Balanced plan with redemption fund to become whole (over time)

Summary

This is meant to be a balanced plan that attempts to make everyone whole eventually. It relies on distributing LUNAv2 tokens to all LUNA holders equitably, and providing a redemption path for UST holders. The goal is less about making people whole, but giving people the choice of how much risk they are willing to take to become whole.

Please be kind as I’m not technical enough to know if some parts don’t make sense – open to all feedback for sure!

Motivation

The Terra ecosystem is worth saving. Here are the assumptions of this proposal:

  1. It requires capital to do so. No plan that doesn’t include capital can succeed.
  2. Everyone must be given a stake or path to exit. This includes earlier pre-depeg holders, actors during the free fall, and current actors.
  3. LUNA (and all derivatives) holders are a separate group from UST (and all derivatives) holders. This plan will provide a path for both.
  4. The best path is without any fork.

Proposal

LUNAv2:

  1. LUNAv2 distribution will be done as in this proposal: The Most Rational Path Forward for LUNA (3 Simple Steps)
  • Quick summary: 3 snapshots, reimburse on sliding rate based on exact purchase price/cost.
  • If you are on a CEX, your CEX will get the tokens and distribute accordingly. You will not be left out.
  • If your LUNA is in an LP/DEX/contract/protocol, the LP/DEX/contract/protocol will get the tokens and need to distribute. Hopefully this covers most of the b/p/y/whatever derivatives.
  • Cross-chain LUNA: not sure how this works, but assume bridges would be covered similarly to contracts/protocols.
  1. LUNAv2 has nothing to do with UST. There is no conversion of LUNAv2 to UST.
  2. LUNAv2 is for governance, staking rewards, the ecosystem etc. The price will be dictated by the markets accordingly.

current LUNA:

  1. LUNA will still exist exactly as is, but it is assumed there will be no interest in it.
  2. LUNA will no longer be convertable to UST.

UST:
6. UST will no longer be convertable to LUNA.
7. Any TFL/LFG funds will be used to make a “UST Redemption Fund” (URF).

  • The fund will be based on a basket of tokens TBD. This could be BTC, ETH, USDC, or any combination.
  • At any time, any UST may be redeemed for a proper share of the URF. For example, let’s say the URF has $110M, and there are 11 B UST. Then you can always redeem 1 UST for $0.01 worth of the URF basket tokens, that you can then sell (either on Terra native chain, or bridge back to their native chains, or on CEX, whatever).
  • This will make sure that each UST is collateralized and always has some base value.
  1. UST may be minted by depositing into the URF at a 1 USD value.
  2. UST may be converted at any time to LUNAv2. Note this will overcollaterize the URF and make 1 UST worth > 1 USD. Not sure why someone would do this, but doesn’t hurt I think.

Terra chain:
10. All transaction fees will be split accordingly:

  • X% to staking rewards etc. as is currently done.
  • Y% to building up the URF. In this way, UST value will slowly rise until 1 UST = 1 USD.
  • After that threshold (1 UST = 1 USD), the fees go to burn LUNAv2.

Capital infusion:
11. LUNAv2 may be minted at any time at the “current” price.

  • This should not be possible for the first X days to let the price stabilize.
  • Minting of LUNAv2 requires deposit into the URF of the equivalent value. That way the UST “peg” is slowly filled up.
  • Once the 1 UST = 1 USD threshold is reached, the minting of LUNAv2 goes into the staking rewards as a reward for the earlier holders.

Expectations:
12. The UST price may recover faster than the URF floor once people see the “path” to becoming whole.
13. If you still hold UST, you can sit tight, or redeem at whatever haircut you are ok with, balancing risk vs. need. You WILL be made whole over time if the restart succeeds.
14. If you sold some of your UST to reduce risk of total loss, you can choose whether to buy some now for the potential of becoming whole.
15. If you hold LUNA in any shape, you will get LUNAv2. You can sell all right away (no lockup), or you can stick around and get rewarded as the network runs. As UST holders become whole, your value will increase greatly.
16. It is even possible that through enough LUNAv2 minting, the UST “peg” may be restored rather quickly.

  • This is obviously the best case scenario.
  • This can be a combination of crowdsourcing (i.e. us users), or any outside investors who want in.
  • At this point, even 20% (~$2 B) may be enough to restore confidence the peg will get there.
  1. Anchor can basically remain unchanged. The APR can be even paid in UST, which will “eventually” be worth the 20%.
  • The governance (ANC holders) of Anchor can choose amongst themselves what they want to do.
  1. UST can still be used as money – it will even be fully collateralized over time!

Credits:

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