Burn the Remainder of the SDT Stability Reserve

Proposer – Terraform Labs

Disclaimer – I am employed by TFL.

Context

In addition to Prop 133,134 to burn the Terra Community Pool, TFL is further proposing to permanently burn the remainder of the SDT Stability Reserve by sending the current 11,003,512 SDT in the TFL wallet to a burn address. The illiquid portions of the remaining 700 million SDT to be vested over the next 7 years will be burned as they unlock – sent to the same burn address.

The SDT Stability Reserve was initially created in the genesis block of Columbus-1 mainnet to bootstrap the creation of Terra stablecoins while neither Terra nor Luna assets had sufficient liquidity. As you may recall, minting Terra stablecoins uses a “virtual amm” pool against Luna, where the size of the pool (and consequently the exchange costs) are proportional to the off-chain liquidity of Luna. Therefore, the SDT reserve provided a valuable means for KRT and UST to be created in the early days of the network without egregious slippage, allowing early use cases like Chai and swap pools across Terra and Ethereum to be born.

With Luna one of the largest and most liquid assets in crypto, Terra needs the SDT reserve no longer - hence, TFL moves that the balance of the entire SDT reserve be burnt.

Notably, burning the locked 700 million SDT at once would require software changes only possible with a major network upgrade, meaning that we could technically burn the remaining SDT as part of an upcoming software upgrade to the Terra protocol. Such an action would be at the discretion of the community from a separate proposal.

For now, this proposal will execute the following items should it pass.

Total SDT – 1 billion SDT

Total SDT to be burned – 711,003,512 SDT

  • Total SDT to be burned immediately if this proposal passes – 11,003,512 SDT

  • Total SDT to be burned over 7 years according to the vesting schedule if this proposal passes – 700 million SDT

TFL Foundation wallet address holding the SDT:

Terra1dp0taj85ruc299rkdvzp4z5pfg6z6swaed74e6

Burn address:

Terra1sk06e3dyexuq4shw77y3dsv480xv42mq73anxu

Execution Plan & Schedule

If this proposal passes, the following events will be executed in sequence:

  1. Send 11,003,512 SDT from the TFL Foundation wallet to the burn address.
  2. Send 100 million SDT per year on 04/23 at 23:00:00-07:00 ~ 2022.05.23 23:00:00-07:00 UTC to the burn address for the next 7 years. The next 100 million SDT release is on 04/23/2022 at 23:00:00-07:00 ~ 2022.05.23 23:00:00-07:00 UTC.

For context on vesting unlocks, 100 million SDT (10% of the total) is vested every year at the same time, beginning on 04/23/2019 and most recently on 04/23/2021.

You can find the scheduled vesting for the remaining 700 million SDT in the link below under the “Vesting” tab:

https://finder.extraterrestrial.money/columbus-5/address/terra1dp0taj85ruc299rkdvzp4z5pfg6z6swaed74e6

Please allow for open discussion in the comments below.

This proposal will be initiated as an on-chain vote within 48 hours.

6 Likes

Could this be put to use for other value adds to the ecosystem like Ozone? Or is it better to burn out right?

6 Likes

Terra1sk06e3dyexuq4shw77y3dsv480xv42mq73anxu

Is this address provably a burn address? Typically a burn address is manually crafted so that it is clear that no private key could plausibly exist.

What are the constraints of the Terra address format? Is it possible to select something that appears less pseudorandom and is more clearly a burn address?

4 Likes

Ozone is interesting, as an alternative also a donation to Anchor’s yield reserve would be awesome

2 Likes

Yeah, generally keys would need to be nulled to be a true burn address.

Does burning the stability reserve have direct affect on slippage? I’m wondering if there’s a potential where the circ supply of Luna continues to shrink and slippage ramps up for swaps down the road without the reserve?

2 Likes

Generally you wouldn’t want to bring a reserve into circulation, by any means.

1 Like

Intern, Sir, I like it, I like it a lot. I’m guessing this is in part because project dawn now doing some heavy lifting with expenses etc.

It’s a yes from me.

Would this require us to mint Luna?

My take: this burn may sound wasteful, but it fulfils part of the TFL promise to promote decentralization and commitment to transparency. To put this into circulation would cause price instability and raise speculation about core team profit.

When I was first getting into LUNA in February the only reservations I heard were about mysterious TFL funds including this reserve, and outright burn adds legitimacy to the project and its founding team.

Other funds are available for community spend, doesn’t need to be this one.

I vote yes.

3 Likes

No ser

It’s done via the burn module on the system account. You can check the code in the links below:

1 Like

Good proposal. It would bring more transparency and fewer concerns about the role of TFL in the ecosystem while also preparing the Terra network for future wars against unfair and unreasonable regulations.

Yesterday new guidelines from the FATF were published, and it’s clear that some “Defi” participants will be regulated sooner rather than later. Hence it’s crucial to act now and let new investors bring in the capital to create the next big things for Terra.

1 Like

It’s a yes from me.

Can this be used to build an alternative fiat money market on top of Anchor for example? So people can deposit/borrow non-UST currencies? An answer to why this needs to be burned instead of used would be beneficial
Edit: OR more bug bounties, insurance etc.etc.

2 Likes

I vote for burning the locked 700 million SDT at once at the next major network upgrade. I don’t see a reason on waiting 7 years for this proposal to be fully executed if we can do it sooner.

I see that the TFL Foundation wallet is receiving 1 billion SDT over the next 7 years which was noted in the post:

Total SDT – 1 billion SDT

It seems like this proposal is only burning 711,003,512 SDT. What happened to the other ~300 million SDT? I only know that 50 million SDT was used to help the anchor reserve. What was the other 239 million SDT used for?

1 Like

While I agree that something needs to be done with it, a burn seems needlessly wasteful.

Alternate ideas:

  • Ozone
  • Anchor Yield Reserves (UST)
  • Anchor Yield Reserves (Alt/Cross Fiat-Currencies) - AUT, KRT, CAT, GBT, etc.

Expanding Anchor to other currencies would be fantastic for international adoption of these stablecoins and open up a lot of new markets for Terra, and would allow more people to use Anchor as their savings platform of choice without having to worry about currency conversion issues.

Personally, I’d love to be able to put my Aussie Dollars into aAUT to earn yield without needing to constantly go back/forth to USD based currencies.

4 Likes

Why not donate it via Angel?

1 Like

The only issue is we’ve earmarked the use of the SDT reserves to bootstrap stablecoin creation in the beginning before our assets have sufficient liquidity.

Repurposing these reserves seem inappropriate to the spirit in which they have been created.

Burning the SDT reserves will mean that future UST mints will result in larger buyback pressure of Luna, which seems to be a net positive.

4 Likes

Hi Bradley -

The funds that have been thus used from the SDT reserve have been used to mint KRT, MNT and UST, when the cost of minting have been prohibitively high to do Luna<–>stablecoin swaps. We’ve minted around 100M worth of KRT, and ~180M of that in UST. KRT was mainly used to facilitate transactions for Chai, and UST was used to provide liquidity in various dexs across Ethereum, Binance smart chain, and Terraswap.

2 Likes