Proposed Recovery Plan (Proposal 1597)

UST was a unique driver for Terra market cap.

As highlighted by @aeuser999 and also @dokwon, there are several forms to maintain stability of UST: overcollateralization, keep control over the growth of its market cap, have liquidity for rapid deployment, build different structures for UST lockups/interests (to prevent dumping), etc…

That was only because of their unsustainable 20% APR offer. If not very few would use UST in the first place and now after this incident it’s next to impossible that UST will attract any investor at all no matter what changes are being made.

@dokwon and Terra team need act quickly to restore trust…

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Good idea, but 3% tax might prevent people from trading luna, thus, slowing the process of recovery, isn’t it?

You are not the first person to notice that connection. The Fed has been doing it for years, most of the countries of the world now use a Fiat system, and even when we were on the gold standard it was most likely a little cooked, at least at the end, since the equal sign between the ounce of gold and the dollars buying power should have meant that there would be no arbitrage between the gold market and the gold desk where you could turn your money in exchange for gold. Countries began to buy our currency since it was as good as gold at the time, but France noticed something, they noticed they could turn it in, get the gold, and make arbitrage on the gold market (showing it had become artificially priced). They pulled the trigger, and President Nixon shut down the gold standard to prevent a run on gold. I will say that once you really realize how economics works, it does leave a sense of feeling cheated, particularly for fiat systems.

To be fair though, the market manipulation is used to attempt to keep things in balance in a fiat system. However, this is why people look for hedges, such as gold, and it is why Bitcoin’s hard currency monetary system appeals as a hedge, to prevent times when buying power is about to, or is becoming, diluted (they can transfer into something that is less affected by the loss of buying power).

For the purpose of LUNA, it is difficult to tell since it was always recognized that it was a financial investment, that it would be used as a type of reserve in tandem with UST to keep UST in balance. No one ever thinks that the manipulation will need to be that bad, but that is why you need to be careful of monetary policy (and each cryptocurrency, like each government, has their own monetary policies - some soft, some hard). LUNA is a soft currency, there is not absolute ceiling to supply, and they have the ability to mint in order to keep UST pegged (although this is why they must also burn UST when they mint LUNA - to keep the finances in balance with what is on hand, otherwise, yes it would be financially inappropriate).

At the same time, most ICO’s use their coins to raise funds, and once you have a LUNA, you are part of the governance community. I am not sure how South Korea’s laws run in this area, and DAO’s are legally murky as to whether they are personhood entities, but in the U.S. the SEC has definitely questioned whether LUNA is an ICO (similar to stock, and if that is the case they would see you as someone who has a legal right to ownership or profits in the company, or in this case governance community of the project). This in turn means that the agreement around what an investor is agreeing to when they purchase the coin may be a little different than purchasing a non ICO. Although they have made their model clear to investors through the white paper, I do agree that diluting the assets would be problematic, but a stock issuing entity is allowed to reissue stock based on company value and the reserve of the community pool is the projects value (similar to stocks losing value as a company loses financial traction). At the same time, I believe that TerraForm Labs has denied, in their view, that the coin is an ICO for SEC purposes (although I think more of the issue at hand was a jurisdictional issue).

On the BTC, there is probably a distinction between the Foundation’s legal entity, TerraForm Labs, and the governance community - that would be my guess. If so, the Foundation may have control over the BTC (although I am not sure about it, or the legal relationship between each of these). If the Foundation is its own entity, then they would be bound by whatever obligations they have signed with TerraForm Labs, or with the governance community. I am not sure how much Bitcoin they have used to alleviate things, but I did read that they loaned it out to market makers (at least partially), so it is probably not cash on hand any longer. I believe, at least partially, it was in an attempt to get UST supply off the market in lessening the supply circulation (but I am a little cloudy on the details).

Fiscally you are correct that they do have a fiduciary responsibility. I do think one area that is concerning legally, particularly depending on how they handle this situation, are those that used their savings products. These may not have been people who have understood the financial risks, since they may very well have attributed to the saving product the same security as a bank (such as insurance backed here in the US).

That was a pretty thought provoking question - I may have to think about some aspects of that question further.

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Some ideas from: https://classic-agora.terra.money/t/proposal-global-approach-and-communication-plan/15346

  • Set up a communication unit:
    · Tweets every 2 hours on the progress (even if it’s just to say: “we are moving forward”
    · KFG or Do Kwon must make a statement on the situation tomorrow at the latest
    · Relaying elements of language: “we have been attacked by a third party”
    · Relay elements on the state of cash and / or available liquidities
    · Reply to all influencers FUDERS

@aeuser999, can we add a communication statement in the proposal

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Your proposal is relevant, i hope it will be accepted

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What I find disturbing is that they define LUNA as the reserve asset for UST.

