USTC Re-Peg: "Ziggy" + ERM (Discussion #3)

0. Disclaimers
I manage the Onyx validator with the assistance of PFC. I mostly work solo and self-study crypto ecosystems; therefore, I do not have any formal affiliation with Terraform Labs, or other major organizations like TerraCVita.

The final proposal will be put up on January 31st, 2023 for vote – but this date is subject to change if we cannot reach a mutually agreeable plan together.

1. Previous Discussions
#1 Modify Luna Exchange Rate with Novel Fee Variable : apply a fee to uluna exchange rate after the Voting Procedure is completed called ArbitrageModifier (or similar).

#2 Ziggurat : utilizing the concept of pegging USTC “penny by penny” (step-wise) to reach our goals, a.k.a. “soft-pegging,” using the ArbitrageModifier.

2. Summary
This is a 3/n discussion to propose a scalable method of arbitrage incentives between Terra <> Luna at any price level, especially at our deep-discount (“de-pegged”) levels. We do this by applying a fee to the usdr exchange rate (“Luna”), or to the stablecoin tokens like uusd (“Terra,” or USTC in this case), with a target “stop” level to prevent “overflow.”

This discussion iterates on the previous concepts and clarifies important issues highlighted by community feedback.

3. Background
Terra was initially designed around the basic incentive mechanism known as arbitrage:

  • Arbitrage occurs when a security is purchased in one market and simultaneously sold in another market, for a higher price.
  • The temporary price difference of the same asset between the two markets lets traders lock in profits.
  • Traders frequently attempt to exploit the arbitrage opportunity by buying a stock on a foreign exchange where the share price hasn’t yet been adjusted for the fluctuating exchange rate.
  • An arbitrage trade is considered to be a relatively low-risk exercise.

For example, if a user purchases USTC @ $0.02 on Terra, then sells it on Binance for $0.03, they have earned $0.01 for 1 “unit” of trade.

Ziggy #3 (1)

This arbitrage translates internally. You can use your Terra, like USTC, to buy Luna (LUNC), and vice versa. These exchange rates are cast by the validators in a process called the “Voting Procedure,” where each validator posts the exchange_rates.

Example block: 10,193,375:

salt: "400f"
feeder: 
terra1s8x58csttl3wgw0vgds5ptlrq3lgeau6f6wusz
validator: 
terravaloper1xl2ujgt7f6xn8v26rjkhy4f20x5plc3nq6nql7
exchange_rates: ""0.000295594206874093uaud,0.00025988545353405ucad,0.000188358954092912uchf,0.001398435318661292ucny,0.001423678820640927udkk,0.000191376691164571ueur,0.000166983721981012ugbp,0.001526318082244413uhkd,3.029580302927471892uidr,0.015704698819674663uinr,0.02771880738142329ujpy,0.261949510563912077ukrw,0.663612297496888114umnt,0.000904542991035891umyr,0.001971752033675646unok,0.011162123826391876uphp,0.000150794404366008usdr,0.002070056692098034usek,0.000269649063995179usgd,0.007037748996891885uthb,0.006118288984096355utwd,0.000194629930452078uusd""

Currently, all of our exchange rates are similar across the market. There are users who are performing arbitrage, but not nearly enough to push the USTC peg high enough.

This discussion series attempts to resolve the lack of trading activity on CEXs (like Binance) and DEXs (like Terraswap) by providing a nominal incentive for those traders.

4. Motivation
In order to re-peg USTC (and all other Terra stablecoins, by extension), we need one of the following:

  • more money (supply)
  • more use cases for money (demand, or “utility”)

However, we are bleeding cash rapidly and not using our available runway (money available for use, such as expenditures) to subsidize demand.

We are, relatively speaking, flush with cash (market capitalization trending downwards from $3.5b since the re-implementation of the staking in ~September) – we can see this as “total available capital for use.”

Over time, the amount of capital as measured by market capitalization has dropped by roughly $2.5b in the last several months, and for good reason, too: it’s more profitable to short LUNC than it is to go long!

