Requesting Feedback On A Simple Framework for LUNC/USTC Network Revitalization

General
1

Full disclosure: I recently acquired more LUNC.

For those of us who fell in love with the LUNA classic network and its outstanding set of dApps with their seamless and easy-to-use UX, this past year has been an incredibly painful experience.

For reasons that all seem obvious in hindsight, UST failed to deliver on its central promise of stability for its holders. Some argued that the very premise of a partially-collateralized decentralized stable coin was a pipe dream and the depegging event was simply evidence of that fact.

However, with the recent failure of Silicon Valley Bank and its relationship with USDC, I think we all need to realize the value of having a truly decentralized stable coin, and I believe USTC can still keep that promise.

Let’s make USTC useful again.

Why should LUNC holders care about USTC? Because without USTC, there is nothing to distinguish LUNC from any other meme coin.

Or to put in terms that meme holders will understand: without restoring the burn mechanism, LUNC will NEVER give you LAMBO. :sob:

First of all, I want to acknowledge upfront that any revitalization plan requires trade offs. I think there was a lot of magical thinking around re-pegging UST to $1 which immediately followed the collapse that has hopefully subsided by now.

Here are the constraints that my plan attempts to satisfy:

  1. NO NEW COINS (only pure LUNC/USTC)
  2. Minimal development efforts
  3. Restore USTC as a useful medium for transactions
  4. Provide long-term value for current USTC holders
  5. Burn LUNC :fire: :fire: :fire:
  6. Incentivize/reward LUNC stakers
  7. Restore the original mint/burn mechanism that resulted in the largest decentralized stable coin in history

Okay so what’s the plan?

The plan has two parts:

  1. Set peg for USTC at 1/100 to the dollar or $0.01
  2. Create a wallet funded by LUNC/USTC transaction volume which automatically delivers a dividend to any Terra classic wallets holding USTC at the time of mint/burn mechanism reactivation in proportion to their holdings.

Why is this a good idea?

There is a fundamental tension which exists between the interests of current USTC holders and current LUNC holders. This tension is destroying the chain’s ability to recover. LUNC holders must offer USTC holders some long-term incentive to realize a 99% haircut on their holdings.

This new USTC dividend wallet should grow more valuable as the chain grows and transaction volume increases. This gives USTC holders an incentive to support this proposal and be willing to take the haircut.

Part of the magical thinking I referenced above is the idea that USTC in its current form can regain the $1 peg. Unfortunately, this is not realistic as there is no way to reasonably cover its over $10 billion in outstanding liability.

Furthermore, LUNC holders will benefit because my plan ensures the USTC pegging to $0.01 will burn :fire: :fire: :fire: LUNC, not mint.

How does that burn guarantee work?

Once the plan is adopted, USTC is sure to immediately nosedive to close to the proposed new peg price of $0.01. There needs to be a mechanism in place to prevent USTC falling below $0.01 and starting a new unholy death spiral between LUNC and USTC.

Two important mechanisms should ensure this doesn’t happen. Firstly. Maintaining USTC’s peg at $0.01 reduces USTC’s outstanding liability to a much more manageable ~$110 million. Secondly, the fund for USTC holders at the time of the re-activation of the burn/mint mechanism should ensure that USTC still trades at a premium prior to reactivation.

(Value of USTC at re-activation) = $0.01 + estimated value of future wallet fund dividends

Once that value is locked in, USTC and LUNC can resume its once powerful relationship and bring utility back to the chain.

Hopefully this will set us on a much more sustainable path for future growth and reward both current LUNC and USTC holders in the process.

On a personal note, I lost a ton of money when UST depegged and still had faith in the networks ability to recover. This was magical thinking.

A year later, I would be willing to realize that haircut if it meant the overall network health could recover, and I was offered some personal financial stake in the recovery of the network.

I would love nothing more than to see beloved dApps like Anchor, Kujira, Stader, etc. return to the chain, and all they have to do is update their USTC related pricing.

I look forward to engaging in any thoughtful discussion.

4 Likes
2

this is a long term plan

3

I would appreciate any votes so I get back my LUNC for what is simply an earnest conversation starter: station proposal 11448.

4

Let’s wait for agore Redline his repeg plan is basically good

5

burn lunc, coin ust keeping a new peg.
until the bulk of the supply of UST becomes too important and a sudden drop in demand will have to be absorbed by lunc in a short period of time and the spiral of death will start again.
it is a tower that grows only in height and sooner or later falls of its own weight. for each UST in circulation Lunc has to potentially absorb the entire counter value in dollars and once lunc is diluted no one will want what was supposed to be a stablecoin or even the coin that was supposed to guarantee its peg.
the problem is the drop in demand and the time frame in which this occurs. one thing is that the same demand drops in a year, different if it happens in a day. The system works with non-negligible SEs that need to be worked on. If a table stands on two legs but collapses with more weight, isn’t the smartest thing to do is increase the number of legs?
what you propose has its own logic, but it doesn’t change the fate in the end, sooner or later, conceivably the demand for FSO could drop drastically in a limited period of time, due to natural circumstances or a premeditated attack, and the death spiral it would happen again. Identifying the critical issues and working on those is the solution.

1 Like
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Assuming you’re referencing this plan: USTC Revitalisation and Incremental Peg to $1 through the implementation of a Peg Divergence Tax on Transactions both on and off chain

I would be happy to see that plan succeed. Are there any actual devs working on a repeg plan?

7

UST was never meant to survive the kind of bank run event that we witnessed in May 2022.

That said, I believe a complete loss of confidence in the system was avoidable, but due to poor marketing and bad decision making in the moment all hell broke loose.

I even wrote a post about what I thought could have happened differently to save UST: 3 Simple Ways Terra’s Stablecoin UST Could Have Avoided The Death Spiral | by Dustin Godevais | Medium

Ultimately, I think the pitch for a decentralized stablecoin should be the idea of “eventual consistency”. We cannot guarantee that the peg will hold in all cases. The fundamental problem with UST is that it grew too quickly and under false pretenses which led to an equally quick and spectacular collapse.

Organic growth through real use cases and non-subsidized rates should help stabilize demand and reduce the probability that everyone pulls all there money all at once.

There wasn’t enough latent demand to support an 80% run on UST because the majority of the demand came from Anchor and thus evaporated overnight. But even that issue could have been better addressed as I mention in my blog post (btw using all known methods similar to how actual banks handle runs).

What we need our dApps which produce latent demand that wouldn’t collapse overnight. A good example of this would be real significant transaction volume for payments.

Everyone is rightly terrified of the so called “death spiral” and rightly so given what we witnessed last year. However, no system can offer up a guarantee against that risk or they are lying to you. The only thing you can do is mitigate the chances of a complete loss of confidence in the first place.

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I believe that the only way UST can fail is by lack of adoption. not a death spiral. If UST is able to be solvent down to the last dollar it promises to replicate, there will be no “bank run”, essentially there will be no complete exit from this stable. beyond this we forget that we have the other stables of the land ecosystem, given the enormous advantage that having a stable in crypto brings, that is really stable, the demand will never be lacking, but this does not mean that it cannot decrease. If a decrease leads to a collapse, the system by definition does not work. and in any case, if one day the dollar will no longer be the most important fiat currency, the protocol must be able to adapt accordingly. The difference between a solution and a “patch” on the plan lies precisely in guaranteeing 100% solvency and there are no compromises in this. I have made a proposal and it consists of a third token that takes on this burden, the holders are adequately paid for this. if a table with two legs stands but staggers, it might be smart to add a third leg.

9

We need more details