Table of Contents (Type into search bar)
- Phase One: Burned Investors, Hellish Debt
- Phase Two: The on-chain Stablecoin Issue
- Phase Three: The Luna Dilution Problem
- Going Forward: Anchor and Reserve
- Going Forward: The Stablecoin Distro
- TL;DR Terra Rondo
- Conclusion
For the nerds out there, I originally intended to title this the “Terra Instrumentality Project”. Decided against that at the last minute though. Anyway, to get to the point I have been searching through the proposals brought forward and two have jumped out as pretty favorable.
[ [Proposal] BURN and REMEDY fee with each LUNA transaction 💊 ]
While they are favorable, they do not dive deep enough to address the current or past situations. So first thing is first, UST is lost in the water. It has been thoroughly devoured by the sharks and nothing can be recovered from it. But it was built on a promise so to hold any sort of hope for good will, the token must be able to be redeemed for $1.00. There is also the other problem of compensation to those that were diluted into the abyss by the last ditch attempt to absorb UST back to $1.00. Both of these MUST be addressed for the system to hold any credibility moving forward. There is also the idea that forking the chain and reverting to an early snapshot would somehow make things “manageable”. Forking would do nothing of the sort, as there was too big of a time window and too many issues in succession to find a satisfactory place to jump to. The community would take forever to come to a consensus on a proper jump point. So with those two cents out, let’s get on with the proposal.
Phase One: Burned Investors, Hellish Debt
So first thing is first, what to do about the wallets that lost everything, they tried to salvage at the end, but barely have anything to their name? The first part of this is to take a snapshot of the chain and wallets probably somewhere around block 7571645. This will involve communicating with exchanges and other chains to get as complete an overview as possible. The sooner this is done the better. The next step would be the creation of two sorts of tokens (for the sake of it let’s refer to these tokens as “Terra Luna Redemption Ticket“ or “LRTi” and “Terra Luna Redemption Ticket Wormhole” or “wLRTi”), and attributing these tokens to every wallet that held Luna or UST at the time of the snapshot. The amount of “LRTi” distributed would be (or close to) the total market cap of both Luna, UST, LUNA:UST(wormhole) and the international stables. “LRTi” would not be transferable / tradeable. For an example of what is envisioned for the redemption of “LRTi”, please refer to how sKUJI works in “BLUE by Kujira” (sKUJI Revenue Pool). [Also, for a reference to this resolution for a similar event, see “Bitfenix Repayment Plan”.]
From here comes the steps that will borrow from the aforementioned proposals. There will be a community wallet that will distribute out an established token[s]; preferably USDC and BUSD: DAI and FRAX is also an option. While USDT is an option the sentiment behind USDT is pretty shaky even with it being so widely used. If you are wondering how the funds get allocated to it, part of it is from the LUNA tax, where 3% or so of tx revenue is used to buy the token[s] of choice. There is another tier related to this part of the proposal but that system will be outlined beyond this section. Now, distribution of funds can go as mentioned in “[Proposal] Tiered Repayment” or we can take a slightly more mathematical / systematic approach to it.
This alternate distro would compare all the wallets in a logarithmic equation. The intent of this is to reduce the impact of whale wallets versus smaller wallets. This will have the effect of clearing out the smaller accounts first in a fair and orderly fashion. The protocol will then calculate when one LRTi is redeemable for $1.00 worth of underlying tokens; and proceed to allocate a redemption slot for each wallet (to avoid congestion). Of course, this would require that on-chain wallets need to be made for individuals to redeem their wLRTi. Once the protocol reserves equal the amount of capital reflected in the snapshot, there will be a grace period of six months to allow everyone to redeem their LRTi. Once the grace period is over, LRTi would no longer be usable. There is also the slight problem of off-chain holders making multiple small on-chain wallets to circumvent the log scale; though I have not come to a conclusion that remedies this. So let’s move on to phase two.
Phase Two: The on-chain Stablecoin Issue
Phase two will deal with what to do with the “stablecoins” that are propagated within the system. As far as I am concerned now after witnessing this event unfurl, algorithmic stablecoins that are balanced with an intermediary are too susceptible to a liquidity attack. It is debatable whether anyone will trust any token setup with such a system again (if USDD wants to try it, let it have at it for all I care). Though, I will say the only situation I can envision them working is if over 51% of the world’s capital is tied up in the algorithmic stablecoin system of choice (that day may come once LUNA is large enough). So to purge the system, it will have to redeem UST 1:1 with the reserves built up via the outlined capital raising systems. This also goes for all other fiat pegged stablecoins within the system (UEUR, CAT, SDT, etc.) The prices of which will be reflected by the price during the community decided time. These can use the aforementioned LRTi for expediency if combined with phase 1 (note this will probably greatly extend the rate at which those in need get their money back), or use some other similar setup for the system to buy and burn them (e.g. the reserve buys an off-chain stablecoin to redeem the collapsed coins). If the community absolutely desires some sort of coin system to pair with Terra Luna. I would suggest using what I envision as a “tidal” coin. The thought came from a project coming to Terra [ Leserve DAO ]. So suffice to say I can envision three options:
- Have no stablecoin and Terra will use the capital raising protocol to constantly buy back and burn Luna.
