Repair the ecosystem, don’t wipe it.
Burn LUNA massively, Burn UST as much as possible, repeg UST, relaunch LUNA progression, put safeguards in the minting rules and safety measures (such as keeping UST market cap below 50% LUNA market cap, for every minted UST keep one in reserve as a leverage for burning UST in emergency to prevent depeg, etc)
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LFG has >1.5bn UST and other assets.
They have recently announced that have only 80M left after they failed depending the peg (at least that’s what they claim but for now, that’s the number we should consider in our assessment).
There’s also the option of auctioning the $UST debt as a lockup yield bearing instrument, this doesn’t need much startup capital to deploy and would be another risk instrument.
I am not familiar with corportate finance so I can’t debate you on the merits of that.
If they pivoted to a debt repayment plan, they might just find that someone would back them for pennies on the dollar and voila.
If I represented a VC fund, I would prefer backing up a new and sounder version of the Terra blockchain rather than bailing out the current broken version.
As for the mint/burn fix you suggest, it has already been proposed several times in this forum and I highly doubt it’s viable. If I understand correctly, you suggest that we keep this mechanism and simply halt it when the market cap of UST becomes too large relative to the market cap of LUNA. Then, some kind of UST buy-back mechanism would take over as long the market cap of UST is too large. While this is mathematically sound, it is not from an economic standpoint. Traders (at least the knowledgeable ones) will incorporate this information into their personal valuation of UST/LUNA and may deem that the whole system can easily turn insolvent even if the market cap of LUNA is theoretically above that of UST simply because of a sudden drop in the price of LUNA, or a significant dump of UST tokens triggering another spiral of death. Disabling the mint/burn mechanism would not prevent the traders from pricing UST/LUNA as if this mechanism was still there. This is a psychological aspect of the question and it plays a major role in financial markets.
We’re both wrong according to https://dashboard.lfg.org/ which states that they currently hold 828.9M $UST. That number is presumably dwindling from >1B I previously stated because they are deploying $UST some other way (which is unlikely to be productive with $UST trading at $0.1).
How do you come to the conclusion that starting an empty chain with: inflationary $LUNA, no stablecoins, no oracles, no market swap module, etc, is a “sounder version”? The proposed fork is exactly what the saying to throw the baby out with the bathwater is talking about.
The mechanism which was exploited was specifically $LUNA minting. Let’s just fix that and keep the things that made us worth $30bn+ once. To throw it all out over an exploit to become a pretty generic Cosmos L1 is crazy.
If we updated the Oracle to account for off chain transactions + monitor the liquidity of Terra reserves relative to $UST market cap, and only allowed mint / burn to occur during times of high solvency, this would effectively automate what all CEX already does but for the on chain market swaps: halt trading during liquidity crises. My proposal isn’t to go back to how it was before. It’s a targeted patch to the vulnerabilities which caused the de-peg event to happen.
The problem last time was TFL had no true incentive to prioritise protections to the peg instead of growth - often times they conflated the 2 as one thing. The 2 new proposed mandates for TFL / LFG incentivise (even force) TFL to focus on solvency and slow growth above all else. Rebuilding the market/oracle modules + burning debts to patch and revert the exact issue which caused this mess is much more economically sound than hard forking away 11B of debts and hoping it all blows over.
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The problem with not reading the OP is that you miss things like how $LUNA would make up just 5% of the proposed Terra reserves and should be used mainly for minting $UST when demand is high and price is >$1. That percentage could be higher or lower, doesn’t change the viability of the plan, lower allocation to $LUNA is safest.
Fair enough, the exact figure does not matter much. The bottom line: there is very little money left.
The new chain will be a fork, hence not empty. It retains the dapps, hopefully the dev teams and luckily most of its community and right now, that’s the best assets Terra has. Plus, the USDC/USDT stablecoins will be introduced. It is sounder because it is ridden of UST. Of course, it makes it more generic but Terra will have to find alternative ways of distinguishing itself from the competition.
Several comments:
- If I am not mistaken, what fueled the huge minting of UST was the 20% yield promised by Anchor and the unrestricted ability to burn LUNA. Given that the former will be reduced to a much more modest rate and the latter could be largely limited too if the fix you suggest was implemented, I doubt Terra would experience the same kind of growth again.
