UST can be brought back to its peg by freezing coins and frozen coins can gradually be unfrozen over time. This solution would make each and every UST holder whole again.
It’s quite simple.
Q: Is it technically possible?
Q: How do you know that it would work?
A: The concept can be proven during a short period of time, one or two weeks
Q: How would the peg hold up during a new market crash or attack?
A: By accumulating decentralized bitcoin collateral and improving the arbitrage capacity
Q: How would anyone trust the protocol again?
A: By providing account based insurance
Q: I don’t want my UST temporarily frozen, even if they could become worthless.
A: Coins could be sold in advance. They could also be unfrozen by vote if circumstances change.
Q: UST’s supply became too large after the peg broke. Where would the money come from?
A: Coins would be unfrozen chronologically. Old coins first and new coins later. Only a fraction of coins minted below the peg would be unfrozen in the short term. Sub peg buyers would still get their value back before inflation kicks in, potentially.
Q: What would happen to the price of Luna?
A: If UST can be recovered, it’s likely that Luna’s market cap would also recover.
Q: Who would trade/develop old Luna if Terra is forked, as proposed?
A: It would be best if the fork can be avoided
Coins are “burned” by sending them to a normal address. The chance of finding the private keys to a properly selected burner address is not zero but very close to zero.
In Ethereum and other address schemes without checksums, any address is valid. One of the more popular burner addresses is 0x000000000000000000000000000000000000dead. Terra burner addresses must be generated with a tool, as they use a checksummed Bech32 address scheme. This scheme was picked by Tendermint because it makes it unlikely to send to a misspelled address.
Coins can be frozen by a software update, if validators agree on it. The update would be non-backwards compatible, which is sometimes referred to as a hard fork. The chain wouldn’t be split though, as long as there’s enough support for the proposal and validators update their nodes in unison.
There would still be a relatively small non-frozen coins in circulation initially, so almost anyone who wanted to bring back UST to its peg by arbitrage would have the power to do so.
If the oldest, least active coins would be unfrozen first, they would probably be in the hands of the most loyal Terra community members. And they would potentially start using UST again by goodwill, to support the revival.