Adjusting Terra seigniorage distribution

Under currently set parameters around 40% of burned Luna (24 million LUNA of current epoch) is directed to the
Treasury (12 million LUNA)
Validators/delegators (12 million Luna)

Problem 1:
Treasury is overfunded.

According to the white paper, the Treasury’s main focus is the allocation of resources derived from seigniorage to decentralized applications (dApp).

A wise man once said:
Terra has always been super capital efficient at building
Grants shouldn’t ever be in the millions
Should be small here and there to kick things off and cover small cost.

Problem 2:
Treasury is currently funded in Luna which is subject to price volatility.

This can lead to a disadvantage for the developer, should Luna’s price drop, the developer will have fewer funds than required to finish the project.

It can also make developers look bad in the eyes of community members if the price increases drastically after the proposal is submitted. People might think they want to much money for their project and vote against it.

Proposal:
Cap treasury pool at 1 million UST or less, whenever funds are used the treasury can be topped up again via seigniorage.
All extra Luna can either be
A) burned permanently
B) distributed to Validators/delegators

B) would be interesting as it would attract more people to buy and stake Luna, thus driving up the price of Luna.

Please share your thoughts/alternate proposals. A formal governance proposal will follow if this idea is favourable to the majority.

Also, this is my first proposal, I may need help to formally state this in governance.

7 Likes

Great idea, I would love to see the extra luna redistributed to validators for staking rewards as it would increase investment in the terra ecosystem.

What if we had a float of 1 Million $ust worth of Luna in the treasury at all times. If we used some for projects it wouldthen be topped back up to 1 million at the epoch interval, if we didn’t use any or the price of luna rose during epochs then the extra would be taken from the float and redistributed to staking rewards.

I agree with Luna → UST moving. But 1 million is too low. How about 15 millions UST for Treasury ?

I generally agree with your view of the problems we have now, the community fund is overfunded and a solution has to be put in place to have an amount more reasonable. We should probably hear the opinion from the team on what value to cap the supply on though. 1 million UST might be on the low side for a large-scale project. We have to take into account that 12 million LUNA are already in the fund, so cutting it in half and burn it while keeping 6 million LUNA might be a good idea since you don’t need further top-ups. Then we can argue on the volatility from the exposure of the LUNA token, against a stablecoin like the UST. That has further discussion. Which one to choose? UST or LUNA?

At the moment I think we can take advantage of the funds that are already there. I do agree it is overkill, but there’s no need to just burn most of it. We can cut it in half and cap it there, that way we know for sure that the funding is there and in case it is needed we can use it. It just boils down to not wasting something that it is already at hand.

Happy to hear different opinions!

1 Like

I want to wait what Team Terra has to say about this and then adjust the proposal according to the overall feedback we get

Just wanted to point out that we can’t burn Luna (merely destroy them I mean) once they’re in the community money (I think?). We could either swap them to UST (I’d prefer keeping them in Luna personally), use them or distribute them.

Since we have 12 MLuna, I think it’s enough for now, so I’d be happy with either : set seignorage to 0 from now on, or distribute 100% of it to stakers

1 Like

How about having Community Fund by swapping with UST and making profit through Anchor?

I think swapping seignorage money to UST is dangerous actually. That would be messing up with the peg mechanism, the system should be driven by external demand for UST, not by us printing it.

I agree that would make us just like the feds

Community fund is actually not a significant problem from my viewpoint. I am fine with burning part of them or with just leaving it as-is for now and not push anymore coins there.

