[Proposal] Introducing coin maturity and UST burn contract with rewards

Hi there,

I’d like to get some feedback on thoughts I had during the last days.
Maybe they are not good but maybe they are and can be refined and help all of us.

The problem:
Quite obvious, UST is below 1$ on off-chain exchanges.
Cause of the “incorrect” swap ratio between off-chain and on-chain a lot more UST have been minted, than there should be.

The reason:
Large amounts have been swapped on chain, which caused the UST price to fall far below 1$.
Panic sells started off-chain, causing the price for UST to fall even more.
Arbitrage started big style, buying UST below 1$ off-chain.
Swapping it on-chain for LUNA worth 1$, selling LUNA off-chain. Profit a lot, repeat!

Solution:
Burn billions of UST to get back to 1 UST: 1$ and prevent this from happening in future.

How to achieve?

Two ideas which could be combined:

  1. Introducing coin maturity and limiting on-chain swap capacity

  2. Introduce a UST burn contract with over time rewards.

Details:

  1. If we could introduce a feature, which only allows on-chain swap 1 UST vs. Luna worth 1$, for coins which reached a maturity of x blocks on this address we could prevent the “off/on-chain arbitrage cycle”.
    So if there is a panic sell, people cannot use cheap UST bought off-chain, to swap them for more LUNA than they should on-chain.

  2. Looking at the market cap, UST is still below LUNA but the amount of UST is way too high to achieve 1 UST : 1$.
    Maybe there is the possibility to create a contract which burns the UST and rewards the user with let’s say “recorveryUST” in ratio 1:1.
    This contract collects a part of the transaction fees of the network and let’s users claim UST for their recoveryUST over time.
    This could trigger people to buy cheap UST off-chain and make them disappear from the chain by claiming their “recoveryUST”.

What do you think? Is it worth to refine and go into details or do I miss something obvious??

4 Likes

Question is, why should anyone buy cheap UST off-chain and burn them, when there is no reward for it?

Looking at the current price/marketcap of UST, it’s probably possible to get rid of all this “overhead” off-chain. But this will only make sense, if there is a way to stop this “arbitrage circus” when someone sells below 1$ off-chain for what ever reason.

The only way to prevent cheap UST off-chain sale is to request exchanges to temporarily halt all UST-USD markets.

Make sure the only way to off ramp UST is to swap it to Luna.

In case all involved exchanges would agree on that (doubt this is possible), trust would even less than it’s already.

Halt would also not vanish any UST.

Marketcap does not allow to swap all UST to Luna, that’s actually the problem

The on-chain swap trying to maintain a 1USD peg while the other markets crashed is what created the opportunity for a recursive loop attack to occur. The attackers were buying UST cheap elsewhere getting closer to 1USD worth of Luna using the on-chain swap, selling luna for cheap UST and then starting it all over again. By removing the on-chain swap and instead focusing on supporting market based AMMs you can rebuild the peg slowly and relatively inexpensively.

1 Like

Agree on the fact, that so original design of the on-chain swap was not good.

I think there are different possibilities to improve…maturity of coins, automatic disable when peg is lost, limits … but looks they are already full force on fork :frowning: