Posting in this forum as it’s the most active.
For those who are unfamiliar, Onyx is the validator I was running on Terra Classic at a loss. It shut down in February, though there are plans to bring it back.
Below is the original post. I will attach the explainer threads below. Please ask questions, and I will do my best to answer them over the weekend.
0. Disclaimers
“USTC re-peg” is not an easy endeavor to address. Not only are you juggling the interests of billion-dollar-vested groups, you are also juggling the interests of new retail groups, and technically affected cross-chain groups – including other countries who are members of the TerraSDR. (This can be broadly summarized as the differences between LUNA, LUNC, and wLUNA, and every country who has a Terra coin, of which we have 22.)
Forks are contentious by nature. For a very long time, I have been against forks, rebases, and similar ideas because they are divisive by nature. A fork splits the community into two groups; a rebase crunches holder proportionality, which may reduce a small holder’s potential for vertical movement. (Again, the difference between lateral moves and longitudinal ones – like getting a new job instead of pushing for promotion.)
In no capacity am I guaranteeing any degree of success with what’s been set forth. Forking the chain and creating a simple commodity token with utility is virtually everything I have been fighting against for 10 months. Yet, I do not see many solutions outside of forking and/or rebasing, save one – onboarding billions of dollars in new capital.
1. Summary
Terra Classic has a multi-billion dollar deficit and a leaky ship. We must fork (patch the ship) and onboard as many “utilities” as possible, or usable products (fix the deficit). Three solutions are set forth for affected Terra holders – that is, LUNA, LUNC, and wLUNA.
2. Summary of Issues
In short, each affected group can be categorized through their token holdings. A Venn Diagram exists between all of them:
LUNA: >$18.85B of capital losses; innovation zone in need of capital injection (as research tends to demand).
LUNC: ~$2.85B of underwriting from a myriad of investors; ~$2.00B of runway burned to-date (estimates); necessitation of basic security for money remittance and exchange.
wLUNA: unknown number of losses caused by contractual error via
string
equivocation; this number is estimated to be roughly equal to the runway burned by LUNC as noted above (~$2.00B).
3. Motivation
In order to resolve “The Terra Problem,” as outlined above, we have to find a mutual solution that satisfies a majority of conditions in the central portion of a 3-part Venn Diagram.
This means recovering losses associated with wLUNA and leveraging the available runway associated with LUNC to strive towards LUNA integrations and development. It can briefly be summarized as:
$854.3M of available runway;
$2.85B in creditor underwriting (~$2.00B burned);
$18.85B+ in total addressable market value (TAM);
This means our Net Assets read as:
Net Balance Sheet: -$1,145.70M (~$4.00B target)
More or less, LUNC is in the hole by roughly -$1.1457B. The more time spent idle, the more of the runway is burned, and the more in-debt LUNC becomes. In order to resolve the debt visible in the price difference of USD <> USTC, we must leverage this opportunity to its fullest extent.
4. Proposal
This Proposal outlines the full Ziggy plan. Investors are provided three choices. (and a fourth, which is to do nothing.)
Fork LUNC to fix wLUNA <> LUNA
The core issue with wLUNA is that there is equivocation (miscommunication via protocol) between itself, LUNC, and LUNA. From a protocol standpoint, it relies on TFL to facilitate custodial bridging, or for users to route via Wormhole trustlessly.
Both are not ideal. wLUNA technically is unwrapping to LUNC, while protocol would suggest it unwraps to LUNA. As a result, it gets neither.
To resolve this, we fork LUNC. In the process, we port all assets from LUNC, currently, and then rebase the chain. Users who wish to stay on LUNC may cast a vote in this proposal, overriding their validators, or abide by their validators’ votes, in the form of No, to keep their assets on LUNC. A Yes vote means that your assets are ported to a new Terra network, with the chain-ids of ziggy-1
with a testnet stardust-1
.
In this fork, we change LUNC tickers to LUNA, and remove all “Classic” identifiers on native coins (e.g., USTC et al) and CW20 tokens (ASTROC, stLUNAC, LunaXC, et al).
The result of this fork allows wLUNA to contractually unwrap to LUNA or LUNC (as they may bridge prior to this fork by choice), providing a choice, and more importantly, allowing them to participate in governance (as this cannot be done except through Ethereum market proxies, such as veCRV
or vlCVX
.)
In exchange for this fork, and a partition for a new token, Stardust ($SZT), the primary team leading Ziggy will escrow the total value of losses back to wLUNA holders (~$2.00B), subject to change, over a vesting period of 24 months or the total value lost (i.e. lent) plus interest ($600M), or a 30% rate on total amount lent. This means if this value is not met in 24 months, the vesting will continue until the total amount is fulfilled. If the value is not met in 24 months, interest rates on value lent will be renegotiated.
Utility of Stardust Coin ($SZT)
The Ziggy team is requesting a partition be made for $SZT – meaning that uluna
remains the parent asset in this fork. In October, Tobias Andersen (Zaradar) proposed Partitioned Pools, where commodities could share a data-segregated portion of either the Terra or Luna pool (i.e., a partition) as part of his USTC re-peg plan.
