This community has fractured, and no part of moving forwards from here will be simple. Nevertheless, we must do so, and it must be together- or not at all. In this spirit, a consensus needs be built between all affected parties.
As Wassielawyer detailed, said parties nominally comprise:
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this community’s builders and developers, who stand before a troubling crossroads;
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LUNA’s investors, who now hold a grossly diluted and very nearly worthless token;
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UST holders, who are facing an approximate and minimum 90% loss;
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post-depeg buyers and sellers of these and derivative tokens, whose motivations and losses are various;
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some combination of the above.
Each of these parties now clamours for a greatly diminished share of a weakened network. Between pilfered value and shattered confidence, we must accept that much value has withdrawn from the ecosystem, even if only temporarily. This means- optimistically- that it will not be possible for all affected parties to be made whole at this time.
The only way from here, then, is compromise through consensus: one I believe will broadly resemble doing as much as possible for as many as we can, relative to everyone’s needs, inputs, losses, and capacities.
DISCUSSING THE PROPOSALS ON THE TABLE
Terra System Revival Plan II
In its most favourable incarnation, this plan separates developers- who draw value to the overall Terra ecosystem- from investors, whose assets and liabilities are marooned on a languishing chain likely to experience critical dearths in guidance and infrastructure.
If the fork is implemented in this secessionist manner, the message is clear: in the wake of disaster, those who have poured their faith (and money) can and will be left behind. I do not believe the significance of this message will be lost on either the current or incoming batches of investors to the Terra ecosystem. We are left, then, with two descendant chains which very few will dare to interact with:
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an old (original) chain which will have lost much of its development capacity and infrastructure, or
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a new (forked) chain which can muster no loyalty from its investors in light of past behaviour.
The Tiered Repayment Plan
FatMan’s proposal understands the value of rebuilding investors’ trusts in the ecosystem, and has the added benefit of seeing the greatest fraction of UST holders properly compensated. It is, unfortunately, contingent on money which we cannot assume will be offered, and so can only be wishful thinking until such point that comprehensive assurances are made and begin to be locked in motion.
The Blended Plan
Wassielawyer offers several sample figures in his combinatory proposal, but I surmise such figures are best left for later negotiations and will therefore not attempt such a breakdown here. However, the thrust of its request- that new investors be incentivised to cover the losses of the old in exchange for their stakes in the ecosystem- is surely one of our best and most workable options.
Nevertheless, the aforementioned problems with electing to fork the chains remain:
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Even if the majority of creditors are eventually fairly compensated, UST and the accompanying LUNA peg mechanism on the old chain are broken, and will remain unusable until properly fixed, upgraded, tested, and implemented (where such a thing is even possible).
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Much of the Terra ecosystem’s value percolates from or is contingent upon UST and its market-derivative products- it is doubtful that this value will migrate to a new chain which- at this time- is offering no comparable ‘stablecoin’ product.
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UST and associated market-derivative value exit the old chain, but find no place on the new; consequently, they depart from the Terra ecosystem, discouraged and without compelling reason to return.
Where, then, do we go from here?
We must consider if the potential benefits of forking the chains outweighs the drawbacks of splitting the developer pool, separating builders and investors, and creating a fundamentally different ecosystem. It may, instead, be worth considering fixing the LUNA responsive mint mechanism and preserving the current architecture, though I freely admit that the solution to the trillions of recently-minted LUNA is yet beyond my reckoning.
Should we ultimately decide that the old chain is functionally unsalvageable and that the migration to a new chain has become inevitable, then the fates of those chains must be closely intertwined. The old chain ought only to wind up once as many parties can be properly compensated, and as much value smoothly transitioned to the new one as we can muster. This serves dual functions: the rebuilding of the ecosystem’s goodwill, and the proper transmigration of assets and liabilities to the new chain.
In this manner, the community is not split into warring ‘old chain/new chain’ factions, but find unity under the banner of a single ecosystem whereby parties are mutually fostered. Such an alignment in direction- and perhaps only such- would allow this community to continue the ecosystem’s development while looking after its own.
ELECTIVE UST REDEMPTION: A Sub-Proposal
A solution- and new money- may not be imminently forthcoming after the prospective launch of the new chain. However, not everyone who held UST and associated market-derivatives will be able- or want- to wait for the network to catch up and fairly compensate them.
I propose the creation of a fully collateralised stablecoin (say, NUST for New UST) offering on the new chain, which is- as is common practice- pegged to the value of the USD. This is independently valuable to the new Terra chain- the portion of the ecosystem serving such markets and investment protocols is self-evident.
Such NUST could then be redeemed on the new chain using old-chain UST at a ratio of lower than 1:1 at the outset (say, 0.2 or 0.3, for instance) but slowly increasing over a predetermined and contracted length of time, allowing those who are willing to exit at lower values ratios to do so earlier and safely, while also giving them the power to choose when. This stratifies UST holders and scaffolds a longer runway to amass the necessary funding, gives exiting parties some agency as to when they have reached a satisfactory compensation under the circumstances, and also creates an avenue for people to buy others’ debt, holding UST until it unlocks greater parity with NUST.
Some/many UST holders may be dissatisfied that those who bought off-peg UST appear to be unjustly enriched under this model, but I submit that the purchase of UST at 1.00 is a fundamentally different one to UST purchased at 0.60, or 0.40, since its value as a stablecoin is almost entirely predicated on a lack of volatility and the proximity of its peg to the US dollar. Additionally and of note, these very same buyers who were willing to buy off-peg UST necessarily provided the exit liquidity for those who wished to exit the market at every value on the way down.
CONCLUDING
I do not believe it to be in the best interest of this community to split down imaginary lines any more than I believe a human can be equitably distributed by being separated limb from limb. Like it or not, we need each other; just as we needed highly risk-tolerant arbitrageurs to hold the UST peg alongside stalwart holders who resisted each attack that came before, we must accept that- barring malicious agents- the community has a grown into what it is today as a result of everyone’s efforts and contributions.
There is something here worth salvaging- that is why we all still remain. But it only survives- and quite possibly eventually flourishes once more- if we handle it carefully, together, and with broad and equitable consensus.