Hello Guys,
About my self: Before this shit show I did not know how Luna/UST works. However I staked UST on binance, so now that my 30k worth next to nothing, I got involved and now i’m reading how this works. I actually think the idea behind it is not bad, it is good. What caused the crash is pure bank run. I started to think is it even possible to avoid this. Today I wake up and I see that market cap of Luna is rising. An idea hit me (hope). Here is my proposal, in which the network can be continued without reset but with much parameter changing:
It is clear that to regain trust we must make people get back trust in UST and try to save UST. And somehow we must also try to respect the other side: Luna owners.
How can we avoid a bank run? My propose is that we give a parameter how much $ worth of Luna can be minted each day. We start very low, let’s say 50k each day. I believe there is something like this already in place, but much higher number. Now my proposed change is the following: When a bank run accours (congestion, more than 50k a day), people should go into a queue. Now Bidding should start. People who are in much more “panic”, are offered to redeem their UST at lower price than 1. So now we are still dumping only 50k Luna per day, but for example in extreme panic (0.1 per UST) it’s now 500k of UST burned. This means we start to burn the UST much faster, sacrificing the people who are just in plain panic (who are also the culprit here). We see how this goes and slowly increase the parameter 50k to 100k etc. At some point we lose all the panic sellers and fully repeg the UST back to 1:1. We gain back the trust which is required. I believe a reasonable amount of time for people to get fully repayed is ~5 years, so we can start calculating about parameters… I would be very conservative and also defend the Luna owners here, so clearly I would suggest that the max luna mint is just extremely low to start with. Currently the Luna market cap is rising quite fast, so there seems to be a glimpse of possible recovery here.
I understand there is also a problem of “previous Luna owners” and “after shit show owners”. Here I’m guessing a fork with a snapshot and redistribution of tokens between new and old would be a solution. UST owners would not be a part of this redistribution. In the “main proposal” (40/40/10/10) which is going around now, I see the problem that UST owners like my self will definetely “dump” the new Luna token, since we like the “USD safety” and actually dont want to be part of having a utility coin. Just want 1:1 back or as close as possible.
I believe this anti-bank-run mechanism can work, in both cases, if it’s decided to start a new chain or try to resolve the current chain. It is probably similar to the mechanism of “spread fee”, but still different or maybe just my proposed parameters are much lower.
going with some numbers:
the current market cap of luna is still around >2 bilion, adding 50k per day adds 18M per year, this equals “inflation rate” of something less than 1%, which is not high. So this value has some manuverability. at 50k per day we would require 547 years to recover if everyone wanted to pull out at 1:1 peg. So this value is obviously unnaceptable. However we have manouvers. At first UST might be worth 10 cents, so the speed here goes x10. And if we somehow manage to increase market cap of Luna more by it’s usability, we can increase the 50k cap to example to 250k, so this is now x5 speed. at 10x5=50x speed the return levels would seem to be around 10 years. There are other things missing in the equation, one of them is, we probably do not have to burn all 11,3B UST. Here I do not have info of how this UST is distributed among people. There also might be some bitcoins still remaining. What we would create here is selling “bad debt” to people, who are willing to accept some risk and wait years for things to get better.
So at some point what is required is that Luna gets utility, with a market cap of previous levels and accepting inflation rate of 2% instead of 1%, we might be able to peg back UST in much less than a year.
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thinking further, luna will not have any (or very low) utility with “waiting for UST to repeg”. So I got the next idea: create UST2 with repaired algo which avoids bank runs. So we can get back with utility as it was. And also add the “fixed inflation rate” of luna for the old UST owners. This is the 50k parameter i wrote above, but instead of “50k” it would be the 1% of Luna market cap per year. So old UST owners will be gradually repayed for their loss, some accepting higher losses than others. It is going to take years with a small hit on inflation to Luna chain. And if Luna will be succesful, then the UST owners will also get a higher and faster repay. Right now most proposals are a war between UST and Luna with no mutual benefits.
i want to make 2 discussion in this thread:
-is is possible to create an alghoritmic stable coin that will surive a bank run (where USDT collateral makes no sense, then just borrow the USDT…)
-what do you think about creating the “bad debt” market for the UST owners? I think it can be a fun and innovative market even for people who are not involved currently. people could buy bad debt on the market like binance, coinbase, we have such mechanisms in real world
hope someone reads this