Now, one way to go long is to simply “buy more.” That’s increasing your “supply” of cash. However, it seems like there’s not a really convincing reason to buy. (You’re also paying carrying costs!)

Enter “demand.” This is “reason to use your cash.” People don’t want to give up their LUNC, so we provide an incentive to use something tied to it – in this case, “Terra,” which includes, but isn’t limited to, USTC.

At the very base level, if swapping Terra <> Luna sucks, then people will not want to use the blockchain. Full stop. If you want to get rid of Terra, you can, but then you’d just have LUNA or any other Layer-1 blockchain, except with no functional dApps.

4. Proposal for non-techies

We want to provide a really basic system so our blockchain can process monies in the form of Terra or Luna faster, or slower, but we also want to automate this bit because we’re lazy. (and we’d rather spend 8 months, 8-12 hour days to automate a process that might be a few seconds. programming.)

This super basic system is a pedal-like system like one you’d find on a car. Terra is our car, and we can tell the prices to go faster (accelerate) or go slower (brake) by pushing the price up or down by just a wee lil bit.

A premium is an extra price you’d pay for making that swap. A discount is a reduction of price for making that swap.

In this proposal, we tell the ERM to either:

  1. Increase the price of Luna by +N%, or
  2. Increase the price of Terra by +N%.

This creates an implied premium or discount on the markets that trade these coins. For example, if we increase the price of the USTC exchange rate by a penny on Terra, the markets over on Binance need to catch up. This also means you could buy Luna (LUNC, in this case) at a discount and stake it.

We then ask the ERM to turn off automatically when we hit one of our “soft-peg” targets or when the validator exchange rate price-feeds deviate too far from one another.

This part is very important to note. If we modify the exchange rate, the next price feed may spiral out of control, causing a chain-reaction of inaccurate price feeds. (Credit to: @Asobs for pointing this out prior to this discussion.)

In short, we could have a price feed that modifies the price of Luna or Terra by +N%. If the price gap we purposefully made doesn’t settle accurately, we may accidentally reapply this exchange rate modifier.

Think of it like driving a car in traffic. We need to get to our destination by a certain point. (in our case, this is actually 2 years from May 2022, which means we have about 16 months if we don’t otherwise have plans.) In order to get to our destination on time, we need to go faster on the open roads, slower in traffic and turns, and detour when there’s obstacles on our course.

For our options geeks, we can formalize this analogy in the following way:

  • Destination: delta
  • Time-to-destination: theta
  • When to detour (“navigation”): vega

However, we need to automate this process, as votes go through a 7-day process, provided another 7-day signal wasn’t posted prior. It is too slow to handle this kind of change, and so requires careful crafting from the developers to implement.

5. Proposal

Introduce a new, automated lever called ExchangeRateModifier, or ERM, and apply it to the Luna exchange rate usdr or individual exchange rates “Terra” uusd, ukrt, ujpy, et al, after the Voting Procedure. Then, guard against capital hemorrhaging by using options-inspired methodologies.

The ERM is a one-time, conditional application of fees, to be turned off when specific conditions are met:

  1. A “soft-peg” Target for the ERM is met (delta), which is defined when the ERM turns on.
  2. The “soft-peg” Target for the ERM is not met, which is defined in any number of possible ways: number of blocks passed (theta) or exchange rates trend too close to the RewardBand limit, the default of which is Dec at 7%. (vega)

An example flow of implementing this kind of fee lever is as-follows, using bps:

  1. ERM.delta (“soft-peg target”) has a predefined bps target: +0.15.
  2. ERM.theta (“time-until-expiration”) defines an expiration time for the ERM by specifying how many blocks must pass before the ERM shuts off: 25 blocks (or roughly 2.5 minutes)
  3. ERM.vega (“implied volatility guard”) defines an emergency mechanism for the ERM by gauging implied volatility from the existing exchange rates when the ERM is first applied: +0.30.
  4. In the event that: delta is not met; theta reaches expiration; or vega suggests that validators will trend towards casting rates outside of the RewardBand, disable the ERM until cross-market exchange rates normalize.

6. Questions

ELI5 the proposal, please.

