Luna Terra is a great blockchain with many good use cases. However, a flaw in the design caused the death spiral. We need a solution which is acceptable for both Luna holders and stable coin holders. Otherwise, we have to let the death spiral continue. So, I propose force all stable coins to swap into Luna at once based on the market price of the last snapshot before the halt.
Clearly, Luna is in a death spiral, this is because the pegging mechanism’s design is flawed. There is no market equilibrium solution to the design, so death spiral happens. If we let the chain continue run as it is, everyone will lose out. So, we need to find a solution which is agreeable to both Luna holders and stable coin holders.
My proposed solution is to:
- convert all stable coins into Luna based on the last market price before the halt.
- In future, write this forceful conversion in the code, so that it is transparent what would happen and no death spiral would happen again. My suggestion is that all stable coins shall be converted into Luna when Luna market cap + stable market cap < total face value of stable coins.
- With this method, we can prevent future death spirals and make stable coins investable again.