On-Chain Stable Coins: USDC and other stable coins are competitive product against UST. This would be a negative. Also in DAI system, we often hear people questioning the rationale of using USDC/USDT as collateral for DAI, which adds layers (thus risk) to the reserve system. This does not compare favorable to use cash USD/EUR in Off-Chain assets.
This is similar to what Celo is doing. Overcollateralizing their reserve with BTC, ETH and CELO. It’s a good strategy because if we all believe that crypto adoption will proliferate, especially against ever reducing fiat purchasing power, in the long run the reserve will become more and more valuable in fiat terms. We just need enough to survive short term market shocks which might introduce de-pegging risk.
Where Celo is behind Terra is in the yield generating and money-market activities that Anchor provides, as well as the seignorage generated.
I think a similar structure where holding BTC, ETH, DAI, LUNA, UST (and maybe other promising crypto assets that are less likely to be volatile to the downside) would be a marked improvement to insulate against de-pegging risk. Obviously structuring the weighting of asset allocation would need to be well thought out. That’s above my pay grade.
While the idea of using a 3rd party insurer would be nice, I’ve been spending a lot of time in Bermuda (one of the major reinsurance domiciles the world) and the insurance companies just can’t wrap their head around the actuarial models to insure. Even if they could the fees would be significant to make it worth their while.
This is why most are self-insuring. Even better would be to establish a captive. I know the group that set up Gemini’s in Bermuda, but even they had a tough time getting reinsurance (unsure if they did).
This is an interesting approach and was also something I was going to suggest. Essentially structure a reserve similar to what Celo is doing but then put that capital to work like OHM is doing and be a liquidity provider on DEXs to make the treasury a productive asset and provide sticky, lower-cost liquidity to Terra ecosystem projects that are approved by governance votes.
ie. make a part of the Terra protocol an AMM for new projects to bootstrap their networks.
Should be able to get the best of both worlds:
- Less volatility because there are more diverse assets;
- Turning the treasury into a productive asset vs. just a static pool to help further grow the reserve ratio
EDIT: Formatting
Hey boss, any updates on this? Would love to buy native BTC on chain so I can move everything to Terra.
Maybe I’m thinking about it wrong, but what if the BTC was part of the core mint/burn just like LUNA, but with a higher tax rate? So it kicks in to support peg only when LUNA arb has been maxed out? So it’s really just an insurance policy that only kicks in during more extreme situations.
As far as I’m concerned, the proposal is contradictory to the nature of Terra. We should focus on perfecting the inner mechanism rather than attaching to the centered.