USTC Re-Peg: "Ziggy" + Pendulum

That smells also awfully like the CBDC (centralised) coin. Very ‘one coin to rule them all’ kind of deal.

1 Like

Yes,a decentralized version of CDBC.
It’s a big picture,a phenomenal-class plan. Capital markets will like and buy it.

1 Like


Can you expand more on SDT / SDR, particularly it’s role in the Terra Classic ecosystem, and how / why exactly it needs to be repegged as well as how it lost it’s peg? We believe this will be important knowledge for the community to be informed about when it comes to this proposal.

Sure. SDT is TerraSDR, which is pegged to IMF’s SDR:

According to the International Monetary Fund (IMF), SDRs (or XDR) are an international reserve asset to supplement its member countries’ official money reserves. Technically, the SDR [“Special Drawing Rights”] is neither a currency nor a claim on the IMF itself. Instead, it is a potential claim against the currencies of IMF members.

What the SDR is on Terra is a “basket” of international currencies that make up that basket. In Terra, we represent this as SDT, and it is the basis for a floating exchange rate between all of the Terra stablecoins – including, but not limited to, USD, KRW, JPY, EUR, GBP, CNY, and more. Think of it like an index fund of choice stablecoins. (“basket” is the correct term here, though.)

Prior to the crash, TerraSDR was heavily overweight on USD through UST, and still is. We can re-peg USTC, but we’d still be missing money that exists primarily in KRW (KRTC). That’s to say, while we have ~$9.5b USD of “bad debt” to handle, this makes up maybe ~92% of the bad debt total. KRW makes up another ~7% and then the other 1% is a mix of the rest. We have 22 currencies total (ie, 22 member countries), and Luna (LUNC), which make up holdings of that basket.

When we “re-peg” USTC, what we are really doing is “re-pegging 92% of SDT” – meaning that re-pegging USTC is not the finish line. Note the last line: SDRs are backed by the full faith and credit of the member countries’ governments. We haven’t used gold standard since 1933, took inspiration from Keynes’ bancor in the Bretton-Woods system, which ultimately Nixon got rid of in 1971. (This allowed convertibility between gold and the dollar.)

How did SDT lose its peg?

Again, remember first that when SDT loses its peg, every currency in the system loses peg. Thankfully, this is contained heavily to UST and KRTC, but in order to understand how to fix the problem, we must understand what created it in the first place.

Terra worked by allowing equivalent exchange of 1 Luna to 1 Terra at any given time. In this exchange, one token would be burned, and the other would be minted. The protocol would additionally inflate based on how much Luna was bonded to the network. As it is a Cosmos-based chain, this means that 67% bonding produces an inflation rate of 0%, and this value adjusts on a block-by-block basis (normally).

Ultimately, this means that we’re not trying to re-peg USTC, but SDT:

As long as there’s users engaging with the Terra system, there exists arbitrage opportunities. One user might stake Luna to receive more Luna. Another user buys Luna, then sells it later for profit. Thus, a myriad of interesting applications can emerge, all as a result of primal human incentives.

However, primal human incentives led to its downfall which is the “de-peg” – more accurately, the inability for SDT to programmatically track the IMF SDR. Anchor Protocol offered a near-unchanging 19.5% APY on UST deposits (of which LUNC stakers are more than double the beneficiary of!) which was unsustainable because demands on the “TerraSDR members” – the Luna stakers – were too much. That’s to say, not enough Luna could be burned to meet demands.

Anchor’s previous yield was en route to paying $3.9b annually. This was exacerbated by unhealthy borrow loops (MIM-UST Degenbox, bLUNA double-borrows) which allowed any collateral provider to simply allow their LUNA to be liquidated in exchange for their borrowed UST.

Here’s where it gets nastier. Terra uses a variation of a two-pair liquidity pool, one for Terra, and one for Luna. At the end of each block, the protocol attempts to rebalance the pools over time. So if there’s not enough Luna to cover Terra, it will issue more to cover for it. It stores this value in a (Kronecker) delta and measures the pool sizes in SDT.

The longer it takes for the two pools to recover and rebalance, aka PoolRecoveryPeriod, the higher the spread fees are. This is a large reason why there’s so much capital in the oracle pool, but it doesn’t explain why there’s so much capital in the system. (When discussing units, of course.)

To understand the de-peg, you have to understand that oracles that validators are servicing are continually submitting prices while it attempts to converge back to normal. These exchange rates affect how much 1 Luna <> 1 Terra exchange rates go for.

If you consider this chart, we can see the Luna price always exceeds Terra price until Period 26. Essentially, since the Market is continually attempting to compensate for its counterparty (either Terra or Luna), this behavior burns Luna as efficiently as possible until the Luna price matches Terra in perfect equilibrium, then it will issue Luna still as efficiently as possible until the pools are back in equilibrium.