We tell the blockchain to “do something” and make the prices of coins or up and down. But only a little bit, and only for a little bit. If it doesn’t do what we want (or we just forget, lmao), we turn it off.

Does this burn???

If designed properly, it will burn more than the tax ever will. Such an implementation would mean we could get rid of the tax in favor for this. (We already have taxes and fees baked into the system. Unless you love doing taxes and trading through financial quicksand, this is probably a better long-term option.)

OK BUT HOW MUCH DOES IT BURN???

I don’t know. But that’s why we can test it in small amounts and if it doesn’t work, oh well, Duncan learned something new. Think of it like trying to find a different kind of fuel for burning. Pine burns fast and hot, but you’ll need a lot of it to burn. Oak takes longer to light on fire, but burns for a lot longer than Pine.

Will this nuke LUNC’s price?

Designed properly, it will actually make stakers earn more than they currently do – not just by burning, but also because the USTC rewards stakers get from burning would increase. (Remember, the Oracle pool is filled by swap fees!)

This proposal has been changed after feedback. The inclusion of option-like methods to the ERM, particularly ERM.theta, should prove useful – we might explore the integration of MEV protocols such as Skip, which is on LUNA 2.0.

Why are you not including other Greeks like Rho and Gamma?

We don’t include Rho until we adjust this mechanism for inflation, meaning that if we re-enable inflation/minting, we can add a method ERM.rho to accurately determine a “risk-free” rate.

We could probably include Gamma if we set >1 instances of ERM.delta. We support over 20 native currencies from different regions. Including ERM.gamma would be a useful measure after we’ve tested ERM.delta on several tokens. (Why this bit is cool: if you love tricrypto2, you’re gonna love eicosidyocrypto2.)

Ok, but if there’s a discount on LUNC, doesn’t that mean the price will nuke? Also, does this mean a bunch of USTC could come on-chain, buy out all the LUNC, and then stake to validators for a Sybil attack?

In its prior forms, yes. The suggestion to include options-like methodologies would abate this to some degree:

  • ERM.theta would mean that arbitrageurs must execute within a certain block timeframe.
  • ERM.delta means that when arbitrageurs hit a price change (“soft-peg target”), they now are subject to immediate market adjustments (market responsiveness)
  • ERM.vega forces arbitrageurs who want to try to obliterate the price to do so within the ERM.theta period.

The theta-vega threat vector caps the arbitrageur threat to a very small timeframe. If the block period is 25, then the arbitrageur would have 2.5 minutes to execute a MEV attack. If you squash this block period to 1, then the arbitrageur must flash loan to execute a MEV attack.

There is an incredibly cool design feature we can make around this to internally collateralize the protocol: “vault-breakers.”

Say that we use part of the fees collected while trading to make a vault, kind of like the burn tax. The only way to open this vault is to execute the theta-vega MEV attack. If the vault is cracked, the entire network stalls all functionality and distributes fully from the protocol’s internal vault.

Attack vectors will always exist in this kind of protocol due to the arbitrageur mechanism. Better to know and understand it than to be caught off-guard by it!

7. Aggregated community suggestions / feedback (open for later edits)

@Abdulaziz_Ghamdi_KSA

If users take a discount LUNC purchase on Terra using this kind of proposal, automatically stake and/or vest that LUNC to the user over time (e.g. 21 days) to prevent mass arbitrage.

(Duncan’s suggestion: see if you can incorporate Staking LSDs here.)

@LUNC808

Since the Market mechanism for Terra <> Luna is turned off, we’ll need to use a liquidity pool like LUNC-USTC to route trades through.

These liquidity pools, or LPs, mint a token usually denoted uLP for the assets you’ve deposited. We can send these LP tokens to the burn wallet, which would make the burn wallet a permanent burn outlet, while providing better slippage rates the more TVL the burn wallet holds.

(Duncan’s suggestion: This is insanely interesting. I would find a way to organize this for users.)

7. Personal Comments
I’ve touched up the proposal to not directly interfere with the Voting Procedure, included some safeguards in the form of optionality methods (the Greeks) to ensure we don’t go overboard on key concerns people let me know about.

