Burn The Remaining UST in the Community Pool + Cross-Chain Liquidity Incentive UST

Background Context

Following the material and ongoing UST peg deviation over the past several days, inflated swap spreads via the Terra protocol’s market module to absorb the overhang of the UST supply have created extreme pressure on LUNA’s price.

Currently, the burning of UST is too slow to keep pace with the demand for excess UST to exit the system, which is hindered by the BasePool size. Prop 1164, currently live on Terra Station, helps resolve the bottleneck issue of burning UST by:

  • Increasing the BasePool from 50M to 100M SDR.
  • Decreasing PoolRecoveryBlock from 36 to 18 Blocks.

Subsequently, minting capacity will increase from $293M to ~$1200M. The result will help expedite the outflows of UST from the system, reducing swap spreads and pressure on the UST peg but coming at the cost of the LUNA price.

Proposal

We propose several further actions to reduce the outstanding bad debt of the Terra economy and help restore the UST peg by burning the remainder of the Community Pool’s UST.

Currently, 1,017,233,195 UST remains in the Community Pool. The current UST circulating supply is 12,623,445,466 at the time of writing. As a result, burning the remainder of the Community Pool’s UST will reduce the circulation of UST by roughly 8.05%, based on the current supply figures at the time of writing.

Eliminating a significant chunk of the excess UST supply at once will alleviate much of the peg pressure on UST. This is advantageous relative to the slow burn rate and type of downstream effects that inflated on-chain swap spreads induce on the Terra economy over an extended period.

Additionally, we propose burning the remainder of the cross-chain UST on Ethereum deployed as liquidity incentives from the community pool. You can find the address with the funds below:

In total, this equates to 371.29 million UST – making the total burn 1,388,233,195.

This is ~11% of the outstanding UST liabilities.

Execution

If this proposal passes, the 1,017,233,195 UST from the Community Pool will be sent to the Community Core Burn module address below, where it will be immediately burned. Additionally, the 371 million cross-chain UST will be bridged back to Terra and burned by TFL upon the results of the pending governance vote.

Considering the urgency of the prevailing issues with Terra, this proposal will be immediately initiated as an on-chain vote.

51 Likes

Question: Has it been looked into the possibility a coding error has been introduced to the Terra chain or some price oracle / off chain price feed? I mean this seriously.

Before further changes to vote on I ask because UST’s price fluctuations are not pegging to USD at all they ARE very highly correlated instead to shifts in BTC value. Is this market forces at play? Cause it really seems UST is pegging some sort of BTC corellation since about May 8th or 9th and for the algorithm to do that appears it’s pegging towards the wrong thing. Despite all the current burns liquidations arbs liquidity probs congestion whatever.

I posted in General about this too. Here’s Coinmarketcap’s UST chart (red) with BTC corellation overlay (orange). (Edit: Using the built-in overlay function checkbox available bottom of chart on their webpage, I did no editing of these pics, can check it yourself using whatever website/app you prefer).

7 day chart:

1 day chart:

Is it because so much is being sold/swapped for btc maybe? I have no clue but from a software background looks like UST is not targeting/trying towards 1 USD repeg at all, but pegged relation to BTC instead.

20 Likes

So I wonder if any “improvements” might just be improving USTs corellation to BTC rather than 1 USD if there’s a case of faulty logic somewhere.

3 Likes

Or even a hack if economics and USTs algo can’t explain this, whether on chain or off or oracles. Knowing UST follows BTCs price shifts tightly could make someone money. Edit: Especially if a havk. Get a ton of cheap UST, use it on chain. Undo the hack, let peg repeg, luna probably rally a fair amount from these lows even if Terra doesn’t survive long or is hobbled, cash out at peg. But could be simple as updated coding error or somehow market forces. But very much stands out to me as very odd.
Thanks for taking your time to read these.

5 Likes

so my life savings in luna are simply gone right?

6 Likes

Strong support! Eliminating bad debt and rescuing the UST peg is crucial to the future of Luna. I just wish it didn’t take so long for voting to implement these changes.

11 Likes

Where we can follow the votation ?

a very stupid question… but who’s coins are being burnt? It sounds like the common folk will suffer and the creators get away free without sacrifice?

6 Likes

time is of the essence here.

1 Like

If you want to act, be quicker, market sentiment will be transmitted, and trust will quickly dissipate

9 Likes

They burn incentives to liquidity providers

1 Like

Still against.
Despite the on chain burn, the liquidity Curve pool scenario, all the liquidations, terra alt sells offs, luna bluna arbing, changes in liquidity pools on and off chain since, the changed burn mechanics since, etc etc no effect except UST keeps adjusting along with Bitcoin as if pegged OR price feed/oracle error or manipulation.

It is pretty dead on, the amount of variation UST the last few days following BTC would be acceptable in these volatile times if that were 1 USD it were following. No way.

Nothing is shown to have ANY affect except UST is following Bitcoin. Why?

3 Likes

Wait… are we sure this would help? My understanding was that the current depeg situation was caused by excess supply in exchanges, and burning the UST in the community pool and incentives wouldn’t really help to soak up the excess supply in the exchanges.

Wouldn’t it be better to pledge these UST to external funders at a haircut (vested a year from now) to obtain loans in USDC/USDT to absorb the dilution in LUNA (since it is so heavily shorted right not - prices are cheap), and let the stabilisation mechanism work as it should to restore the peg?

12 Likes

With this solution, yes. And the worst part is that this solution isn’t even working. The peg hardly recovers and LUNA is being murdered.

5 Likes

Whilst this is all fine and dandy, it only really works if everything is defi. What about including something like @Tricky_Mage’s proposal to incentive cex-dex withdraws?

Ultimately, I doubt one can fairly stop trades, but do remember that these exchanges also paused withdraws creating a luna price arb which further depeged ust. Like it or not, all long term defi solutions are still beholden to positive hort term cefi and fundraising solutions.

yes… you would expect that in times of volatility people would move value to the stablecoins, i.e. the demand should have grown for UST… thus minting more UST, thus value would move to LUNA which is essentially an universal collateral for UST… i think we first need to understand what caused this? Because Terra kept its treasury (collateral) in BTC rather than in LUNA?

6 Likes

I am in favour of the motion. Why did so many nodes abstain?

Absolutely NOT.

UST needs to be shelved for Terra to survive.

We won’t get back to peg sustainably, that whole episode has shown that the design of the stablecoin is off.

The Terra ecosystem itself has a lot of value though and is worth saving. END UST and save Terra.

8 Likes

I wish Elon musk could come and save the project

6 Likes

The problem are the UST which cause sell pressure on the market. The Community Pool and CCL incentives … are not causing any sell pressure, or do they? In my opinion this will not do anything to alleviate the problem at all. I think this would even be a bad idea, but maybe i just dont get it why this would help to resolve the existing problems.

5 Likes