Proposal: add currencies as Luna reserve

Luna’s beauty lies in its pegging UST to $1. I love it. However, we know in a catastrophic market condition when Luna price drops significantly, it’s hard to keep burning Luna to maintain UST $1 peg. Ironically this is actually when a strong peg is really needed - for traders and investors to have confidence on UST.
My proposal is to issue 5-10% Luna to buy USD, EUR, and JPY cash as cash reserve. When Luna drops, the reserve can be released to stabilize the market by buying UST. When Luna price climbs, more Luna is issued for cash reserve. This will help stabilize UST in catastrophic situations. Some might not like the idea of Luna dealing with fiat currency. But let us admit it - the sole existence of Luna is to bridge crypto with fiat, so people can really use it for payment and other transactions - we still receive our salaries in fiat, right?


What about bitcoin?


Bitcoin could be a great start - easy to implement, no need to audit(public address) and the purchase/sale can be build into protocol. ETH too.

Wouldn’t building a reserve of fiat currency make UST in essence a fiat backed currency? Not 1:1 but certainly backstopped. Diminishes the narrative of Terra

What about 1B in bitcoin, 1B in UST in a liquidity pool on lets say Astroport?


I think using BTC/ETH as suggested by dokwon can avoid fiat currency issue. The key issue here is that when UST drops, the system will sell LUNA to buy UST, which lowers LUNA price, thus adds more selling pressure to UST - because investors look into LUNA to find confidence in UST. This is a vicious cycle and BTC/ETH or fiat reserve can help break it

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Love it. The optics, memeablilty is bullish af. Can this be done natively with IBC or using something like Thorchain?

Would be a great use of the Community Fund money if it doesn’t all go to Ozone.

What about 1B in bitcoin, 1B in UST in a liquidity pool on lets say Loop Finance?


I mean, if we’re picking faves…

There are a number of solutions to natively bridge bitcoin over

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I don’t think it makes sense to back UST with fiat currencies. It seems a step backwards and could open up unwanted scrutiny.

$1b BTC seems like a great compromise. Or half BTC half ETH - both are not going anywhere anytime soon.

UST probably does not make much sense, there is too much layering in it. Either hold cash to accept government action, or stay within BTC/ETH to make the reserve fully decentralized, free from government actions

Maybe do something like BTCB, bep20 on Luna. Terra’s own BTCT CW20. This would serve a twofold solution because it also help make BTC more fungible on IBC… Just a late night thought

My concern with using btc, or other crypto as a backing is that they are all highly correlated.

Maybe a collection of fiat, commodities, and some REITs would help protect it better due to the lower correlation held in multiple jurisdictions that could be converted to UST quickly

Cant put that shit onchain ser


How about mAssets sir, to spread the backing? They could only be sold during market hours, is that the issue?

Those are collateralized by UST tho so no real point. BTC or BTC/ETH mix sounds like the best idea

Strategic Stabilisation of Terra via Protocol-Owned-Liquidity

My 2 cents.

While I do support diversification in Luna’s protocol owned holdings, I do not support currency reserves, either fiat or crypto, to serve this function. I think we can improve on this concept using Liquidity Pairs (LPs).

Above all, Terra is an ecosystem, and Luna’s value derives principally from the economic activity and UST demand generated by that ecosystem. Therefore, imo our Treasury should provide critical and strategic asset holdings and services that strengthen the ecosystem beyond merely hedging Luna’s volatility and spot price.

With that in mind I think there are some good lessons to be gleaned from OlympusDao’s approach to protocol-owned-liquidity (POL). From inception, Olympus focused on establishing very deep liquidity for OHM on key pairs (OHM-DAI, OHM-FRAX and more recently OHM-LUSD). This approach has worked out very well. OHM is always liquid, the protocol acts a buyer and dampener of trading volatility and swap fees accrue back to the protocol every day.

After ID134 passes on Terra Station (which looks likely) we will be flush with several billion UST, even after Ozone is fully funded. This creates a need for diamond-handed UST holders and creates an opportunity for us to establish several deep, strategically important LP positions that will benefit Terra and Luna for the long term. The protocol itself is the best diamond-handed holder possible, and should bootstrap strategic LP positions.

The exact pairs can be debated, but imo the protocol should bootstrap and seek to own substantially all of the UST-LUNA LP on Terra, Solana and Ethereum. Thereafter, it should seek to own substantial positions across some strategic pairs (TBC).

e.g. Assuming ~$2B UST is Available (all figures estimated, these are examples to spark discussion).

UST Liquidity for L1 Tokens (600m)
200m wUST-SOL LP (bridged UST to Solana)
200m wUST-ETH LP (bridged UST to Ethereum)

Key Native Ecosystem Liquidity (400m)
100m UST-bETH LP
100m UST-bSOL LP (soon, hopefully)

Stability Reserves (600m)
300m BTC (bridged BTC to Terra) or perhaps UST-BTC LP
300m bETH (staked bridged ETH to Terra) or perhaps UST-bETH LP

Key non-Native Dex Liquidity (400m)
100m UST-ROWAN (Sifchain via IBC)
100m UST-OSMO (Osmo via IBC)
100m UST-RUNE (Thorchain)
100m LUNA-RUNE (Thorchain)

This approach would enhance ecosystem stability by providing very deep liquidity for key pairs across several chains, thus providing exogenous diversification to Luna and generating daily LP cash-flows back to the Protocol- all of which further enhance Luna’s value capture and stability, and help to dampen the natural volatility associated with peg-keeping mint-and-burn mechanics.

Looking forward to feedback.


The problem you’re trying to solve is maintaining the $1 peg. Throwing money (via fiat reserve or bitcoin reserve) at this problem is essentially self-insuring the risk. I’d think it’d be inefficient insurance since (as others have mentioned, there’d need to be infrastructure (particularly for FIAT) and residual issues of correlation in the value of reserves (for Bitcoin).

However, I think this could be an insurable risk in the traditional context. The bridge to fiat could be through the purchase of insurance (dumb risk transfer contract) from a reinsurer or another entity with a good credit rating. The product design might be tricky to get right initially, but I imagine it’d be more efficient (cheaper), have less issues (e.g. governance over a pile of cash) and offer a “stamp of approval”… The premiums paid would probably reduce over time as the experience continues to suggest that the current peg is strong (and more entities become willing to insure the risk).

To add my 2 cents and to summarize the privious writers:

  • Insurance: I like the idea in theory, but (I work in the reinsurance industry) it is very hard to get a relevant amount (e.g. more than 50mio USD) for such a new product. Therefore, the amount will not be relevant. Moreover, the payout is slow (at least several days till weeks), which could not prevent a crash.

  • On-Chain: E,g, BTC / ETH, as other already pointed out, the correlation might be high, but it would be valuable if it is a Only Terra related ecosystem crash.

  • On-Chain Stable Coins: E.g. USDC: I like the idea, it could be a very fast backstop and we would transfer the On-Chain Off-Chain problem to Thrid Partires (Circle in the case of USDC)

  • Off-Chain assets: USD, Equity, REITs . On the positive side: These assets might be uncorrelated. Negative: Probably slow to liquidiate these assets, bring it on-chain and stop the crash

Pointing out that all these four options have different advantages and disadvantages a mixed approach might be best, especially 2) and 3)

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