Much more pleased with this iteration than the last few. I am hesitant to include any controls on ERM.gamma because this would include controlling the internal swap rate to some degree at a “hard-coded” level. If anyone has any ideas here, let me know. Otherwise, ERM.rho would be an interesting method to look into.

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Don’t touch the chain that millions invest in for your curiosity. It’s not going to end with ‘oh, duncan learned it’s not working’ If you make a proposal, I’ll prepare to send you to prison with SBF.

Blockquote

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This 3rd part proposal is too idealistic.Like kindergarten children play house.

Don’t discuss proposals with these influencers,they don’t even know any basic knowledge about finance.Imagination won’t work in doing business.

Modifies the price is not realistic.Just because every movement of price need money as a motivation.No money,just modifies, it’s no use.Because there is no real money back the price.If just modifies,Cex may not follow and in opposite,the market adjustment mechanism will lower the price to follow the main stream price in big Cex.This may cause the market disaster.

I think Ziggurat works,but lunc selling pressure should be solved by protocol like Ankor or something.The two are enough for soft repeg.

An idea needs a marketing process to be explained for non techies. And without imagination and crazy ideas we cannot invent anything in this world.

I correct,only imagination is not work.
His 2nd part Ziggurat proposal just like you said, it’s a crazy idea.But it follows the market laws.
This one I think it’s not.

We need imagination,but at first we should. obey the natural law,this is what we can’t control,it controls by God.That’s why we have seasons,the weather,and any natural phenomena.When tornado comes,will you walk towards it?

Here’s a piece of advice to a dork who wants to be a special person who thinks I’m superior to others in some plausible and difficult terms.

I don’t care whether you fix the lunc price with another validator in your dreams. Because your proposal will never pass.

But I’m sure you’re deliberately trying to withdraw funds from the Oracle pool. This is the first proof that you’re a thief.

Secondly, you are attempting to deliberately reduce the price of lunc. It’s like SBF has made a big profit from its short position. Maybe you have a same plan. Short lunc & long ustc right? Easy money to get.

Thirdly, your plan is to manipulate the market by colluding with validators. Do you think Binance will cooperate with this? You’re out of your mind. If your proposal is passed, all CEXs will remove lunc/ustc on the list. They’re not stupid enough to get caught up in your crime.

There is no vision in your proposal. It looks just some sociopath’s scribble. It doesn’t matter if it’s good or bad. It’s just disgusting.

You inject your nerd mentality into investment products. I think your proposal is not a financial product but a group project of a nerd college student.

You must think you’re very smart, don’t you? No one else would think so. Don’t think I said too much to you. Someone needs to brake you. People around you don’t want to be bad people themselves. Turn a blind eye or leave.

And thank you for confirm your dirty personality with your tweet.

Come up with a better proposal then.

We’ll wait…

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I dont think Kevin likes the idea!! My only question is how complicated is this to implement are we going to need months of coding before we even know if this will work like intended. is it possible to simulate it on test net before we put it on the chain?

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@wrapped_dday someone is spamming the entire forum. I think these are spam comments.

By the way,Duncan,I think you’re almost there.Just need one more right step.
We need warrior like you.Come on baby!
Looking forward to your final edition.

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:rofl:


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@David_Wedlock

I dont think Kevin likes the idea!! My only question is how complicated is this to implement are we going to need months of coding before we even know if this will work like intended. is it possible to simulate it on test net before we put it on the chain?

Complex. Unlikely it could even go live on the current blockchain state without testing heavily on test-nets or, something within my current skillset, a program that could simulate the data in a safe environment without compromising investor money by going-live. For example, Unity 5 can support testing while providing real-time 3D visualization.

The purpose of discussions is to, well, discuss the viability of such proposals.

@Kevin_Park

But I’m sure you’re deliberately trying to withdraw funds from the Oracle pool. This is the first proof that you’re a thief.

Secondly, you are attempting to deliberately reduce the price of lunc. It’s like SBF has made a big profit from its short position. Maybe you have a same plan. Short lunc & long ustc right? Easy money to get.