In this case, as SZT is not a fiat commodity, it would share a pool with uluna
. The weight of the pool in any future market-swaps would be determined via the Demurrage proposal outlined in the tweets above in governance.
In addition to providing a vector to test Luna-weighted index market swaps, SZT will be used as a simple commodity for creator markets, beginning with video games. Portions of the Stardust revenue will be used to buy-back USTC, as the chain needs to own 100% of the supply. This can only be done to the tune of $10B, and it is more likely that this can be done by staking LUNC and holding it until it’s at full completion.
For example, many NFT markets charge in LUNC, and the transaction fees can sometimes be in USTC. To allow value to accrue back to both, SZT will live on-chain as a quasi-ERC-1155 coin, where it can be fully-convertible to NFTs. The tokenomics are still under review, but the Ziggy team is currently exploring staking on-chain and allowing infinite minting (as data partitioning allows) to recycle what is spent on-chain – a kind of ubiquitous game currency.
Improving the Market Module
Currently, LUNC does not make use of the Market Module for Terra <> Luna swaps. Station also does not support Terra <> Terra swaps, making it effectively defunct outside of Rebel Station. In order to re-peg USTC, we must support this Module again by turning it on.
This means minting and burning. If this mechanism is turned on again, LUNC will hyperinflate again, as well as USTC and other Terra coins. This will send the value of all aforementioned coins to virtually 0 (but not 0) and increase the supply. As a way to provide users an option, we are offering the Ziggy fork as a way to insulate investors from volatility. For example, we can snapshot the dollar value of all user holdings, then translate to vested LUNC, USTC, or SZT (a kind of “pre-staking”). If you do not want this, or to participate in the fork, you assume personal responsibility for all events related to volatility through the re-enablement of the Market Module.
Improving The Market Module
Dangers of hyperinflation are well-known in the ecosystem, but to review, as inflation increases, the value of held assets depreciate. Staking, as a kind of quasi-bond, mitigate the effects of inflation, but are illiquid. Liquid Staking Derivatives (LSDs) allow liquid use while maintaining security, but is functionally different as an economic tool, and can easily fall out of parity. (for example, Lido Staked Ether stETH
dropped ~26% and allowed arbitrageurs to purchase convertible governance tokens at-discount.)
In The Next Iteration of The Market Module, we incorporate a concept called demurrage. The Bank of London uses this to retire old coin and notes to bullion, or the precious metals that back those coins and notes. In Terra Classic’s case, our bullion is LUNC, and our coin and notes are USTC.
Currently, facilitating burns to the burn address terra1...anxu
are not converted, at least to the user’s knowledge. (It is possible that this address functions as a cross-chain market module address.)
This means that when you send LUNC or USTC (or other similar coins) to the burn address, it is not converted to anything. (Again, as far as the user knows.) It is like taking $100 and throwing it in a pit of fire. To provide a corollary, The Federal Reserve mints notes at a rate of $0.17/$100 (more expensive for smaller notes). This means that they capture $99.83 of net profit (as they already budget these prior.)
A simple way of incorporating may be to incorporate demurrage at a rate of $0.17 per $100 burned, or at least, 100 units. This means that, by burning your coins, they can be converted to the opposite coin (eg burn LUNC, receive USTC), or more prudently, a third coin (such as BTC, ETH, ATOM, LUNA, etc.) This means we could burn 100 units of LUNC, then convert it into $0.17 of Bitcoin in order to back it.
If this is of interest, it would be prudent to ask Binance for assistance, as they have been an excellent partner in the process, as well as any CEX that has helped us stay afloat.
5. Frequently Asked Questions
Do we really need to fork?
Yes. Currently, the chain has new money flowing in, and it routinely flows out. It would be wise to solidify reserve levels and patch as many holes as we have been able to find to-date.
Does this mean we’ll fork again?
Yes. Instead of moving from columbus-5
to columbus-6
, we may simply move to ziggy-1
and then fork to ziggy-2
. This process continues until a singularity event is discovered (i.e., investments go to 0), in which case, you must always consider hedging your positions, no matter how confident you feel in the ecosystem and its forks.
I don’t want your fork and I don’t want to be on LUNC or LUNA. I want my own chain. Can I fork?
Sure, Magellan. Just ask.
How does this help UST/C?
Arbitrageurs aren’t made of unlimited money. They’ll trade a range from 0 > x > 1 and hit a wall. For multiple reasons, it makes more sense to fork, because there is no way that the chain can own 100% of the chain supply unless it’s equal to $1.00. Simply put, it just means that we need >$10B to justify underwater holders to sell, then enough to buy it back.
How does this help LUNC?
Demurrage offers a way to save money on-chain over time while removing supply. In many ways, this lets retail investors accelerate their opportunities to engage with governance mechanisms on-chain, which is primarily dominated by the largest holders.
Does this burn LUNC?
Faster than you’re able to do manually.
Does this burn USTC?
We’ve already burned ~$2.00B to-date. Isn’t that enough to move on?
I don’t understand what you meant by XYZ.
Then ask.
What about regulations?
It is important to understand that “Feathering” (forking) a chain like LUNC can be done any number of times as resources allow. In short, this means every country can be given their own version of LUNC, then use modules like Alliance to perform cross-chain swaps.
Brain hurts from reading…
Right there with you.