Saying not easy to resolve is understatement. Would say really hard but since the death loop consequence is so great simple solution also hard to fit. Would we halt the network sooner things would be much better and easier to handle than now.
Anyway things have been done, let’s work on how to resolve it.
Many people during the death spiral of LUNA inflating and value decreasing has been lost, while people who really bought the dip made the big win. The big win that people made also is a reward for they have had the courage to buy the final dip. However we are at a situation where the one who already lost and also spend a lot buy more dip while LUNA keep decreasing and keep getting lost have finally paralyzed, and have no more fund until now to buy any dip to cover for their lost.
What would be a balance solution?
First to compensate for LUNA investors, an exchange ratio is needed, but since it is complicated can we make the simplest case possible while still balance the benefit, which is apply different exchange ratio base on price feed after every hours or minutes, says every 30 minutes? The ratio can be determined based on LUNA price at the time of redemption i.e. current LUNA price is 0.00017 meaning if people bought LUNA at 10$ can exchanged for 1:(1/0.00017) ~ 1:5882 LUNA or combined with a risk ratio since they made an investment decision for example 50% deduction ~ 1:2941.
Next, to reduce LUNA price affected by inflation, this exchange should have some mechanism to protect from inflation, such as vesting period or locked in period.
Now come the missing piece that this proposal failed to mention which is the use of BTC and other assets reserve to burn LUNA, this will help LUNA price make a come back. Depending on the amount of LUNA burned the risk ratio mentioned above can be adjusted, also how about the sooner people redeem the smaller exchange ratio applied since they will benefit of LUNA price uptrend during the burn process?
Notice to avoid affect of BTC dumping that drag the whole market down, mechanism to swap to BTC directly with LUNA should be used, assuming that current BTC price is in its bottom so less incentive for people to sell BTC.
What would happen to UST? I agree with the saying about important of UST holders, LUNA holders are considered investor and we have liability to payback debt to UST holders. But let’s not focus too much on making UST peg too soon as it will hurt the LUNA and ecosystem a lot. Do you see value in UST, the whole Terra ecosystem is pegged with UST, we have LP pools with UST pair everywhere, it is the currency in Terra system and also others. How about stop printing more UST until the demand for UST make it return to 1:1 peg again. For anyone want to exit at low price they are do at their own risk. Or they have the chance to convert to LUNA at reasonable ratio so LUNA also getting burned during the process.
One final thought to execution of idea. anyone seeing the way we deal with this massive scale issue have some big flaws? Many issues to discuss so one simple blog post cannot be used to handle. Each action comes with many other details need to be taken care, for example how to deal with people bought LUNA on CEXs and other exchanges, what if pp put LUNA in anchorprotocol, or providing LP somewhere? Each of these big initiative shall be taken care by one person and one blog post and separate voting to come to consensus.
I am author of Dexa Finance - a limit order exchange built on Terra, and I understand how great Terra ecosystem is, how great the UX of many apps in Terra are, after all these things LUNA community is still great and we also have opportunity to push LUNA market cap much closer to ETH or BTC because of this incident, now how many people have we onboarded to Terra? I know lots of people switched their portfolio to LUNA during this dip. Together we comeback stronger.