Reserve asset should be something that they hold in reserve like BTC. Once you sell that reserve asset it’s no longer a reserve asset… to dilute people and taking away value from what been sold to them is a clear crime.

We need better, a lot better, communication from the team as to what the heck they are doing.

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Absolutely best proposal yet. Really hard to get through all the noise forum posts and even worse actual live voting proposals on Terra Station.

THIS proposal needs attention.

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May want to add that staking returns designated in LUNA have been a crazy large amount given it’s inflation. Which, regarding validators they are keeping a network currently in a critical juncture running, much respect. TFL stepped in and blocked government staking and did a huge LUNA stake, which makes sense for network node security given the vast amounts of LUNA available and how it plays in node operation. Where I am going with this is should LUNA inflation be brought under control, then perhaps some or all or only TFL’s LUNA emissions after time of intervention and locking the staking mechanism be slated to be burned or reserve or other use - could be determined by community vote.

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Great proposal and integration of other proposed ideas. It’s a mess out here, but I agree with your sentiment about keeping the brand and working towards rebuilding it. Forking it probably won’t gain any popularity with the masses due to Terra’s history of failure. All they might see is a failed project = another failed project. However, if Terra rebuilds their current system back to normal, it would gain a greater trust in the overall ecosystem. A blockchain that strives to be what it originally set out to be and to be damn good at it.

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Bump.

they, the old leaders gradually to the disaster of Luna are looking for a fork to regain ownership after running away and fooling all the investors and former holders. They continued to trick new holders into trying DCA to save Luna. Get rid of the fork option immediately with all your might, and boycott Luna v2 if it ever comes out because they’ll be printing Luna 2 and taking advantage of the community again.
The most important question right now: Where are the Bitcoins and Luna’s reserves and the Luna leaders are responsible for the destruction of the reserve and decided to print Luna on these investors.t

If that spammer jumps on here ignore them. Someone’s writing posts intentionally to get flagged, which if flagged enough then threads get closed and censored.

Ignore them instead let them up the reply count while bumping the proposal up at the same time.

Hi @R124 ,

Sorry, I reached the maximum posting the other day, and was off on Sunday. Here are the current market caps of both currencies (as of 5/16/2022 - LUNA [1.2B Market Cap] + UST [1.4B Market Cap] + LFG[~9.7M Bitcoin On Hand + potential other assets equivalent to 130M?] + Community Pool[?] - Loans and Debt[?] ):

I did notice that Multichain has put up an application and mentions the Terra Compensation Scheme. I am not sure if that has anything to do with the official TerraForm Labs’ proposal, or not, but if this does, and that proposal carries that would also affect reserves (although at that point it would be a rebrand and a hard fork):

I believe it is doable, it just has to do with scale. It is troubling that in the past few days a 5B combined market cap has started to dwindle down to a 2.6B market cap - but some of this may be due to ramping up for a compensation scheme.

The market cap is not cash on hand, but it is the representative value of the project. A normal project starts at $0. $2.6B dollars is nothing to cough at, particularly for a project in the state that LUNA and UST find themselves in currently. So, there is value in project, but that value is diluted due to the minting in order to burn down UST (that was done to try to keep UST stable). UST (and to a utilitarian degree LUNA) are where all the profitable monetization for the majority of projects seems to happen at.

So, the project does need money, but there are two good ways to do it. One is raise capital (either through coin sales or venture capital), and the other is to take advantage of the market cap (scale the projects down). One suggestion that I saw in the proposals, that I thought was rather creative, was to stabilize UST at $0.01 for a time (so 100 = $1), and then later move its value back to $1 and peg it there after the reserves grow to handle it (and if you are going to error in the pegging process, have it error on the high side, but be militant to make sure it does not go under the pegged value on the Terra blockchain). That is a great way to start with a lot less funding requirements, build the reserve back up (and save what is left of it, preferably over a payout scheme - or potentially a bailout coin that is meant to be 100 times UST at a specific mile marker, and staged incrementally so that it only becomes available at certain milestones in the reserves that can handle it).

My point is that it is doable (would have been better 3 days ago with 5B market cap, but really the strategy is the same). My “3 days ago” comment is meaning that once a solid plan of direction is reached, and the path forward is to continue where we find ourselves and work toward building value into not only market cap but raising the market cap at the current supply so that value per coin begins to raise - or possibly that coins are purchased and removed from the market causing a rise in individual coin value. In other words, once we decide to go forward, people and exchanges can feel more confident in purchasing the coins since they know the intent is for the long term.