- In order for your fix to truly secure the economics of Terra, I think we agree that the collateral needed to backstop a death spiral (and preferrably to deter it from even starting) would be very large relatively to the number of emitted UST which, again, limits the growth Terra could expect from its “native stablecoin” mechanism.
- Buying other cryptos to back UST (like they started to do with BTC) could probably be carried out better than they did (i.e. more discreetly) but isn’t it equivalent to make UST a collateralized stablecoin? In other words, some kind of DAI?
Did not understand what you meant about the “oracle” part.
If I ever reply further, that will be tomorrow. Thanks for your clarifications.
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Which Terra dapps don’t rely on stablecoins, or $LUNA’s deflationary staking reward? They will have to re-design everything just to migrate to a chain which will be empty to start because all of Terra’s current dapps are built around the features they’re axing.
It would still experience growth, but slower and more sustained growth. I’m certainly not proposing that we can get the $LUNA supply back anywhere close to <1B.
We would have long periods of time where Terra is insolvent and it pretty much sucks to hold $LUNA (though $UST should trend upward). Then, we would have bull markets where TFL is making consistent seignorage profits, their reserve is gaining value, and $LUNA is being bought back to the reserve but only 5% leaving plenty of $LUNA on the table for community to buy up with new money or leverage.
Gains i.e. growth would come to those who backed $LUNA during or before the debt repayment phase when $LUNA’s real value is zero (+ speculative chance of recovery which improves as we repay debts), also to those who backed $UST to recover its peg.
My ideas come from many hours of musing about what made Terra great before, what broke, and what the solutions are to what broke. It’s about bringing all stakeholders together on 1 mission, clear the ecosystems’ debts and then we go again with all the good parts from before + less vulnerabilities.
It could be undercollateralised to allow for rapid expansion, so long as the $LUNA demand isn’t so excessive that Terra becomes insolvent again (i.e. loop of => $LUNA rallies too hard, $UST moves above $1, more $LUNA is burned).
The exact details for the collateralisation mechanism do need to be fledged out, and I’m not sure what would happen with my idea if $LUNA demand was so strong that $UST depegs above $1 and Terra’s 5% $LUNA reserve was all burned up. Even though that is technically insolvency, it’s unclear what the repurcussions would be in that case.
I think the outsized demand insolvency can be solved by continuing to buyback $LUNA to reach the allocation target 5% and burning until $UST demand is calmed down. If $LUNA reserve depletions lead too often to insolvency and interruption of seignorage profits, we should raise the target $LUNA allocation % slowly.
The positive reflexive loop of buying $LUNA and leveraging up is great fun until it stops working and the leverage is dumped on. If TFL failed to acquire enough backstop collateral for the reserve, TSR would drop and $LUNA burn for $UST would be halted. The Terra reserve would need to topped up with more collateral to continue enjoying seignorage profits.
Re oracles: above Do Kwon is suggesting the market swap, oracle, and treasuries are totally removed in V2, along with UST. My suggestion is to upgrade the current Oracle to factor in solvency and alert the Market module not to service any mint / burn swaps when Terra is insolvent. Throwing everything out that made Terra brilliant is a big mistake. That’s why my proposal is about fixing the modules Do Kwon proposes removing (he is scared because his creation has caused so much suffering, I think he just wants to remove anything perceived as remotely risky now).
This is where the discussion becomes very nuanced. A reserve backstop is not exactly the same as stablecoin collateralisation, as we saw with the $BTC backstop being disastrously handled.
I don’t think that the reserve size necessarily has to be greater than the market cap of $UST, it only has to be big enough to reliably make interest payments on issued $UST in any market conditions (the 0.2-1% daily burn during debt repayment that I talked about). It’s not dissimilar to how the US Fed can expand its balance sheet beyond the country’s GDP, as long as they can afford to make interest payments on the debt perpetually, the total value of the debt becomes a secondary consideration.
Diversification and careful position sizing would be important to manage to prevent TFL becoming the biggest buyer in the room for any of its positions (always leads to disaster: Cathie Wood / Ark, Bill Hwang, LFG’s BTC debacle).
When I speak about Terra, I am speaking of TFL + LFG + community - because if we can get things rolling again, no doubt in my mind that the community, memers, and speculators will back V1 $LUNA and $UST. That reduces some of the debt burden but reprices $UST back toward $1 so we need TFL to act fast at the beginning if they can, while the debt is being mispriced due to their other props.
