[Proposal] The People’s Money: Upholding Decentralized Currency

Summary

Abandoning decentralized currency will come at a cost greater than all the money we’ve lost and that outcome benefits the few at the expense of the many.

Motivation

Each and every one of us are playing a role in history. Shall we unbond ourselves from powerful players that mean to weaken us or shall we accept defeat and move along as if there’s something else to salvage? We have a moral and ethical obligation to restore and repeg UST for the sake of everyone.

The hourglass has been flipped. It is the time to act.

Phase I: Redefining Mechanics

Forking Alternative

  • Use bLuna and depeg it from Luna price as an alternative to forking
  • Set max total supply of bLuna at 1,000,000,000 (1b)
  • Set bLuna ~ Luna burn/mint rates relative to min 1b Luna / max 1b bLuna
  • UST fees on burning/minting bLuna at 10% of transaction value (tax) to deflate UST debt
  • bLuna minting no longer available below a total supply of 10b Luna (future-proofing)
  • 38.2% of the total supply is available to the market to burn Luna, mint bLuna
  • 38.2% of total bLuna supply is reserved for airdropping to those holding luna or any luna swap asset (bLuna, cLuna, yLuna, etc) or UST or aUST in wallet or contract before the depeg event
  • 23.6% of total bLuna supply is set aside as a reserve for developers, governance, etc.
  • Adjust variables above as necessary based on more in-depth modeling

With Forking

  • Use Terra Bridge with the same mechanisms above, if possible

USDC Support

  • Add native USDC Support to Terra Luna chain (should be possible on cosmos?)

Anchor Protocol

  • Anchor Earn is deprecated
  • Anchor Backing is introduced (more detail below)
  • Anchor Borrow is repurposed (more detail below)

Anchor Backing

Anchor backing is a new staking mechanism that collateralizes a basket of assets that may be used to stabilize the UST peg. Short term goal is to stabilize

  • Stake bLuna with bETH, bSOL, bATOM, wasAVAX as UST collateral
  • Add USDC as a collateral asset. It’s sole purpose being to provide a stablecoin collateral asset that operates on different mechanics than our native UST)
  • Add bonded assets that peg to other asset types, like PAXG for gold-peg collateral.
  • Staking is controlled via time-locks at a minimum of 1 year and maximum of 10 years
  • Staking earns a variable yield (UST) relative to time-lock and corresponding collateral levels
  • Early withdrawal penalty would apply to the stake and this rate would increase during contraction and decrease during expansion
  • This solution gives development teams approx 1 year to develop protocols for exchange rate stability (UST peg) and mechanisms to utilize the collateral.
  • Establish total backing ratio for various adjustments to parameters for governance

Phase II: Restoring the UST Peg

Anchor Borrow

I propose repurposing Anchor Borrow for collateral borrowing, leveraging, etc as one of the monetary policy protocols that we use to stabilize the currency. This would not be controlled by the wallet. This would be managed by governance to determine acceptable LTVs, leverage, etc. This can be parameterized per asset by time-lock period, market volatility, etc.

Enhance protocol for automating the rebalancing, paydown of loans, and leveraging positions. Suspend yield during depegging events to redirect toward those enhancements. The dev team would have approximately a year (or whatever minimum stake period should be) to develop a more comprehensive solution here.

UST Parallel Assets

We effectively have a multi-billion dollar debt in the UST supply on the Terra blockchain, forcing UST price down to its current levels. I propose we create parallel assets for UST that provide native liquidity on multiple chains (see FLUX). Use Terra Bridge to manage going chain-to-chain.

I propose that we use the parallel assets as a form of debt-to-equity swap. We are exchanging debt in the form of discounted UST to convert it into liquidity for a different chain.

Let’s negotiate with the FLUX team to help Terra develop the UST assets in exchange for moving all validator nodes and dApps to the FLUX network. A win-win for both sides.

Final Thoughts

Anchor helped Terra become what it is. Maybe it can help save it. I believe this proposal allows us to act quickly and move in a very agile way moving forward. None of the underlying protocols would need to make many changes, except perhaps converting to bLuna where appropriate. Unless we can ever get to yield via UST/aUST assets, it is an unfortunate casualty of this proposal.

Thank you to all the beautiful people who shared their thoughts on Twitter Spaces and, in kind, allowed me to share my voice. I’ve learned so much listening and asking questions. I wouldn’t have been able to contribute this proposal without you. If you haven’t joined one, please do.

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