From my viewpoint:

  1. community spend - change the rules so that all of the new community spend flowing from seigniorage is added to the burn bucket.
  • As of today, 500m+ of supply is outside of circulation and that means there is plenty of funding to support ecosystem besides the community spend. If funding is needed for ecosystem development from community spend & it runs out of $Luna, the decision can always be revisited again.
  1. Oracle rewards - cut oracle rewards from seigniorage to 5% from the current 20% and keep the remaining burnt.
  • the oracle rewards are exciting for delegators and validators alike. The 12m luna from the first 4 epochs/weeks amounts to 4% staking rewards for the next 52 weeks.
  • If UST demand continues at the same pace, it will be additional 4% for each of next 12 months and ultimately, just from the current pace, the oracle rewards APR would be about 48% (assuming demand, price etc remain as-is).
  • While it is good to think that high APRs would attract more stakers, the fact is also that it will attract speculators that will be dumping their rewards on every opportunity
  • it just doesnt feel right to re-route so much of the burnt supply back to life. the message of zero-issuance staking rewards, staking rewards from tx fee alone, deflationary asset all go out of the door with this mechanism & it doesnt feel kosher anymore.
  • chai tx fee are expected to pick up again as chai gets adopted.
  • the expected 10x swap fees are coming soon as well (may not be 10x but still)
  • 5% per month will also add up to 3m luna per month to reward supply - adding up to 36m in a year’s time i.e. 12% APR on its own at current staking levels (assuming everything else remains same)
  • For stakers - tx fee + swap fee + reward from seigniorage will still be significant amount of rewards (not to count the airdrops etc)

If the supply keeps shrinking, all hodlers will get huge benefits from increasing demand for the coin. Distributing huge amount of $Luna as staking rewards would also incentivize speculators that will keep flooding market with the excessive rewards.

Lastly, the above thoughts are keeping in mind the ongoing burn theme while still rewarding stakers to a great degree. As Do mentioned in Q1 targets related tweet,
“The end goal is dead simple: 1) lead as much Luna to be as staked as possible 2) watch the rest burn”

1 Like

Two comments:

  • I’m not sure what you mean by “burn” : you can’t burn Luna for zero (I think?), so burning seignorage Luna would issue UST and start messing up with the peg mechanism, at least that’s my understanding. Or did you mean burn just the 12M Luna to UST and keep them in the pool for now?

  • If we think 12M is enough for now, and if I understand your suggestion correctly, the idea would be to distribute all seignorage Luna to stakers from now on, and to choose seignorage rate so as to achieve a target staking reward? I’d be happy with this approach.

1 Like

as of today, out of every 100 luna that are sent for burning (and minting stables), 60 get burnt, 20 routed to community spend, and 20 routed to stakers.

I am suggesting that we change the parameters so that in future: 95 are burnt, 0 sent to community spend (what has landed there already remains there), and 5 to stakers.

1 Like

ah ok, had misunderstood the use of burnt here. I support what you suggest.

1 Like

What about this:

  1. Columbus-5 upgrade will route swap fees to stakers - it remains to be seen how much this will be, but i predict it would be rather significant - 10% staking returns and scales up and down with luna FDV
  2. Gov proposal initially to set reward-weight and oracle-weight parameters in the treasury module to 0 for now
  3. Reassess weights and have governance respond appropriately after V2 launches and we have a bit more data

So in short, when columbus-5 launches:

  • Swap spreads go to delegators & nodes of oracle-performant validators (same 1 year amortization schedule)
  • community pool = 0
  • burnt = 100%

Think this narrative is much simpler and lead to less confusion for people

5 Likes

As @SmartStake proposed, a breakdown of 95% burnt - 5% to stakers seems reasonable and could add incentive to stake LUNA.

Validators will also have strong incentives to do their oracle tasks. Many have poor oracle performance.

The best performing validators wil also be able to increase their commissions without affecting LUNA stakers ROI. It will attract more professional validators.

3 Likes

i am good with what you proposed. Hoping for chai growth, swap fees to be adequate for stakers while the $luna :fire: burning continues.

if needed, later on, the 100/0/0 proportion can be revisited to ensure stakers have adequate rewards.

1 Like

Most importantly the community pool is already very well funded, so it should be able to last a long time without further financing.

We could also convert the Luna in the community pool to UST via a gov proposal if we want value stability

3 Likes

Absolutely. Converting Luna in the community pool to UST makes sense to avoid the price volatility of Luna. Thus affecting the total funds in the community.

Also would result in Luna total supply going down - keep things really simple

3 Likes

Will columbus-5 launch before next seignorage?
I think we might want to act before next seignorage money is issued.