Terra V2 Upgrade: Fixing vulnerability, restoring the whole value of UST, creating a multicollateral, and maximizing LUNA value [Independent proposal]


Terra V2 Roadmap: 3 “simple” steps to upgrade Terra, fix the vulnerability, restore the whole value of UST, create a multicollateral alternative, and unlock the value of LUNA without a fork.

1. Burn all LUNA (including stLUNA, cnLUNA, bLUNA, nLUNA, pLUNA, LUNAX, etc) to mint UST at the rate they virtually had then (for LUNA, 0.005 USD = 0.125 UST). This price is the higher possible and reflects the risk-reward balance of this side of each asset. It could be even increased if we only consider LUNA holders before the depegging event and substract the Terraform Labs address, which could be justified because “preserving decent ownership of the network in its strongest believers and builders is important” as Do Kown rightly proposed in his first Revival Plan. In that case, holders at the final moment of the chain halt “for their role in attempting to provide stability for the network” and a keeping a small Community Pool (f.i. the UST and LUNA hold by the LFG) to fund future development are great ideas as well, as it would not mean a high cost for a fair a worthwhile investment.

Meanwhile offer a window period to get all “bridged” assets (wrappedUST, wormholeUST, aUST, wrapped LUNA, etc) back to the Terra mainchain as well as withdraw the LUNA and UST deposits from the exchanges.

2. Mint a new multicollateral USDm stablecoin, collateralized with the value of the other funds that remained bonded and staked in Terra (bETH, bATOM, bSOL, wasAVAX, etc) the LFG Foundation (BTC, BNB, AVAX, etc) and other agents (such as BUSD) so that they can be burnt back when unbonding. If the rest of pegged assets (such as mirrored shares) can not be feasibly collateralized, these will also be burned to mint UST at the rate they virtually had at the time of the halt. All the specifications for this second step of the roadmap are being discussed in detail in @trix’s proposal Terra v2: Mechanism for multicollateralized stables.

3. Burn the old UST to mint the new LUNA supply as 1 UST = 1 LUNA updated to Terra V2.

Terra’s LUNA/UST stablecoin algorithm has being working for the most part and UST has grown remarkably, helping to the development of multiple applications over the Terra network. Unfortunately, a vulnerability in the protocol has been exploited. Despite the burning along the expansion of Terra’s economy and its rise has worked steady, during these extraordinary bear conditions and hostile pressures, the throughput has suffered a burning throttling: Minting UST was straightforward but, when burning back these into LUNA, it was evidenced a limitation to reabsorb the debt fast enough to keep pace under these radical market conditions, causing temporal cycles of volatility over the peg.

This issue might have been exploited but it also proved the existence of a vulnerability, offered an excellent opportunity for learning, and the possibility of developing an improved version of the protocol. It is time to introduce the next upgrade of the network in order to fix this situation and its previous vulnerability and unlocking the intrinsic value of the Terra network.

Do Kwon and the Luna Foundation Guard have been crucial but it is also true that they gained an excessive protagonism during this first period of the protocol. Maybe it’s time they become just another user along with the rest. The following proposal also helps to redistribute and decentralize the holdings across the hands of all the Terra community.

At the time the third stage is completed, Terra v2 may have already become a decentralized smart contract network written in Rust that counts with a real base of users and developer teams; plus an improved multi-collateralized stablecoin and a great already functioning ecosystem of awesome Dapps, wallets, bridges and services; including the infamous Cosmos’s Inter-Blockchain Communication protocol. For then, I would say that it might be at least as valuable as Avalanche or Solana plus DAI; which, according to my own calculations, would imply that LUNA might be valued back around 1.16 USD even at current “dip” prices, as well as opening the possibility for the rest of the ecosystem to continue flourishing.

This proposal has already been submitted as Proposal ID: 1210 Terra Station and, after the UST buy and burn if any reserves left, it might be implemented as soon as possible.

Comment 1: Making “everybody equal”. What does this really means? Well, it is obvious that LUNA and UST are not equal, their rates of risk and reward of each one are distinct: UST holder had no rewards because it trades them for a less risky volatility due to the peg. LUNA holder, just the opposite, choosing rewards in a exchange of greater volatility risks. Likewise most of the growth of the total network was largely included into the stablecoin. It is not a coincidence that deposits are considered before shares at bank defaults. It is fairest, but also the best, if not the only, way to maximize the value that could save Terra.

Comment 2: Discriminating addresses. Terra addresses are not personal or individual bank accounts. Some of them are usually savings of several people managed under one address or owned by the same entity but managed behind several addresses (f.i. the case of the Juno whale). But, more importantly, most of these smaller funds in addresses today are investors who bought after the depeg that, specially in the case of LUNA, were buying a risky asset in order to make profit; and not depositants to whom were promised stability for their savings. The considerations, also mentioned by Do Kown in its first Revival Plan, may be fairer and far more effective restoring the maximum value possible for the network and, thus, preferable and included in this proposal.


I like this, should many other needs to view to discuss as well.

I’m not so prepared to give help in mechanism development, sorry…


This proposal looks better to me than the Terra Builder Alliance’s proposal.


I agree that if Luna lives to see another day, hard fork is the only way. Terra needs to fork from a block before Luna’s supply got inflated to death. UST needs to be converted to Luna at a rate that the Terra governance (validators) vote on. Once the hard fork’d chain establishes a stable validator set, I’m sure ideas of a reimplementation of UST with multi-collateral will be discussed. Multi-collateral is a prerequisite to avoid this kind of a crash in the future.