Thirdly, your plan is to manipulate the market by colluding with validators. Do you think Binance will cooperate with this? You’re out of your mind. If your proposal is passed, all CEXs will remove lunc/ustc on the list. They’re not stupid enough to get caught up in your crime.

I’m not sure if you’ve kept up with the myriad of discussions, but I would suggest gathering all relevant live discussions, tweets, etc. before making accusations since the onus of the burden of proof is on you right now. It would also be wiser to refrain from such accusations until you’ve created a case that can corroborate your accusations to avoid infringing on laws related to libel/defamation prior to your open case, should you decide to pursue it.

In its current state, it is unlikely that the proposal can pass without prior consent from every market that provides UST/LUNC (or wrapped versions), including, but not limited to, markets like Binance, Terra Classic, and UniSwap, as this kind of proposal is already affected by monetary policy that has been happening for however many months – such as burn tax, reflexive minting, and so on.

Feedback related to negative price effects, especially regarding LUNC, are being integrated as part of the keyword discussion, which I would once again like to highlight after your attempts to straw-man a discussion.

If you would like to charge on conspiracy of market manipulation, I would first like to posit whether monetary policy that affect regional monetary fiat currencies such as USD, KRW, et al, like inflation, stimulus disbursements, and interest rates is considered market manipulation.

The system as-is cannot handle robust on-chain monetary policy supporting multiple countries. Would your concerns be abated if we voted manually on individual parameters that take 1-3 weeks (or more) to change, even if it opens up monetary attack vectors (such as, but not limited to, MEV) within the time period of voting? Or should we continue to bleed money from the oracle pool as we race to zero?

Please consider the big picture first before reflexively responding with litigation.

@SwordDemon

Don’t discuss proposals with these influencers,they don’t even know any basic knowledge about finance.Imagination won’t work in doing business.

Modifies the price is not realistic.Just because every movement of price need money as a motivation.No money,just modifies, it’s no use.Because there is no real money back the price.If just modifies,Cex may not follow and in opposite,the market adjustment mechanism will lower the price to follow the main stream price in big Cex.This may cause the market disaster.

The influencers are still learning. How can we be expected to guide people through finance if we keep the blindfolds on them the entire time? Hamfisted regulations has led to laws in the SEC like accreditation, requiring an investor to be rich to invest in high-risk strategies instead of allowing them to perform the necessary DDQ (ie “DYOR”) to gain access to such strategies?

Do you consider tax policies as modification of prices? If so, then how does implementing a new fee handler differ? What are we selling to people in the first place? Money, securities, cryptocurrencies, tokens?

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@wrapped_dday
Could you please expand more on how exactly this concept isn’t market manipulation, in deep detail? We believe that question is going to be at the heart of the discussion of this draft proposal.

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@NovaValidator

Could you please expand more on how exactly this concept isn’t market manipulation, in deep detail? We believe that question is going to be at the heart of the discussion of this draft proposal.

This is a concern I’ve had for a while. Invariably, it comes down to semantics.

For example: what’s the difference between a tax and a fee?

Using The American Heritage Dictionary’s 5th edition:

tax: A fee or dues levied on the members of an organization to meet its expenses.
fee: A fixed sum charged, as by an institution or by law, for a privilege.

For example, if I change the fees associated with my service, I am “manipulating” the prices associated with my service, but this is acceptable as determined by the free market. That is, if I go to a store, and the business increases the MSRP of their merchandise by 10%, users opt-in (purchase) or opt-out (go somewhere else).

On the other hand, a tax is required to meet expenses in governmental organizations. If one does not like the governing body of the country they live in, they may freely move, assuming that the destination country’s governing body accepts such an application. Taxes can pay for expenses such as infrastructure development (roads) or public services (healthcare, law enforcement, natural disaster protection).

If the governing body implementing a tax raises its tax rates, is that market manipulation? After all, by implementing the 1.2% tax, we are directly manipulating the price of assets directly (Terra or Luna), to a secondary degree (any pairs that Terra or Luna is linked to, such as ETH-wUST), and to a tertiary degree (any markets that service assets linked to Terra or Luna asset, such as CEXs).

