Full white paper here
TLDR below
Summary
The idea behind the massive array of stablecoins in the Terra ecosystem was to support crypto-based transactions in different currencies. Just like UST was the dollar pegged stablecoin, other currencies like the korean won (KRTC) and euro (EUTC) were added to support the use of these stablecoins in their respective regions. As of the time this writing, the top 23 fiat currencies are supported on the Terra market module.
Motivation
On May 13th, at the time of the depeg, the market swap between LUNC and every other stablecoin was removed by forcing the minimum spread in the market module to 100%, returning zero coins in swap transaction. However, this change did not disable the terra-to-terra market swap allowing native terra stablecoins to swap among themselves.
We propose to disable the terra-to-terra market swap as 1) a security measure to prevent any future exploitation of the oracle and market swap, and 2) initiate the first step in a broader plan of rebuilding the market module with proper capital controls.
Proposal
It is our recommendation that we either set the tobin tax to 100% or we remove fiat pairs from the whitelist via governance vote. We are leaning towards the tobin tax approach so that community members who may want to help build the oracle reward pool could do so by swapping their stablecoins to USTC, thus sending all swapped USTC to the oracle rewards pool.
Set Tobin Tax to 100%
The Tobin tax is a swap tax for spot-converting Terra<>Terra swaps. For example,
Assume that the current Tobin tax for KRT is 0.35%, the oracle reports that the Luna<>SDT exchange rate is 10 and the Luna<>KRT exchange rate is 10,000. Swapping 1 SDT would return 0.1 Luna, which is 1,000 KRT. After the Tobin tax is applied, you will have 996.5 KRT (0.35% of 1,000 is 3.5)
https://classic-docs.terra.money/docs/develop/module-specifications/spec-market.html
Setting the Tobin Tax to 100% means when you perform a market swap, you always receive zero coins. You swap and gain nothing.
The pros of this method are, (1) this only requires a parameter proposal governance vote to change the tobin tax (2) you still see all of your denoms and amounts in Terra Station Wallet, and (3) all stablecoins swapped will go to refill the oracle staking rewards pool.
The cons of this method is that the swap would still be active and if someone were not aware of what happened, they could perform the swap and lose all of their swapped coins (to the oracle).
Remove the Fiat Pairs from the Whitelist
The blockchain recognizes denoms that have been added to an oracle whitelist. If the fiat currency is not listed on the whitelist, it is no longer swappable. There are currently 23 fiat currencies that have been whitelisted.
The pros of this method are, (1) this only requires a parameter proposal governance vote to change the whitelist (2) you are technically unable to swap removed pairs. Attempted swaps will result in the error that no price is registered with the oracle.
The cons of this method are that you no longer can see or access these denoms in terra station wallet and it will appear that these have just “disappeared”.
Proposed Parameter Change
{
"title": "Param Change Policy",
"description": "Update Tobin Tax",
"changes": [
{
"subspace": "oracle",
"key": "Whitelist",
"value": [{"name":"ukrw","tobin_tax":"1.0"},{"name":"usdr","tobin_tax":"1.0"}, {"name":"uusd","tobin_tax":"1.0"},{"name":"umnt","tobin_tax":"1.0"}, {"name":"ueur","tobin_tax":"1.0"},{"name":"ucny","tobin_tax":"1.0"}, {"name":"ujpy","tobin_tax":"1.0"},{"name":"ugbp","tobin_tax":"1.0"}, {"name":"uinr","tobin_tax":"1.0"},{"name":"ucad","tobin_tax":"1.0"}, {"name":"uchf","tobin_tax":"1.0"},{"name":"uhkd","tobin_tax":"1.0"}, {"name":"usgd","tobin_tax":"1.0"},{"name":"uaud","tobin_tax":"1.0"}, {"name":"uthb","tobin_tax":"1.0"},{"name":"usek","tobin_tax":"1.0"}, {"name":"udkk","tobin_tax":"1.0"},{"name":"unok","tobin_tax":"1.0"}, {"name":"uidr","tobin_tax":"1.0"},{"name":"uphp","tobin_tax":"1.0"}, {"name":"umyr","tobin_tax":"1.0"},{"name":"utwd","tobin_tax":"1.0"}]
}
],
}
As a final note, the disable of the swap does not favor any one plan or another with regard to re-pegging or restoring UST. This is an independent action to enhance and secure the market swap module and is recommended regardless of any repegging efforts.