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Nitpicking, but a big part of my proposal is patching the death spiral so it isn’t a risk anymore. It’s not a spiral if the TSR blocks more $LUNA from being minted any time Terra is not solvent.
Now the primary risk simply becomes extended insolvency, instead of $LUNA supply going to infinity. During insolvency LPs are still available to service trades, but if a serious bank run ever occurred draining this liquidity, as long as Terra has a large enough backstop reserve to make the debt repayments by burning held $UST, insolvency should always be solvable, since as $UST drops in value the debt servicing cost goes down with it.
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I typed out a rather long response to Do Kwon’s Proposal V2. Of which I am a HARD PASS on the HARD FORK. Comment can be read here > Terra Ecosystem Revival Plan 2 - #2231 by NothingButChase
@wellhat has a rather sensible proposal above. It promotes fixing as opposed to instantly refunding/paying out losses in “HOPE” that they will regain confidence and stick around.
And I think that new leadership is needed. My comments here > Use Governance to Elect New Leadership - #25 by NothingButChase
It is clear that @wellhat knows more of the technicals behind the ecosystem. And think that his proposal with a few tweaks from my comments should actually be written as a competing proposal to Do Kwon’s V2 and put to a vote.
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How can we get this proposal to be seen and accepted? What can I do to make this proposal to gain traction?
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Current Max is 6.9 T but current Circulation is 6.5 T. Is there a possibility to burn the tokens not in Circulation? I do not know how this works but I am guessing the excess is with the LFG organization.
Thoughts? That would at least give some start to this Burn process. Advertize it as well that will gain traction and start improving UST and LUNA prices.
The problem is that the network is centralised in the hands of validators and TFL right now because staking is disabled. So we can’t proceed without their blessing, and if they and the VC backers who own most of the $LUNA want a fork, they will get one.
So we need to engage leaders in the community (devs, validators, TFL, LFG). Make them read this and we have to hope they see how grave an error they’re making by running away from the 11B $UST bankruptcy. If they saw it for what it is, they would change their direction.
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These figures will be most up to date https://dashboard.lfg.org/ so they only hold 828.90M UST on the balance now, those numbers have been dwindling recently. But it’s still enough to burn millions of UST per day and start the process off. If people saw TFL treating this SERIOUSLY as a bankruptcy it would completely flip the optics of this situation for Terra. That’s why they should be opportunistic and do whatever is possible to buy back as much $UST as they can at these levels.
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I think this is one of the best proposals put forth so far. While there are nuaces to be hammered out during refinement and final draft of the proposal, it shows a clear path toward solvency and recovery, which is clearly needed desperately at this time. I am 100% against a hard fork and we need to focus on saving Luna and UST and one of the best communities in Crypto / DeFi.
NO FORK!
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Unfortunately most fresh luna were in the hands of like up to 100 private addresses. They swapped ust for them then sold them on the market.
I think it should be possible to freeze the exchange addresses of those who transferred those trillions.
The money were suck from luna and ust by those who minted those trillions
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That’s also my understanding yes. Freezing exchange balances might help but could cause more drama than it’s worth (look up the $JUNO whale saga).
The beauty of treating the excess $UST as debt to buyback is how it incentivises attackers who still hold many $LUNA to sell it off during the debt repayment phase. Only people who believe the debt repayments would work & believe in the ecosystem’s recovery would want to hold $LUNA if we are burning tons of cash and insolvent ($LUNA should trade sideways/down in a range during this period).
My proposal was devised to try and align all stakeholders toward recovery & solvency for Terra, while shaking out as many bad actors as we can along the way & decentralizing the stake (which is absolutely necessary).
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Problem is the attackers long sold on market. At least 4 trillion are on exchange wallets and 1 trln in eth Bridge
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Do we have any idea who owns these $LUNA?
like you say “would need to play it smart to acquire the $UST back at a fair discount”
at the point the plane start nobody will sell their coins and wait for the price rise because its from public knowlage the plane and the necessity is in our side. if the buyer need to be smart also the seller. this plane will not work.
But if no one sells, price goes up and then ust holders can exit at a reduced loss
I am also in favor of opening ust based bonds to reduce liquid circulation
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What would be the reasoning for bad actors to own a majority of luna if it is to completely destroy it’s value ?
I could understand an hostile takeover to kick out TFL and VC, but why crashing the ecosystem afterwards ?
The only thing would be if it cost less to acquire lunas to grab the community pool and deplete it, but I don’t think that’s the case ?