Summary
Proposed a concept that allows shifting the balance willingly. Get creative and modify to make it work.
Motivation
We’re not opposed with any new fork but this re-fork must be exactly the LAST priority in any recovery plan.
Assuming TFL and the community are able to identify all systems that failed to work properly and provide beyond convincing multi-point changes to prevent these attacks, then we can talk about distributions.
UST holders are not opposed to giving some value up to help rebuild but 40%/40% just because the Terra Alliance says so is a trigger for criminal proceedings. While the community still has the remaining UST holders still holding out for hope, the team needs to stop any diversionary tactics such as getting everyone to focus on redistributions. UST holders are NOT in the same level as LUNA. In Ch. 11 proceedings UST holders would normally become 100% owners of the new LUNAv2 with LUNAv1 holders completely wiped out. Let us work towards solving the real problems first.
Let us take a look at the balance. On the left side is the LUNA market cap. LUNA is worth less than $1 billion. On the right side you have UST. They’re worth more than $13B minus cost basis. A distribution on the net worth at 40%/40% is considered theft. Shifting UST from the right to left causes extreme LUNA printing but that could bring UST back to $1. LUNA holders accepted this contract when they bought it so anything more is because UST holders agree.
Proposal
Shifting a depegged UST to the LUNA side requires selling LUNA at extreme discounts but doing this causes further dilution to LUNA. The first step to stopping any further bleeding is to stop the LUNA minting by convincing the low risk cash side to willingly buy high risk securities side. (Note: Securities side means being exposed to open market forces).
We suggest creating secured bonds at higher percentage returns to convince UST holders to LUNAv2 side, thereby to reach the equilibrium necessary to restart a new network without causing a bank run since both sides carry about equivalent value. We assume the new system is strengthened to handle the aftermath of a George Soros level attack and still be able to recover. Interest bearing instruments outside of the Terra’s ecosystem to generate interests from securities or foreign currencies may be a necessary condition. There must be controls in place to prevent the Robinhood algorithm from taking value out of the LUNA side after the left side is essentially the same value or lower than the right side. Keep promoting a secured bond sale to existing UST holders until the left and right sides become balanced so we don’t need to mint anymore LUNAs to stop the bleeding and restart without anyone too upset, and by shifting more UST to securities means your supply drops quickly so it can repeg to $1 and help LUNA regrow value fast.
We need Do Kwon / TFL / LFG alive and not in prison to produce value to heal the ecosystem. It is in no one’s interest that they are gone because it is guaranteed all value will be gone.
LUNA is an investment. UST is debt. A failed investment does not erase debt.
Realize that any value left to the LUNA holders must be signed off by UST holders because all of it remaining belongs to UST holders and any LUNA and Gemini assets left that is not taken by UST holders will basically become a new loan provided by UST holders. There is no way around this. LUNA holders legally are not entitled to any material value when the LUNA’s total value became equal or less than UST’s total value according to the 1 UST for $1 worth of LUNA contract. We as a community are not without empathy so we should find a way out of this but just know anything that comes out of this cannot be for free and at the expense of UST holders against their will.
As per #2 it is in everyone’s interest that a loan is provided to TFL to help them rebuild and survive this disaster to recover any value.
We need someone to help account the cost basis for UST holders by their time and date of purchase. Not everyone purchased all 13B USTs at $1 peg. Accounting for this could help us reduce the debt burden significantly.
The LUNA market cap is worth $2.17B (5/15 1:51am EDT). About $2.5B BTC was loaned to Gemini. This represents $4.67B value remaining. $13B (assuming @ $1) means at this time there’s a deficit of $8.33B in debt obligations. TFL should have never allowed the value to drop this far.
In order to address this debt deficit is where we must beg the UST holders to provide an unsecured bond with varying interest rates according to duration of lock up and/or total amount to the network. Larger sizes needs to be repaid on a later date since the network would unlikely have enough time to heal. Longer lock ups should earn higher interests rates. The key concept is this unsecured bond is no longer considered USTs. It becomes an investment so it allows the network to take out more UST debt obligations.
As per #7, the amount of additional debt we may need to target (ref. #6) is $4.165B ($8.33B / 2). This is the amount of unsecured bonds that we need to beg the UST holders to buy. By doing this the left and right sides (investment vs debt obligations) becomes balanced. This was what Do Kwon proposed to do unilaterally without any consideration that he has no legal authority to do this even if the Terra Alliance or LUNA holders desire this. Know that this actually represents a total of $6.335B ($4.165B + $2.17B) unsecured loan from UST holders so you still need an approval from the UST holders for the $2.17B value from the LUNA MC which is what they actually now own if they choose to liquidate all their current USTs. The virtue of borrowing $6.335B is basically to reduce the debt burdens and also have some left for the existing LUNA holders to actually trade at the time Terra v2 is switched. If UST holders do not have any empathy then they will demand 100% of the LUNA holders to be liquidated to recover their remaining UST value irrespective of potentially being able to make back 100% later.
We cannot rewind the transactions to any arbitrary time. This will open up TFL to lawsuits and criminal proceedings by both LUNA and UST holders after that date and now. You can only account for everyone’s holdings at a point in time when you halt the network before moving to Terra v2. There is no way around this. It is not a democracy.
Additional requirements
Additional controls needs to be in place for Terra v2. We assume TFL will perform a full detailed post-mortem analysis on every system that failed to keep the peg from liquidity problems to the price oracle unable to keep the peg, to how the invariant where LUNA value could fall below UST value.
We understand Terra’s enterprise is a savings and loan scheme where the valuation of LUNA’s pricing is highly dependent upon the future interests earned from the total locked value (TVL). The higher the present TVL the higher the LUNA’s present worth.
We want to see the enterprise succeed and become more robust to handle three cases. 1) Home Savings & Loan bust, which as you know, is quite remarkably similar to the current issue aside from the implementation failure of TFL to address #10. 2) George Soros sized attacks on the LFG Reserves which could lead to a free fall of USTv2 currency again. 3) Post-George Soros rival where UK fixed their inflation problems and had increased their GDP. We do not have citizens to produce new value and extract taxes from so we need to have an interest bearing reserve from a basket of currencies. We also need to create an insurance fund that charges insurance taxes from any net gains from trades on the network for the purpose of absorbing large systemic shocks and aftershocks from depegging events. You should work towards increasing the insurance fund to the point where it is the size of the total USTv2 debt value, and any value beyond this plus headroom we should apply towards buying back LUNAv2 to raise its value.
There may not be any reason to continue the Robinhood algorithm anymore. Stealing from the rich and giving to the poor was broken because the poor kept thinking they were still poor so kept stealing. (The UST in a depegged state was effectively the poor thinking they were poor forever). Because LUNA’s value became less than UST’s value, we know we can never trust external price oracles at their word ever again. The oracle attack was happening rampantly and TFL could not control it and neither were the Terra Alliance / validators able to see and do something about the rampant manipulation of the UST peg and so failed to control the dilution of LUNA. The Terra protocol must own the price of USTv2. The external prices may influence LUNAv2’s price but certainly USTv2 cannot be based on external prices. Instead we should favor a curve pricing. Allow the forces of supply and demand between asset and cash to be determined by a curve. Having this market accessible within Terra Station Wallet is still much more convenient than going to the exchanges. The on-chain is its own exchange.
If you really want to make the Terra ecosystem whole again you must understand what is wrong and why UST holders must be the ones agreeing to help you rebuild. If you do not then criminal charges and lawsuits will be flying in from all directions and nobody gets anything.