To the degree that you can leverage the current funding products, the fees (although low enough to encourage trading, possibly even lowering only to what the validators absolutely need [but stepping them up as reserves are built]), move the scale down to the current value and start from there, and then take advantage of any venture capitalists that may still be willing to touch the project (as they see it is willing to go forward, and that they see sound financial principles going into the project where their stake in the project or an organization that compliments the project would leave them in a position to exit profitably in the next 2 years).

I get that the easy way for a company such as TerraLabs is to wind it up, and reconstitute the technology into a different project. They monetize this project - and the idea of having to fight tooth and nail for little gains in not going to be attractive to them, or any angel and venture capitalist that has put money into the complimentary organizations or have themselves bought into the Governance community via LUNA. However it will not be fun for them, quite frankly, to have to face venture capitalists in a 2.0 project where they have to own the damage they have done to their reputation, and others, either - except maybe with cut throat capitalists, or loans, and you don’t want that kind of funding anyhow - the strings are literally “an offer you can’t refuse…” kind of offer.

In all honesty, I think this is the best path forward for everyone to eventually realize the recovery of funds in the mid to long run, and for the healthiest process in the long run. It is not an easy path forward, nor a short one. It may not be the only path forward, or the only path to some sort of recovery of funds - I admit that.

I hope that helps out :slight_smile:

Good idea, the 3% tax has some negative effects. Can we establish a fund to reward those new and excellent projects every month to attract more people to use the luna ecosystem?

Hi @xplutomoonchild ,

Thank you for your thoughts, and your kind words.

I see only one reason for a hard fork:

  • Two competing communities want changes to the protocol that will not be compliant with one another. Most times these deal with competing monetary systems (either broadly, but in most cases on a more narrow topic within a broad monetary system policy).

I think some discussion has seemed to think that you can just make the fiduciary responsibilities go away if you fork the chain at a specific block. I guess that could technically work, but it certainly can’t legally work nor is it in the best interest of the LUNA community (either fiduciary or legal).

Changes to the protocol can happen without needing a hard fork (unless it comes down to the point above). If it did come to a hardfork, something like Bitcoin and any of its hard forks, where one community would fork at the point before the crash with some changes, the other maintains the current blockchain and protocol with some changes. All coins are seen as incentive giveaways (since there really is no value in the project), and as soon as trading happens in the new hard fork (or whichever fork is not retaining the reserve funds or trust), everyone looks to sale, the value will move down as the market corrects for the fact that there really is nothing behind those coins in terms of reserve, or trusted store of value (unless someone steps in to put up a reserve). Trust takes time for a store of value.

If they try to hardfork to get out of financial responsibility, I doubt a hard fork is going to work to get them out of legal obligations.

Thank you so much for your response, and letting me process through a few observations out loud in writing (since your comment got my mind to thinking).

I hope you are doing well today :slight_smile:

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Hi @FaeLightCarmenum ,

I have to admit that I am not as versed on the particulars of the staking side (my focus, even in the white paper has been on the supply / demand issue so far). I think my proposal is meant to deal with two issues:

  • Determine if TerraForm Labs will go forward, and if not, to come up with a way for the Governance community to take the project over (for those areas that would be legally appropriate)
  • Address immediate monetary issues that caused problems (the mint / burn rate, and the reserve)
  • To leave it open for who takes charge on day-to-day basis management (whether it continues to be TerraForm Labs or someone else outlined in the proposal selected by the community) to make changes as needs arise at the broad direction of the Governance community. If it is TerraForm Labs, I realize they have other voices in their ears right now too - particularly those venture capitalists that may have put up funding, however, depending on if those came in through TerraForm Labs, or the Foundation, they may have come in through the ICO mechanism LUNA (in which case they are in the same boat, or have written it off as a loss already).

I would be open to short term necessary items you feel could strengthen this proposal, and I can think them through from a monetary policy side as I contemplate it in comparison with the white paper to see what the drawbacks could be - but anything at this point that alleviates pressure on key components of the system such as validators, and encourages revenue (such as coin sales) is a definite plus, and I would love to incorporate them into this proposal if you think it would be helpful.

Thank you so much for all your help, and insight.

I hope you have a great day :slight_smile:

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Hi @Random ,

Sorry, I hit the limit on Sat. for posts, and then was off on Sunday.

I think part of the proposal I made included a light weight framework for day-to-day operations if TerraLabs chose not to go forward with this project as it is, as well as to have them definitively state their intent (and particularly if they want the community to wind down, that takes a vote from the Governance community - and that does not get lost in the process).

I do think though, that regular communication daily (at minimum) in times of crisis is definitely a good management principle. I will put that in to the proposal (and feel free to push back and let me know of specific points, or reasons for others, and we can process through those as well, and if they need to go in, then I can put them in).

Thank you for all your work and thought - I really appreciate it.

I hope you have a wonderful day today :slight_smile:

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