There’s one core problem with this mechanism, which is that the newly issued dollars, not backed by anything but good faith. (see any relationships with how IMF SDR works now?) It was late, but Do Kwon did procure Bitcoin, Avalanche, Ethereum, Solana, and Cosmos, amongst native tokens Terra and Luna, to back the peg as it fell, and as shown above, the Luna hyperinflated in the system.

Remember that the two liquidity pools Terra <> Luna adjust over time – not immediately. So, the longer that Luna’s price stayed under Terra’s price (like it does now), the more implicit interest is created to Luna holders, because digital Jerome Powell is printing Zimbabwe dollars faster than he could at home.

Basically, more Luna is being printed. This creates a lot of illiquid supply that’s inaccessible en masse and a very small circulating supply. The most infamous tokens that mimic this behavior are memecoins (777 trillion supply, but only a few billion are circulating) and those Solana tokens Alameda was such a huge fan of.

You could, theoretically, keep the price of UST and LUNC suppressed in perpetuity. All you need is a continuous stream of willing speculators (gamblers) and you have a casino where the whales rig the machines and the speculators willingly give their money to the house in sight of a million-dollar surprise. (“one day, the price will moon” – this only takes the hard work of people preventing it from losing value completely.)

The reason you’d do this is to benefit from volatility, which, when we come back to Square 1, is the arbitrageur’s wet dream. Take on leverage at high multiples, benefit from a sharp price movement, and cash out mega profits.

The problem is that arbitrage markets happen due to market inefficiencies, not because we cause it to occur. If we do, we invariably force ourselves (via LUNC) or more likely, other exchanges servicing USTC/LUNC still, that they’ll be paying us handsomely for purposely making a bad market (but only sometimes).

Can you expand more on SDT / SDR, particularly it’s role in the Terra Classic ecosystem, and how / why exactly it needs to be repegged as well as how it lost it’s peg? We believe this will be important knowledge for the community to be informed about when it comes to this proposal.

Unfortunately, without subsidization of L2 applications which our current stakers can use, we force developers to work for free. Normally, taxes would be taken in this scenario and used via the community pool to subsidize developers (ie, tax-demand subsidization) so that they can provide users something to use that will burn LUNC faster than praying for their friends to do it for them willingly.

Alas, I am a bit at my wit’s end. A long time ago, I meant to aggregate solutions for retail investors to access complex hedge fund strategies without being accredited. But I have no experience developing smart contracts, only some scripting and basic OOP in game jams. I am hard-pressed to develop without pay at this point, as it’s simply easier to run a passive validator and reinvest the commission as quasi-leverage.

I digress. At this rate, it is unlikely this will go up for vote as-is, but I will be chatting with a few others this week to discuss solutions to avoid full-on bankruptcy, lmao.


Binance would never blacklist LUNC when they hold the biggest bag. We’ve got that ace still in hand

1 Like

There’s no “ace” to be had for a chain that manipulates price feeds post-consensus. It’s begging to be blacklisted, and all our tokens thrown off every cex and dex out there. End of.

We all appreciate the amount of work you’ve put into this prop. Just because it’s a no-go for now doesn’t mean you won’t find a creative solution to the problem. :+1: Keep working on it, you’ve go this. :metal:

As you mention on Twitter…

Maybe the solution is to look for arb opportunities that also respect consensus? Or at least don’t violate it directly? I know this is far from easy to achieve (because if it was then everyone would be doing it), but I’m confident you’ll figure something out. Apart from that detail, the rest of this prop is extremely well-written and researched, and I’d hate to see it all go to waste because of one single unworkable aspect.

Keep at it Duncan!

Shalom! :pray:


Except their bag isn’t theirs it’s retail users funds in that wallet

I will revisit it later from a consensus perspective because I think that’s the more interesting route. There’s a peculiar challenge with CEX vs DEX participation in this proposal anyways – CEXs would be required to run a node, and all protocols handling Terra assets would require to participate (ie you need 100% onboard).

Interesting concept. Need some time off first.

