But who would fund the hard-fork with an airdrop only to $LUNA / $UST bagholders? I’m not saying it can’t work, but I agree with @tfworl that hard-forking will be the death blow to Terra. I also think that the only way out of this is to reverse the damage that has been caused on the existing chain state.
We do not have to buy back and burn $LUNA right now, that’s a complete mis-assessment of the problem. It’s the 11B outstanding $UST debt that has to be bought back and burned, and realistically it has to be bought back at heavy enough a discount to make it a viable $ raise.
Based on the above I have been envisioning this as a better path for Terra going forward:
New mandates for TFL / LFG:
- Terra chain V1 has to live on, i.e. the current active state right now must not be deprecated, no hard forks. Anything less will be looked at as TFL running away from a bankruptcy of their making. Mint/burn mechanism remain disabled.
- TFL / LFG mandated to buy back ~11B excess UST, and do whatever to raise $ to do so.
E.g. buy back over time at ~$0.25/UST = -$2.75bn (in reality the necessary buyback amount will be less than the total UST supply but I estimated conservatively) - Chain oracles + dapps meanwhile have to be patched so they treat $UST token as a debt token which has a volatile value between 0 and 1, depending on Terra’s solvency, not as a stablecoin.
By soaking up the 11B excess $UST supply like a sponge, Terra is fixing what the de-peggening started by repurposing the bad debt (11B $UST) through forward planning of a gigaburn of $UST.
The Debt Repayments - $UST gigaburn phase:
Each day a portion the re-purchased $UST should be burned for nothing in return. This would be a huge show of resilience and confidence by TFL / LFG and showing they believe the stablecoins are true functioning digital debt instruments. Such actions would do wonders to restore trust in the technology and hence I believe it will hugely improve the odds of Terra’s recovery.
As the sole purchasers of 11B $UST, TFL / LFG would need to play it smart to acquire the $UST back at a fair discount, and so should work to keep $UST beneath a target acquisition price ($0.25 per UST token was used in my calculations) by making markets with soon-to-be burned $UST which they acquired cheaply.
While original $LUNA holders will still be diluted heavily, they will have lots of time and opportunity to pick up $LUNA at discount during the $UST burning phase. Since $LUNA supply will be stable at ~7T without burn/mint, we can expect mercenary capital to exit $LUNA during the debt repayment ($UST gigaburn) phase, but purchasers will no longer be punished by dilution for allocating to $LUNA since minting is disabled. Airdrops could be targeted at $LUNA holders from prior to the de-peggening if it’s felt that they need more value back.
Oracle Solvency Ratings, Market Module v2.0, $LUNA buyback
Many including Do Kwon seem to think that because the system failed under intense pressure, we need to completely pivot everything. I am of the view that we should change things minimally, because things worked great 99.9% of the time before and the goal should just be to patch the vulnerabilities which were exploited in the end.
i.e. Mint / burn is what distinguished Terra, we shouldn’t be aiming to do away with it completely! However, giga dilution of $LUNA equity should never have been possible. I propose adding a solvency rating to the Oracle module which somehow detects insolvency and prevents any further $LUNA minting when it happens - this would trigger a new debt repayment phase where solvency would have to be regained before $LUNA could be minted again.
$LUNA burns to mint $UST however were brilliant, an extemely profitable and successful seignorage mechanism which prevented $UST from trading >$1. We can and should re-use this when the $UST burn phase is completed (i.e. debts are repaid) and the system is regaining stability where $UST can find its peg back at $1. This again would be allowed only when the oracle reports a solvency rating of 100.
In addition to TFL / LFG’s mandate to buy back $UST when solvency is low, when solvency is high, TFL / LFG should be mandated to acquire high quality collaterals and incentivise LPs to backstop $UST against a solvency crisis. Rather than repeating the mistake of publicly announcing huge BTC purchases, focus on more quietly acquiring a diversified basket quality apex assets at fair value or discount. Of these backstop apex assets $LUNA shouldn’t exceed a limit of (e.g.) 5%, and it would be liquid and ready to use to mint $UST when it trades above $1 (and solvency is 100).
You see guys, it is going to take several months and a lot of hard work to shake off the big whale $LUNA bags that have been getting millions of coins for peanuts. That is why we have to have a slow and brutal debt repayment phase where $LUNA bags will be dumped back into the community’s hands.
With newfound confidence instilled by Terra’s commitment to a UST debt repayment plan, community could again realistically speculate on $LUNA making long term gains while still priced at handsome discounts from exiting whales, knowing that TFL / LFG will be buying $LUNA as soon as they shed the mandate of buying back the $UST debts to fix solvency rating.
Feedback welcome.