- Have a new stablecoin called something cheeky, maybe Terra Luna Coin (TLC)
- This TLC could be tied to USD
- Or this TLC could be the “tidal” coin that uses the reserve to cushion all market forces. Resulting in an asset that has dampened volatility.
Phase Three: The Luna Dilution Problem
Next, we’ll get to the other capital raising protocol. This will make use of the existing ecosystem used by Anchor, the bAssets. The idea behind this is to turn Anchor into the literal anchor and backbone of the Terra system. But instead of some arbitrary yield that ultimately contributed to the collapse of the system; the bAssets will be used to supplement the tax protocol. I am not sure how exactly the rewards for the bAssets work, but if the community can agree to have all the bAsset rewards go toward the Luna Reserve regardless of place within the ecosystem, we can potentially expedite the resolution to the problem at hand. Before I go on, let me put this forward. After all debts are repaid, one of the reserve’s main purposes will be to buy back Luna and burn it, this will guarantee stability and a return on investment. Keep in mind this also neatly wraps up the issue of the heavily diluted Luna token. I’ve also thought about creating some sort of locking system that gives out enhanced rewards down the road, but personally couldn’t think of anything reasonable.
Going Forward: Anchor and Reserve
An idea for a system once the debt is cleared, if deciding to use a stablecoin system will be to make use of the existing relationship of Anchor and Orca by Kujira. Any stablecoin that is collateralized through this system will remain under the same ebb and flow of the previous system. Though this time the Anchor reserve pool is tied to the Luna Reserve and is used to both insure the backing of the stablecoin by being redeemable for off-chain stablecoins as well as buying back Luna and Anc tokens (or just Luna tokens if the community desires to fully incorporate Anchor into Terra).
Going Forward: The Stablecoin Distro
While the “tidal” token is pretty straightforward, being essentially an alternate version of Luna that is dampened. I would like to propose a UX scheme for the handling of stablecoins if the community decides to go that route. The reserve will directly interact with this UX as it will help top it off, and the community will take care of the initial funding through direct conversion. The community will trade in any whitelisted off-chain stablecoin for an 1:1 on-chain equivalent. I’m honestly not sure how this would work for the vision of having international fiat currencies represented (maybe something along the lines of Mirror protocol?). After exchanging said tokens, the pool will be represented by the entire collection of deposited tokens. When you go to redeem your on-chain token, you will be given a collection of USD pegged stables in return. The return UI would look something similar to how sKUJI works. This should help alleviate any shortfall on the peg of any one token between the entire community, as well as democratize the composition of said reserve. Additionally, to help incentivize the pooling of stables, the protocol can reward the depositor with a small percentage of Luna. This will be quickly compounded by the protocol’s new buyback program.
TL;DR Terra Rondo
- Take a snapshot of the chain and work with off-chain entities to get a complete picture of total debt accrued.
- Establish a community wallet that is set to the total debt and will be distributed out to debt holders by some logarithmic scale that equalizes small debt holders to huge debt holders (intent to have small debt holders completed first making room for bigger payments to the larger holders)
- Establish Luna tax as well as anchor bAsset reward allocations to help fund this community repayment reserve.
- Once complete, buy back collapsed stablecoins (ALL international on-chain pegged stablecoins)
- After stables are bought, begin the process of buying back and burning Luna to achieve a total circulating Luna count of one billion (or indefinitely, up to community vote)
- Also decide whether or not to have a stablecoin at all within the ecosystem via the proposed protocol (or something better since by the time this step is reached there’ll have been plenty of time for discussion)
Conclusion
I would like to leave off by saying that having experienced this collapse, the protocol actually kept up surprisingly well with all the txs going at once. I was impressed and I would personally find it a shame to completely ruin (via fork) all the hard work and development of the Luna team as well as the community developers. I will also say to my fellow LUNAtics that this idea came from a random thought that popped in my head from looking at all the news articles and doing a quick overview of the carnage and Anchor’s bAssets. That thought was that if we are truly to be defined as the community that fell into the abyss, then us LUNAtics will just have to become the abyss itself and claw our way out. Now, with this finally all typed and posted, I can hopefully get a good rest to be able to drag myself to work. I will most likely not come back to this post as I personally spent enough of my time worrying, thinking, and then accepting this event. Good day, and good luck.
P.S. I would like to suggest one of my favorite songs that fits very well with the current events, “The City Must Survive” - Piotr Musial
EDIT: I agree to the request to exclude the wallets related to the dumping of the Curve pool, they already made enough money.