[Proposal] A financially viable LUNC proposal

Governance & Proposals
22

Hi @johny ,

That you Do Kwon?

As a fun exercise I compared Do Kwon’s original and second proposal discussion against the text in your proposal (removing the pre-filled headers that come in when you open a discussion in Governance and Proposals), and it scored you as 0.8 (on a scale between 0 and 1) - it scored me against my own writing as 0.83 (using the text from the proposal discussion that I wrote and tested it against one of my longer responses). From a linguistics perspective, both forensic linguistics and styleometry are fraught with issues - so it is only for fun.

I noticed that you have your profile blocked, which is what made me think to test (since the profile allows others to see your recent activity and posts all in one place, and gain a sense of your overall thinking).

That aside, as an initial thought, while I further think through the mechanics of your proposal, from my perspective:

  • if you remove UST, you remove a mechanism that not only sets it apart from LUNA 2 but which much of the monetization and dapps work from (although I believe that chain will develop a decentralized form of UST).
    • Note: I am not saying that there are not legal issues, just processing from the point of view of the whitepaper and sustainability.
  • At this point I am looking for a proposal that would fix the minimum necessary underlying problems (and then after those are solved to move to consider broader changes). I realize your plan would buy back UST, and then turn it off (which I agree would handle the issues in the protocol surround UST - although I am not sure how many residual problems that may open for dapps).
    • I would see the underlying problems with the current protocol as:
      • the mint/burn mechanism:
        • to adjust from hard limits on burn, around the mechanism used to control the peg of UST using the LUNA as working reserve, which caused the run to instead be based upon market pressure limits - something akin to:
          • always make sure mint-buy-on-market-and-sell are done in one step (even if there are many asynch processes),
          • market maker that has to not only add value to the book on the chain but must always contribute to the pegging - particularly when there is large market pressure,
        • to keep buying open in market pressure situations for the blockchain (using the same market maker + must contribute to peg mechanism as above),
      • the reserve (to have it expand beyond the working reserve of LUNA to include a non-working reserve that backs the stablecoin at least 100%, and the two reserve sets back it at least at 110% - 150%). This moves it toward providing catastrophic protections.
  • I believe LUNA “classic” is already a Layer 1 blockchain
  • The issue surrounding options is similar legally to the issues surrounding Anchor and MIR in terms securities, commodities, and banking. In the U.S. a DAO can still be determined a legal entity (ie. an unincorporated association, either by verbal or written contract or agreement), and it would mean that if any U.S. “persons”, including organizations, were involved, that it would need to be structured in a legal appropriate way.
    • I have to admit that put / calls and options are not an area I am too familiar with (and particularly perpetual options - and here):
      • although you said that the UST holders can exercise their option at any time, I would think that you are meaning after it hits the strike price conditions correct (either LUNC reaches $30)?
      • Would there be a specific reserve within the community pool that is untouchable except for this purpose (I did read you mentioned that it might be tied into a smart contract)?
      • Since they are perpetual, and if the market cap goes well, and then has downturns, and it crosses the $30 strike price, but they exercise the option after it falls, would that not put the community pool on the hook for something we would not be able to afford at that point?
      • On the DQE for LUNC (point 2), did your plan not already buy and burn the 6.499T LUNC at the price $0.00002 (although I will assume that you meant $0.0002 since it is currently trading at $0.00012, although maybe I am wrong and you are assuming that since there may not be enough exit liquidity that they would go for $0.00002)?
  • As a side note, I am not sure I agree with the airdrops, as much as I agree with encouraging people to hold, and to work through without liabilities (and if liabilities are going to enter the picture that they be minimized so that it does not just compound what has already happened with the crash in terms of trust, but also in terms of actually being able to perform the obligation - in your plan the options obligation).
  • I feel like raising taxes are difficult for recovery (you want to incentivize from an economic standpoint), and it does not look like your plan taxes, so that part looks good. (even while I recognize that those who have proposed a tax, with portion going to restitution, and burn of LUNC, have amazingly been willing to burn their own wealth in order for LUNC to return in value, and for the good of all, including those who lost so much investing in LUNA “classic” and UST and have held on to their tokens).
  • I don’t know why we do not finish the mint/burn process that was part of the run away minting - so the LUNA “classic” / UST pools properly balance. It minted all that LUNA, but if I am not mistaken, it never finished purchasing and burning the UST. That alone would reduce the supply in both pools, which would then increase the demand in both pools, and in turn would balance the value of both pools. For the LUNA that was minted, intended to purchase UST, but instead sat on the market and was purchased, then yes, I think a buyback plan could work for those. Apart from what you have proposed as a mechanism to purchase LUNA, there may be enough in the community pool for that, although I am not certain since they always tend to refer to the Luna Foundation Guard figures and I have not looked up the wallet address in the code for the community pool recently. The Foundation Guard may or may not include the community pool’s funds - but I would assume, since the Foundation is a separate entity, that the funds reported at least include funds outside the community pool, ie. the funds of the Foundation itself.

It looks like your proposal has a lot of work, and thought, and insight, and it is definitely a creative solution to the funding. It has given me a lot to think about - Thank you :slight_smile:

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