Proposer: Do Kwon (Founder, Terraform Labs)
To first define nomenclature, when Luna is burned to mint new Terra stablecoins, the amount of Luna burned is “seigniorage” as described by the
treasury module in Terra Core.
Currently, every treasury
epoch, roughly 1 week, a portion of the
seigniorage is routed to:
- Fund the
community_pool: goes to a keyless on-chain wallet that is controlled by Luna governance to fund various initiatives in the Terra ecosystem.
- Reward Luna stakers: goes to a reward pool, which is distributed over 1 year to delegators to validators that vote within a certain
reward_bandfrom the elected median of stablecoin oracle votes.
More details on how this mechanism works are here: Treasury | Terra Docs
As discussed by the community, given the rapid pace of seigniorage generation, too much seigniorage is being routed to the community pool and oracle reward pools, leading the community pool and the oracle reward pool to be overfunded, and this trend is likely to continue unless something is done about it.
High Level Proposal
This proposal will be a series of several on-chain proposals to:
- Burn all remaining funds in the community pool
- Route all future seigniorage to be burned instead of being routed to community / staking reward pools
- Amortize the distribution of the existing
oracle_reward_poolto 3 years instead of the current 1 year
TIP 42: Allow reward_weight to be changed to 0
RewardPolicy.RateMin= 0. This will allow us to set the
reward_weightto 0 in prop 43, which will route all future seigniorage to the community pool.
TIP 43: Update reward_weight to 0
Initiate a RewardWeightUpdateProposal to set
TIP 44: Burn the community pool
CommunityPoolSpendProposalto burn all remaining funds in the community pool. The funds will be sent to a contract which will send tokens to a burn address, namely:
TIP 45: Amortize oracle reward distribution to 3 years from 1 to slow down oracle reward emissions
ParamChangeProposalto change the
Oracleto 5256000 * 3
The intended impact of these changes are:
- Will simplify the narrative of Luna economics to all the fees goes to staking returns for Luna, and minting 1 UST stablecoin burns $1 worth of Luna.
- Will leave the community pool well funded, as new distributions will occur as the proposals are in voting period, while preventing it from becoming overfunded.
- Staking rewards will be kept attractive but not insane.
Housekeeping to follow
After Columbus-5, additional logic will be introduced to route swap fees for stablecoins to the oracle reward pool instead of burning it - this will keep Luna staking attractive, while the narrative of burning all seigniorage and routing all fees to Luna staking will help the system become much easier to understand.
After this proposal, all seigniorage will start to be routed to the community pool - regular proposals to burn proceeds will need to occur, which I am happy to initiate. After Columbus-5, code changes will need to occur to burn all seigniorage automatically without involving governance votes.
This proposal will go live in a few hours.