If we are doing a collateralized stable I think we should hold off on it until the L1 token has settled value first. If not we are opening up for an early sell off.

Then keep the LTV at 50% to start. We don’t need to rush. We let the stable supply growth with the growth of the ecosystem. Take a low borrow fee (1-2%) on the stable to give to stakers. The supply will grow as the demand grows. Allowing for regular market participants to arb. The arb would require buying the L1 and minting (above peg) as well as buying the stable to pay back debt while below peg. This also means that debt, hence the stable, is only taken on by people who understand basics of the system. While giving the people who don’t a safer stable than an algo model.

Only integrate cross chain with IBC to avoid lack of liquidity for users off the native chain. Will also need a separate stable preferably that allows users to exit the system, trapping people causes panic. Preferably TC with the L1 token when trust is gained. Before that we would need a bridged asset.

We should also call it mUSD instead, follows Mirror’s naming scheme and distances from the UST brand.

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I didn’t explain why I didn’t like the multi collateral model you suggested sorry.

I don’t think we should be affecting external assets for our baby stable. Also having an LTV that high will surely get liquidations rolling frequently. We want a robust liquidation mechanism but don’t want it frequently used.

Excellent! This is the spirit we need now! I fully support this proposal!


Agree. Likely the model may could be an appropriate adaptation from the current one implemented by MakerDAO. Included.

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Not sure I agree with this, This would give speculators that bought luna right before the halt at .005 USD a 25X return on UST. This would result in an unpegged UST with Luna V2 as you are migrating the same imbalance to the new chain. What should really happen is that .005 Luna = .005 UST, restoring balance to the system in the new chain.


Snapshotting is a ridiculous solution to those who invested after the halt on places like pancakeswap using wormhole. A more amicable solution for ameliorating inflationary affects is to place a tax on whales.

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ok but how do I move luna from exchange to burn it to luna2? I always kept it there because I didnt want 21days lock for my lunas (stake). Now they are stuck there and I believe this is many people’s case


Decided to expand it some more to get concentrated feedback, would love to hear thoughts.


This is a great and fair proposal!

Do you want to give any rights to UST and LUNA holders before the snapshot too?

Looking at the LUNA Go Forward Proposal they intend to allocate 40% to UST holders that have hold onto the UST and 40% to LUNA holders at the time of the snapshot.

Maybe the two proposals can be combined so relatively more weight is given to the LUNA holders before the death spiral.

This would mean:

  • Convert LUNA V1 to UST with your proposed ratio using the May 9th balances.
  • Add this to everyones UST balance at the end of LUNA V1/ start of LUNA V2

Divide the 80% that is now allocated to these holders in accordance with this ratio to mint LUNA V2.

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The one and only question the crypto industry should ask itself is:

Do we really need stable coins?


Why are we trying to support, and rebuild a flawed, slavery system on the blockchain? Just pair with bitcoin, and nothing else. On and offramps to buy bitcoin are already there, without stable coins! Use REAL fiat to buy and sell.

Just a thought while everyone is blindly staring and overthinking a ‘solution’ to find the best algorithm to keep a coin stable. It will collapse. They all will collapse. And the coin it pegs to also collapses. Thats why we have Bitcoin. :wink:

Getting rid of Stablecoins will free the industry.


I think stablecoins were needed because Terra was looking forward to achieve mass adoption of crypto in general. Bitcoins are too pricy to be used in real life


Anyone is free to consider that stablecoins are useless tools and thus refuse to invest on systems that offer stablecoins. Or the opposite, consider multiple use-cases and applications for these, and offer a sustainable and profitable system with a promise of peg.

If you are the former, you likely chose not to use on stablecoins such as UST and not to invest on LUNA because, so far, you find no value whatsoever on this kind of proposition. However, it looks there might exist some real applications for stablecoins and value on their systems as they are being demanded, offered, and valued. Thus there is also the latter.

Anyway, that may be other topic, here we are just trying to fix a situation after a exploited vulnerability so that Terra can continue functioning as flawlessly as possible.


This is very interesting, you are really making many excellent points of how to implement the multicollateral USDm stablecoin. If you don’t mind I’d like to include a link to your proposal so that it redirects to your proposal for the specifications regarding the second step of this roadmap. Please keep on it. Thank you trix!


This point is also very interesting. Most exchanges has reopen deposits and withdrawals for both UST and LUNA. This kind of issues have already happened in the past and, logically, the exchanges have been collaborative when there has been a consensus approved by the network. Following your reply I have specified the necessity of including the appropriate withdraw bridges in the exchanges so that these funds can also come back to the main chain, kudos.


I disagree.
Let’s the stable coin algo do its work.
Ust will repeg.
Market forces will help.
The Terra foundation should buy and burn LUNA over time in the future to reduce hyper supply.
Slowly and steady will build trust back.
And both Ust and Luna will be saved.
Taking a snapshot and kind of reverting the Blockchain will destroy the community credibility as transactions on Terra Blockchain should final. Always.


The idea with that is to return all the possible surplus of value available back to all the LUNA holders since the upgrade. Your point is interesting. I really doubt that the identification of these tradings can be a feasible task to even consider the possibility of excluding them appropriately from the surplus as a realistic alternative. In fact, if possible, the last proposal from @dokwon it is related to your point and makes a lot of sense: saving these who hold since before the depeg and these who bought 5 minutes before the halt. His last proposal is quite good in my opinion; though, if technically feasible, introducing the multicollateralized stablecoin can add lots of value to the network to as well.

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