By nature of Terra’s blockchain functionality, we have affected the following markets through the issuance of Terra and Luna (minting) and the burning of Terra and Luna (demurring):

  1. Primary: Terra Classic, Ethereum (via wLUNA, wUST, et al), markets servicing CW20 tokens from Terra such as ANC or MIR.
  2. Secondary: linked pairs to Terra assets, such as wLUNA via LUNC-USTC liquidity pools, wLUNA-ETH, LUNC-BUSD, etc. (the nature of trading LUNC-BUSD inordinately affects wLUNA still.)
  3. Tertiary: consumers on blockchain companies and services such as Coinbase, as it forces the company to adjust their products to showcase or shelve certain products, or change their yield (eg on USDC or similar).

Effectively, the whole crypto market has felt the contagion – whether they like it or not – simply because of how Terra worked. In fact, this is how many blockchains work; they have this “magic internet money” being issued, but the only way to make claims on it is if a counterparty will fulfill those claims, such as an off-ramp.

Now, the primary question of “is this market manipulation” could be extended to the differences between a business offering a service or a government enacting monetary policy:

  • Business: “we are changing our yield offered through Anchor protocol.”
  • Government: “we are adjusting our inflation rate distributed by our blockchain.”

The difference here is that any Layer-1 blockchain with inflationary issuance is de facto engaging in monetary policy. Ergo, the parallels to “blockchains are nation-states” are accurate. But is Cosmos changing its inflation rate every block considered manipulation? It’s all automated – didn’t people know about this?

On the other hand, if I were to consider the Layer-1 blockchain like a business, or business product, then the business or institution that created such a product would be free to adjust their fees as they like. Cosmos “as a business” – and not “as a government” – would be thus privy to adjust the inflation rates of their cryptocurrencies as they please. Or is this still market manipulation?

If cryptocurrencies are not treated like a currency, what are they treated as? Property? Okay, if I want to sell my property for an increased price of 20%, then wouldn’t I – or the DAO – be fully privy to determining those rates? If you don’t want to buy more of it, then don’t. You’re free to choose according to free market principles.

However, doing this might affect the property values in my neighborhood. Increase the price of LUNC? Okay, now I increase the price of any blockchain working with it. The price of SOL and BNB goes up, but ALGO misses out because they don’t have an integration with LUNC. Is that market manipulation?

The complete ambiguity surrounding “well, what is cryptocurrency, besides a convenient money vehicle to pass along privately in a trust?” has beyond complicated this scenario, rather than simply treating it as currencies shared by mutual persons in a given network.

Shorthand, again.

The government decides to issue $100m into our country. This dilutes my holdings, and, if not invested, forces me to pay carrying costs. Is this market manipulation?

My local store decides to change its prices and increase the cost of their colas by $1.50. This makes it more expensive to purchase, and I might not be able to afford it. I can go somewhere else to get it cheaper, though. Is this market manipulation?

Semantics.

Are you saying that if your proposal is not passed and implemented we will continue to decline the oracle pool and LUNC will race to zero?

That is the current case:

  • Oracle Pool is slowly depleting.
  • It will never reach zero, unless it is manually burned to such an amount, but the yield from delegations will dry up next to nothing.
  • Running a validator node will become entirely unfeasible if monetary consideration is in question and delegation will be purely “support” that brings no additional benefits. No LUNC/USTC rewards from delegating.

As to LUNC racing to zero - USTC/LUNC are intrinsically entwined. The entire Terra 1.0 reached it’s highs only due to co-existence of both.
LUNC will not go to zero price wise, but its growth will be severely hampered (as is the case now) and will inevitably be replaced by better options in the crypto sphere.

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@wrapped_dday A few questions and some thoughts:

As I wrote on Discord, I believe your entire premise rests on the assumption that these implementations will drive demand to the point that’ll be enough to carry the peg. If the demand isn’t there, the entire concept folds in on itself like an accordion. You’re basically asking to risk another depeg event if things don’t pan out… and the only guarantee we have is that somehow the demand will be there, present and ongoing? I know there’s no 100% safe investment, but we’re talking about an apocalyptic event in case the chain suffers another depeg event… one which may be enough to crater the price to the point most holders bail on LUNC. Remember: most of time time, a bank run will occur if people believe their funds are in peril, even if they aren’t. What guarantee can you give that this entire pyramid of assumptions won’t cave in on itself if there isn’t enough demand to prop up the whole thing?

