Terra V2 Roadmap: 3 “simple” steps to upgrade Terra, fix the vulnerability, restore the whole value of UST, create a multicollateral alternative, and unlock the value of LUNA without a fork.
1. Burn all LUNA (including stLUNA, cnLUNA, bLUNA, nLUNA, pLUNA, LUNAX, etc) to mint UST at the rate they virtually had then (for LUNA, 0.005 USD = 0.125 UST). This price is the higher possible and reflects the risk-reward balance of this side of each asset. It could be even increased if we only consider LUNA holders before the depegging event and substract the Terraform Labs address, which could be justified because “preserving decent ownership of the network in its strongest believers and builders is important” as Do Kown rightly proposed in his first Revival Plan. In that case, holders at the final moment of the chain halt “for their role in attempting to provide stability for the network” and a keeping a small Community Pool (f.i. the UST and LUNA hold by the LFG) to fund future development are great ideas as well, as it would not mean a high cost for a fair a worthwhile investment.
Meanwhile offer a window period to get all “bridged” assets (wrappedUST, wormholeUST, aUST, wrapped LUNA, etc) back to the Terra mainchain as well as withdraw the LUNA and UST deposits from the exchanges.
2. Mint a new multicollateral USDm stablecoin, collateralized with the value of the other funds that remained bonded and staked in Terra (bETH, bATOM, bSOL, wasAVAX, etc) the LFG Foundation (BTC, BNB, AVAX, etc) and other agents (such as BUSD) so that they can be burnt back when unbonding. If the rest of pegged assets (such as mirrored shares) can not be feasibly collateralized, these will also be burned to mint UST at the rate they virtually had at the time of the halt. All the specifications for this second step of the roadmap are being discussed in detail in @trix’s proposal Terra v2: Mechanism for multicollateralized stables.
3. Burn the old UST to mint the new LUNA supply as 1 UST = 1 LUNA updated to Terra V2.
Terra’s LUNA/UST stablecoin algorithm has being working for the most part and UST has grown remarkably, helping to the development of multiple applications over the Terra network. Unfortunately, a vulnerability in the protocol has been exploited. Despite the burning along the expansion of Terra’s economy and its rise has worked steady, during these extraordinary bear conditions and hostile pressures, the throughput has suffered a burning throttling: Minting UST was straightforward but, when burning back these into LUNA, it was evidenced a limitation to reabsorb the debt fast enough to keep pace under these radical market conditions, causing temporal cycles of volatility over the peg.
This issue might have been exploited but it also proved the existence of a vulnerability, offered an excellent opportunity for learning, and the possibility of developing an improved version of the protocol. It is time to introduce the next upgrade of the network in order to fix this situation and its previous vulnerability and unlocking the intrinsic value of the Terra network.
Do Kwon and the Luna Foundation Guard have been crucial but it is also true that they gained an excessive protagonism during this first period of the protocol. Maybe it’s time they become just another user along with the rest. The following proposal also helps to redistribute and decentralize the holdings across the hands of all the Terra community.
At the time the third stage is completed, Terra v2 may have already become a decentralized smart contract network written in Rust that counts with a real base of users and developer teams; plus an improved multi-collateralized stablecoin and a great already functioning ecosystem of awesome Dapps, wallets, bridges and services; including the infamous Cosmos’s Inter-Blockchain Communication protocol. For then, I would say that it might be at least as valuable as Avalanche or Solana plus DAI; which, according to my own calculations, would imply that LUNA might be valued back around 1.16 USD even at current “dip” prices, as well as opening the possibility for the rest of the ecosystem to continue flourishing.
This proposal has already been submitted as Proposal ID: 1210 Terra Station and, after the UST buy and burn if any reserves left, it might be implemented as soon as possible.
Comment 1: Making “everybody equal”. What does this really means? Well, it is obvious that LUNA and UST are not equal, their rates of risk and reward of each one are distinct: UST holder had no rewards because it trades them for a less risky volatility due to the peg. LUNA holder, just the opposite, choosing rewards in a exchange of greater volatility risks. Likewise most of the growth of the total network was largely included into the stablecoin. It is not a coincidence that deposits are considered before shares at bank defaults. It is fairest, but also the best, if not the only, way to maximize the value that could save Terra.
Comment 2: Discriminating addresses. Terra addresses are not personal or individual bank accounts. Some of them are usually savings of several people managed under one address or owned by the same entity but managed behind several addresses (f.i. the case of the Juno whale). But, more importantly, most of these smaller funds in addresses today are investors who bought after the depeg that, specially in the case of LUNA, were buying a risky asset in order to make profit; and not depositants to whom were promised stability for their savings. The considerations, also mentioned by Do Kown in its first Revival Plan, may be fairer and far more effective restoring the maximum value possible for the network and, thus, preferable and included in this proposal.