Fork the network before the snapshot of the attack and remake UST Fees to grow in the missing percentage of its $1 peg…
The network fees will be in parallel with the rate of a decline in the price of UST to automatically restore the peg.
If the UST peg drops 1%($0.99), the network transaction fees will be at 1%. If the UST peg drops 3%($0.97), the network transaction fees will be at 3%, and so on.
The fees can be burned to recover the percentage of the peg.
This will force every trader to transact UST close to its $1 peg and will penalize traders who trade UST under its $1 peg.
When converting UST to LUNA on-chain it can be free because it helps price recalibration and further protect the peg. Also, fees can be free if you buy UST for a $1 value using the on-chain AMM to further price recalibration.
I believe this is a Death Spiral Killer.
What do you guys think?
If you are trading 1 UST at $.95 the network will charge you 5% to regain the peg. Also, this will incentivize people to sell UST close to $1. I don’t understand how you don’t see that this will force UST to be stable.
Both scenarios H1 and H2 you made are wrong. If the price of UST drops to 95% the network will charge you 5% to transact not the exchange. Also if it’s on an exchange, the seller may get charged, not the buyer. A halt is necessary when a Death Spiral is happening. When converting UST to LUNA on-chain it can be free because it helps price recalibration and further protect the peg. Also, it can be free if you buy UST for $1 using on-chain AMM to further price recalibration.
I understand that introducing fees will discourage traders to sell under 1 $. Else they would have to pay the fees and get losses.
But assume that due to some reasons, the price is 1.1 Let’s say whale attack or crypto pump. Or a good news situation. Or the system is depeg.
Charging sellers would not help. Whether they sell for 1.1, 1.2 or 1. They get 1 dollar out of it. Rest goes to fees.
For lower part (less than 1 $), I am clear.
For higher part, how will you make sure they sell it near to 1 ?
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The arbitrage situation when price is above 1$ assumes:
You buy LUNA (variant coin), covert it on chain to UST. Sell it at higher price (1.1)
Increased selling pressure will cause the price to come down.
But in this case, I am not making any profits. As even if I sell for 1.1, I make 1 USD.
So incentive to arbitrage (in case of higher price) is not there.
For eg. UST price is 1.1
I have 1 USD, I buy LUNA worth 1 USD. Convert it on chain to 1 UST.
And sell it in exchange for 1.1 USD and make profit. (Arbitrage opportunity incentive)
When fees is there, I would be able to sell it for 1 USD only as rest (0.1) goes as a fees.
So there will be no incentive to arbitrage. And recovery would be slow in case of small deviations.
I don’t think arbitrage trading will be nullified. The price is never perfect. Even with a 1:1 backing like USDC, the price still at least fluctuate by 1%. So there will be arbitrage opportunities.