Furthermore, have you done mockups how much this entire setup would cost to implement, code-wise? Assuming for a second the proposal passes governance and we need to go about implementing the entire thing, do you have some ballpark estimate as to how much money and time this would all cost to set up, test, re-test, deploy, and finally maintain in case of emergencies? I know the system is supposed to be self-regulating, but even TFL had an emergency monitoring crew back in the day that dealt with peg regulation in real time… how much does such a precaution even cost nowadays? And can we afford not to secure it, given the entire blockchain would be at risk? Who will find and vet these people? And who will coordinate their efforts, in case the community decides to hire them? And how many proposals would that take?

Finally, the market-manipulation question is legit, Duncan. You may not agree, but keep in mind regulations are coming down the pipeline that will tighten up all of crypto, and anything that tampers with people’s ability to directly make (or lose) money will be hit twice as hard. If the system you’re proposing were to be put into action (basically a hypothetical lever/gas-pedal, as you describe it), how do you think regulators would look upon it? What happens if the community pays for this, only for it to be shot down by overzealous politicians with an axe to grind who are looking for an easy win? This is even more of an issue when you consider USTC itself is still mired in post-crash controversy (via TFL/Kwon), and could go the way of the dodo if stablecoins end up getting axed by lawmakers. And even ignoring all of that, how will cexes react when you tell them you want to manipulate the price to maximize arb opportunities? I doubt they’d look kindly upon it.

All in all, I appreciate the mammoth amount of work this must’ve taken to research, plan, and write, but your concept has some fundamental issues that need to be addressed. And it’s good you’ve decided to open a discussion to do so - I applaud the effort! :+1:

I look forward to your reply, and that of the other community-members here.

Shalom! :pray:

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Haha,after I post.I immediately know you will take Federal Reserve or Government Tax as an example.It seems we has the same mind frequency : )

The two really use money to back their policies.First,government has the money printing ability and the national credit.Second,Government changing the market liquidity using national debt as a tool.National debt needs money backup.If markets lacks of money,government buys debts,then release the liquidity to the market.If there is too much money,they “print” more debts and sell debts to the market to decrease the liquidity.Tax is the same.

When federal reserve or the government changing their economic policies,not just announce the rate.Actually they using the market trading to achieve their goal.Because they are the biggest money loaner of the country,so they has the ability to affect the market.

That’s my simple version of explanation,it’s not as accurate as the full picture.You can learn more from google or books.

So that’s why our 1.2 tax decreases the onchain liquidity.

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Hi Rabbi, thanks again for your thorough comments. Let me go through as best as I can.

What guarantee can you give that this entire pyramid of assumptions won’t cave in on itself if there isn’t enough demand to prop up the whole thing?

Entire ziggurat, thank you :wink: but this proposal is suggesting to buttress the most basic form of demand on-chain, which is…forex trading, aka arbitrage. To be frank, it is striking me as more important to create a floor of illiquidity that can’t be run through assuming multi-trillion dollar sell pressure.

Furthermore, have you done mockups how much this entire setup would cost to implement, code-wise? Assuming for a second the proposal passes governance and we need to go about implementing the entire thing, do you have some ballpark estimate as to how much money and time this would all cost to set up, test, re-test, deploy, and finally maintain in case of emergencies? I know the system is supposed to be self-regulating, but even TFL had an emergency monitoring crew back in the day that dealt with peg regulation in real time… how much does such a precaution even cost nowadays? And can we afford not to secure it, given the entire blockchain would be at risk? Who will find and vet these people? And who will coordinate their efforts, in case the community decides to hire them? And how many proposals would that take?