1 Like

Screw it, let’s give it a whirl.

way to clear all the ustc supply by minting new ustc to buy lunc.
1:mint 1b ustc and buy lunc at a preset price of 120 to 1ustc and sell back all the 120b lunc that we buy using the 1b ustc at a preset price of 9lunc to 1ustc.
this will clear all 11b ustc supply that we have in the market 1b new mint ustc + about 10b current ustc supply.
if ustc price up,but lunc price not moving,
this will make the ustc to lunc price going up,
so we will move to next step.
2:mint 1b more ustc and buy lunc at a preset price of 250lunc to 1ustc and sell back 250b lunc that we just buy using ustc at a preset price of 20lunc to 1ustc.
this time,for the 250b lunc that we just sell,we can clear about 12b ustc supply,2bustc that we mint+10b current supply.and now,we also have extra 120b lunc,that we can use to fund Oracle Rewards Pool,etc.
what if,ustc again,up,but lunc not,ustc to lunc price,again,going up.
than we will again move to next step.
3:mint 1b more ustc and buy lunc again,at a preset price of 500lunc to 1ustc and sell back 500b lunc that we just buy for a preset price of 35 to 1ustc.
for this,we will clear all 13b ustc supply in the market,3b ustc that we mint+10b ustc current supply.and this time,we will have extra 370b lunc that we buy in step 1 and 2…
or again,next step,
4:mint 1b ustc and buy lunc at a preset price of 1000 to 1ustc and sell back 1t lunc at a preset price of 60lunc to 1ustc.
in this step,we will clear all 14b ustc supply+ we will have extra 870blunc.
by now,the ustc price will be so high and we will lock a lot of lunc supply.
we can also go to step 5 mint 1b lunc and buy 2t lunc or step 6,mint 1b ustc and buy 4t lunc and now,about all lunc supply will be lock.
only this way,we can clear all the ustc and restart from 0.
and will also help the lunc price and ustc price in the process.

minting :x::x::x:


Every time you mint 10% of the supply - you dilute the existing supply and thus bring down the value of it.

1 Like

first,the ustc supply we mint will be use just to buy lunc at a preset price,so if we mint 1b ustc,we will just set a price of maybe if the first step is 120lunc to 1ustc,this will help to hold the price of ustc.but what if the price is going down as you just say?i will say that in a way,is good for us if ustc price going down,but lunc going up,this will make the process easy to get to the price of 9lunc to 1ustc so at that time,we will just use the lunc that we buy using the ustc that we mint,to buyback all the supply in the market.just to give you a clear picture about lunc to ustc pair,if ustc price up,lunc price down,lunc to ustc price will up,if ustc price not moving,but lunc price up,ustc to lunc price will down,now if ustc price down but lunc price up,so ustc to lunc price will be down.please do not look at the word minting only but the number.

Your plan has a flaw: If you mint more of anything, that anything loses value. Inflation of it means you have less buying power.

9.8b of USTC. Currently at some ~ 2 cents per USTC.
You print 1b - not only does this compound the issue of later re-peg, but this 2 cents per USTC goes away.
How markets react will determine the eventual value.

With the scraps at hand - you will then go and buy LUNC.
If we lie to ourselves and want to believe the markets don’t shift and everyone doesn’t bail out of Terra ecosystem since printing is gone wild, you get roughly 20m USD for 1b USTC.
Great, right? So you then screw up USTC repeg or any chance for it in exchange for what exactly? One time burn of some 340 billion LUNC. Which is ~5%

Congratulations. You now diminished LUNC supply by half a percent.
While making sure no more repeg could ever take place and potentially killed any trust or desire for anyone to invest in this coin.

Mayhaps back to drawing board?

1 Like

burn 340b lunc?when did i say that?when you mint first 1b ustc,you will buy 120b lunc using that 1b of ustc,that 120b lunc,we will use to buy back all the ustc after that.just in the process,you will lock lunc.

No matter how you splice it or dice it - you are proposing to throw USTC under the train to get a little bump for LUNC.
Effectively collapsing both, since you are giving a clear signal - TC will mint and no holding is safe.

It does not work nor could it even feasibly pass governance.

You can’t create value from nothing.


collapsing both?how can that?just to be clear,i am not talking about how to repack and hold the value now but how to clear the supply,and restart.

LUNC and USTC are both products of the same chain. Handled by the same governance.

If you start minting one, to save the other, it sends a clear message that this chain could do so for LUNC as well.
No money? Let’s print some up.

Sure, you are trying to screw over USTC holders first, to then get LUNC holders bit of a rise, yet the same sentiment carries over. The reputational cost extends to all products of the chain.


i am not sure,how will we go,next for ustc,but what i do now is,if we not clear the supply of ustc,we will not ever have a 1$ ustc forever.this is 90% sure.

At this prices ustc burns very easy. Just ~$100m needed, exclude 50% TFL-contracts.

Yes. This is the right path to me. Not just ustc, Terra was always about being able to peg to anything and I always hoped for a variety of “stables” pegged to basket of other prices such as bread rice energy etc. SDR good step as reflects this. Forget a country’s currency as dominant (though should aim to support a stable version of many). Truly global currencies will be country agnostic and based upon values all can agree are worth value (so I think). Ability to attract many world wide users if start moving something like SDR as a liquid between other currencies and a good compromise for all currencies worldwide to utilize even in LPs with.