We do not want to agree to any distribution plan until we see something fundamentally different with your new Terra version 2.0. Your algorithm at minimum should have stopped allowing UST to arbitrate for LUNA the moment LUNA and UST market value were equal or below. Terra version 1.0 is a Robinhood algorithm. It encourages stealing from the rich except users were fine with this assuming the repegging was functional. Somehow your price oracle looked only at public exchanges to decide what the UST’s price should be instead of actually trusting your own internal price oracle to know that enough LUNAs were already burned so return to the peg. Your implementation has no emergency controls. The only idea that bought you time was exactly the daily minting cap but you removed the limit to let LUNA mint to infinity knowing you had no solution, and you see now that the UST still has not repegged. Why?
As per the importance of those supporting your network, let us look at your stakeholders:
Unstaked LUNA
Unstaked LUNA holders have the least responsibility on the network. They are considered the most liquid behind UST holders and are free to dump on the central exchanges any time. There was no incentive to buy unstaked LUNA after LUNA’s market cap dropped below the UST market cap x (1 - staking interest rate). There was all the incentives for UST holders to mint massive amount of LUNA to get more LUNA for less price. Thus, those holding unstaked LUNA were passing them around for smaller and smaller losses with each holder hoping that UST would repeg to earn on the price difference.
Bonded LUNA
Bonded LUNA holders could unbond at any time and dump their LUNA to the open market. However since many have a 21 day unbonding period, by the virtue of holding them, are similar to delegated LUNAs. Bonded LUNA holders do not vote but their existence to the network is valued the same as delegated LUNA holders. While LunaX holders could exit at any time the instrument’s importance to the network is similar.
Delegated/staked LUNA
Delegated LUNA holders participate in the governance while working with the validators to keep the network going. Those staked with validators are the ship’s crew trying different ways to keep the ship running while the ship is going down.
UST
These are the paying guests on your ship. You have an obligation to serve them because they brought capital to your network. Your network is a collateral machine that generates interests from borrowing UST and in the end expects to exchange their LUNA interests earned to UST where it may be exchanged for USD. The guests have zero obligation to save your ship. They had the first right to jump into the lifeboats to save themselves. The guests that remained to the end are those still trying to carry water out of your ship using small buckets to buy you time to do whatever you needed to fix the hole. These guests gave up their freedom to save the network. They did not expect to gain any money from arbitrage because they bought at ~$1.000 and could have left quickly to allow the network to die by massively minting LUNAs at any time then dumped them on the central exchanges. UST holders must be valued at their cost basis to discount arbitrage during depegging.
Distribution
Fair distribution
For any distribution the fairest must be based on the total market cap. If LUNA was $3 billion and UST was $12 billion then LUNA holders shall get 25% of the recovery pool. Each holder simply gets what their value was.
Biased distirbution
The order to importance:
- UST holders at cost basis had the most to lose and had all the reasons to bail immediately
- Delegated LUNA holders were keeping the validators functional
- Bonded LUNA holders were keeping the validators functional but had the option to bail
- Unstaked LUNA holders had the most reasons to bail and those that did not were hoping to flip for money
You are obligated the most to save the UST, Delegated LUNA, and Bonded LUNA holders. It is between these that the network had survived the longest. It is between them that an agreeable price shall be made. You need to make them whole.
Using $1 LUNA as the starting price point requires you to actually perform a volume distribution rather than blindly cutting out distributions. How many percentage given to Delegated & Staked LUNA holders and UST holders depends on the total volume of everyone’s holdings. If there were only 10% of the Delegated & Staked LUNA holders left then they should get 10% of the 80-90% recovery pool and UST holders 90%. The Unstaked LUNA may share between 5-10% of what remains.