No. In general…I am willing to mock it up on a Layer-2 type application, such as Unity, in the form of a 3D simulation event runner. In Unity, for example, you can visualize data and present it in an interactive form so that users can test around with parameters. We can then collect that data and submit it for collection, then pay the researchers (our persons tweaking around with params in-game!) in tokens :slight_smile:

Oh, and I’d be willing to do that for free, assuming I have enough to pay bills to live for a given amount of time. (Could take 3-6 months on my end? I haven’t coded in a long time.)

However, I see what you mean. A proposal such as Ziggy here would take a lot of resources. Again, you and I both know – this isn’t just billions, it’s trillions. Forex markets are huge. I certainly do not have the resources to do this on my own; I would already need the grace of L1 devs to incorporate it.

We would need forex strategists who are skilled in this kind of market to provide consultation and guidance. I think the application of option-like methodologies would work well here, particularly ERM.theta; I’ll be talking to Skip Protocol later about this idea. (They do MEV on 2UNA).

Finally, the market-manipulation question is legit, Duncan. You may not agree, but keep in mind regulations are coming down the pipeline that will tighten up all of crypto, and anything that tampers with people’s ability to directly make (or lose) money will be hit twice as hard. If the system you’re proposing were to be put into action (basically a hypothetical lever/gas-pedal, as you describe it), how do you think regulators would look upon it? What happens if the community pays for this, only for it to be shot down by overzealous politicians with an axe to grind who are looking for an easy win? This is even more of an issue when you consider USTC itself is still mired in post-crash controversy (via TFL/Kwon), and could go the way of the dodo if stablecoins end up getting axed by lawmakers. And even ignoring all of that, how will cexes react when you tell them you want to manipulate the price to maximize arb opportunities? I doubt they’d look kindly upon it.

It’s not necessarily if I agree or not, it’s asking to be specific about semantics. For example, cryptocurrencies are:

  • Property?
  • Taxable income?
  • Securities/equities?
  • Currencies?
  • ??? whatever is most convenient for lawmakers at the time ???

This is an opportunity to self-define governance. I am in a younger generation, which is heavily underrepresented in the political arena – we have AOC, and…? At least for the US.

If you frame it as monetary policy that governments can opt-into, then we can mutually onboard governments who have those regional fiat monetary policies to customize their own policies on-chain via code. (The ERM showcases how this can be done.)

As far as CEXs go – we’ll have to talk with any and every market (including DEXs like UniSwap) who have contacted the “UST virus” and provide an opt-in solution or a buyback and burn model so that anyone who would want to integrate this kind of proposal (which they also can participate in – imagine using BNB to vote on this!) would be able to.

All in all, I appreciate the mammoth amount of work this must’ve taken to research, plan, and write, but your concept has some fundamental issues that need to be addressed. And it’s good you’ve decided to open a discussion to do so - I applaud the effort! :+1:

I look forward to your reply, and that of the other community-members here.

Shalom! :pray:

Shalom, Rabbi! I am grateful for your honest feedback.

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Everyone’s opinion should be respected. Even if the logic is contrary to one’s own idea. Agora exists for that.

I’ve been watching @wrapped_dday idea steadily from the first diagram on twitter. Challenging but dangerous, groundbreaking but esoteric.

But it would be beautiful to design that logic and to improve it by sharing opinions with each other.

The design is done by the technician, but the choice is made by the public. What that means is that if this proposal is to go to the market without ending up in a college paper, the end result must win the hearts of the public.

The public choice is simple. Charming or not. Does it make money or not.

The next consideration is the probability of success and failure. Projects with less than a 60% chance of success will not be fit for business.

DAO’s proposal must be approved by a majority of the community. But when the proposal fails, all that responsibility goes to the proposer, not the community.

All proposals will have to be considered carefully because of this unreasonable structure. The concerns of some community members are understandable. The consequences of success and failure are unknown, but risk management in the event of failure is required. The community will not protect the proposer. Rather, they will witch hunt you.

The market manipulation problem that certain members are concerned about is a separate problem. Cryptocurrency has not yet been institutionalized. This is not a matter for us to judge, but for each exchange to judge. Of course the best thing is not to go on trial.

If the failure result is a structure that loss many things, the proposal will not be chosen by the public. I think you can improve that part.

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