a share of the network’s revenue.
So we need to generate revenue, and for that, we will rely on the community and mass adoption to grow it further. The idea is to develop a well-diversified range of products with strategic partners and to use an easy to use wallet to distribute them to end users in exchange for a share of the generated revenues.
The way the network’s revival has been structured is designed to start bootstrapping some activity/revenue by the time we see builders joining in.
First things first we need to restore the network’s safety. The supply is currently too concentrated, and we need to get rid of the excess by buying it back and burning it.
To do so we will make a public OTC deal with the LUNC whales (aka. the Tera whales) whereby we will commit to buy all the excess supply, around 6.499T tokens at a fixed price of 0.00002$.
We don’t need to raise funds; we will simply provide the infrastructure for the deal to happen and allow anyone to participate if they wish to do so (individuals, VCs, strategic partners or even Tera whales themselves).
What’s at stake for people funding the deal? Well, they can simply buy themselves a nice stake of LUNC tokens and they will naturally benefit from the success of the platform: It is a virtuous circle.
And why should whales accept such a deal? Well, they currently own trillions of worthless tokens. And they will remain worthless as long as they remain tera whales.
By striking the deal they will cash in 130M$ upfront plus 200M LUNC perpetual American call options strike 30$ for future upside. That doesn’t sound like a bad deal.
What if we get front run? People have no interest to buy above the strike price, and it will be meaningless to buy small amounts. We’re talking trillions of excess tokens to clear. The market will regulate itself.
We will set up a smart contract with a ramp up period, say 1 month.
During this period anyone can lock their USDCs (for investors) or LUNCs (for whales) in the smart contract and the transaction kicks off once the threshold is reached or cancels after the ramp up period and funds are be returned.
The deal starts by sending 9.498T LUNC to the Digital Quantitative Easing program for burning plus 400M LUNC to be used as collateral against options.
600M are sent to treasury for redistribution, see new supply section.
When done, it will introduce a new approach to funding crypto projects and set precedent for bailing out valuable ones which failed.
We must stop issuing new UST tokens and clear the current debt (refund UST holders). Once done UST will cease to exist.
It is important to make things right by the community to rebuild trust and confidence and to show that we’re willing to act in its best interest.
We currently have an outstanding debt of 10B$ (1UST = 1USD).
We commit to redeem all of it at 60% of its face value using LUNC tokens equivalent USD amount when LUNC price reaches 30$, so a market cap of 60B$.
In fact, UST holders will even have the option of recovering 100% of their losses if they hold onto their LUNC tokens and the price reaches 50$ or a total market cap of 100B$.
Above this price, they’re turning a 100% loss into a profit. That’s a strong incentive to use the platform and make some noise about it.
Technically this means each UST holder will be able to exchange 1 UST against an American perpetual call option with strike 30$ and notional 0.6 LUNC.
So 10B UST for 200M LUNC call options in total.
The nice thing about this plan is that we don’t need to distinguish between holders, UST Vs LUNC, Pre Vs Post attack etc. Indeed, people who sold their UST tokens under 0.6$ can buy them back and participate. As well as LUNC holders and speculators: We let the market regulate itself.
And for those (UST or LUNC) who lost everything and can’t buy back, the community can set up a solidarity fund.
The DQE program is what will connect the dots between the bad bank, the bail out investors and the whales.
It is a way to revive the network safely and to encourage trading activity by allowing DEFi platforms and arbitrageurs to rejoin the network.
It is a smart contract with the following responsibilities:
Commit to buy and burn 10B of UST against 200M LUNC perpetual American call options strike 30$
Commit to buy and burn 6.498T LUNC against 200M LUNC perpetual American call options strike 30$
Commit to exercise each option it has issued in the money against 1 LUNC
UST holders will be able to claim their options at anytime
The DQE smart contract will be triggered by the bailout one. It will rely on a price fed by oracles to decide whether or not to exercise the options.
Condition 4 simply exists because after taking such a huge loss, some people may have decided to take some time off markets and it would not be fair to exclude them if/when they return.
Some points to be considered:
The oracle price should be based on an average price from different sources to be more robust
DQE is an independent entity not controlled by anyone with the sole responsibility of buying back tokens (UST and whales’ LUNC) and issuing and exercising options
We might use asian options instead in order to prevent people from pumping the price only to get their options exercised
We might add an expiry date (5Y or 10Y) to make options less computationally intensive to price (for market makers)
The DQE will be fully collateralized at any time and hence won’t stake its LUNC tokens, neither with validators nor any DEFi protocol. This must be enforced in the smart contract
The contract might need tokens to pay for its execution and potential security audits in the future (aside of the initial one)
These are physical delivery options
With this program, DEFi platforms are encouraged to join the network since people will be seeking to sell some or all of their options earlier and market makers will be able to provide liquidity for them.
This will generate transaction fees for the network and will allow for a new economy to start taking roots.
We will burn 6.948T tokens and redistribute 1B tokens so the existing holders will be diluted 2x which isn’t bad given the recent events.
400M will be used by the DQE.
Here is a proposal for the distribution of the remaining 600M LUNC tokens:
100M airdrop to existing LUNC holders
500M Community pool unlocked by validators, broken down as below:
200M to fund builders (developers & validators)
200M to strategic partners
The airdrop to LUNC holders remains to be determined. It feels like it should go to the smallest wallets or distributed by wallet count rather than pro rata to the holding size. We could also split it in two and use a half to seed a solidarity fund. These are only suggestions.
Yuga labs, currently valued at 4B$ , is looking to migrate to a new blockchain after the issues they encountered with the launch of their token:
The idea is to have our community make some noise to attract them to LUNC network.
In exchange they would get a solid infrastructure to grow with a proven track record of handling high loads. They would also gain access to a vibrant community and a pool of talented developers.
Again no private deal here, they can join the public OTC deal and commit a share of their revenue to further develop the ecosystem.