LUNA Black Swan Event: Terra CEO’s Community AMA on Project Contingency Plan

Do: “We will do our best!”

LUNA Black Swan Event: Terra CEO's Community AMA on Project Contingency Plan

A thrilling week! From May 19 to May 23, LUNA prices and Anchor Agreement lending rates spiraled downward. The pressure of serial liquidation forced more and more users to sell their bLUNA and bear the pain!

LUNA reached a low of $3.99 on May 23 and then rebounded to $6.47 (at the time of this writing). Network congestion made the Anchor Protocol website inoperable and users were unable to operate for a while.

It’s not just the Anchor Protocol website. Coinbase, Coinan, Kraken, Gemini, and other major trading platforms were down.

DeFi on Ether became too congested, and the high gas fees caused many people to be unable to exit even their principal.

On the morning of May 24, Do Kwon, CEO and co-founder of Terraform Labs, participated in a community AMA to answer questions about the response plan and strategies for improving the project.

Anchor Liquidation Action Plan
The AMA focused on the action plan to improve the Anchor protocol.

Clearing is critical for the Anchor protocol to fulfill its core mission of providing stability and attractive returns for stablecoin deposits. However, the final discount is typically 30% of the starting point for clearing. If there is no competition from bidders, Whale can obtain a significant amount of low-priced bLUNA at a discount and make a substantial profit.

The team’s action plan for Anchor is to

  1. reduce the bLUNA/ LUNA pool so that the liquidation strategy cannot be used on a large scale.
  2. Reduce general premiums and force clearers to bid for the premiums they want to get cleared.
  3. Work with the community to consolidate auto-pay loans.
  4. Work with infrastructure-focused node operators to add nodes to improve the stability of the Anchor protocol.
  5. Add a clearing history/transaction history view to the interface to show clearing costs and other statistics.
  6. Ensure that the lowest clearing premiums will always win the bidding.
  7. Release of a mobile Web application deeply linked to the Terra Station mobile application, which is scheduled for release on Wednesday, thus allowing anchor assets to be managed anywhere, anytime. (In addition, an update to the Terra Terra app will soon be available to enable Anchor Deposit and perform mAsset exchanges)
  8. Consider removing the “Instant Burn” option so that clearers have to take beta risk. The biggest problem revealed in the design of the clearing system is that arbitrators are bidding for 30% of the clearing rights, so they are incentivized to sell LUNA at a discount. 300 million USD of LUNA has been sold in the market so far. This move will allow liquidators to bid on collateral and tighten the discount.
  9. Continue to collect data. The community asked whether the deposit rate for Anchor should be reduced to make Anchor reserves larger or last longer. However, as Do responded, returns are set by community governance. Do believes that any recommendation should be based on utilization rates and trend lines over time, and recommends collecting more data.
  10. bUSD, USDT, USDC are expected to be added to the anchor protocol within a month’s time.
  11. stETH and stSOL from Lido Finance will be added immediately afterwards. collateral from multiple assets can be added to a single position, meaning that one loan can be drawn against multiple collateral.

Terraform Labs’ response to the Black Swan
Overall, this LUNA team believes that the protocol is working much better than they expected in this case. It is worth noting that by numerous metrics, this was the most serious malevolent event to occur in the system in recent memory. Selling, liquidation and congestion hit almost all assets and protocols throughout. The market is in a constant state of flux and it is not clear which action is always beneficial to take. That said, the team should have done better, and Terraform Labs promises to develop and release responses to such events more quickly in the future.

Re-Pegging UST and Prop 90

Despite the confusion, the UST’s exchange rate has rebounded. It is currently trading at almost the same price as the on-chain price. Since only $20 million of USTs can be minted per day under the current parameters, spreads sometimes increase dramatically and USTs sometimes trade at $0.92. The core issue with the UST exchange rate is the spread. Proposition 90 would significantly increase minting and redemption limits up to $100 million, so spreads would be more resilient and would recover more quickly after being squeezed. The rate would only take a few days to fully recover. It is already very close to $1, and in any case, Prop 90 is currently in the process of being passed and ends in 12 days, thus increasing the stability of the exchange rate.

Note: The UST will soon be listed on more exchanges, but for some reason, no further public comment on this can be made at this time.

LUNA price action: Is there a systemic risk?

LUNA’s price action is due to UST dynamics, liquidity constraints, the Anchor premium parameters described above, and market panic. LUNA sales totaled $350 million, and UST redemptions were low at tens of millions of dollars from Anchor liquidation data. there are multiple factors that contribute to LUNA price declines, and they interact with each other. As we have seen throughout the market, the trigger was the macro downtrend, but the liquidation continued the spiral. If anything, it’s hard to focus our time on the current price of LUNA, and Do says he’s a holder, not a trader. And Terraform Labs is not the largest holder of LUNA, as that would amount to market manipulation. Therefore, anyone worried about the price of LUNA should be properly hedged.

Other Issues
CHAI Development

The AMA contains some general questions unrelated to the topic. chai is a payment application that uses Terra stablecoin on the back end. The development of chai in Vietnam was mentioned last month, but progress in the international market has been slow due to the impact of the new crown virus. Terraform Labs was the initial enabler of Chai. Investment efforts are continuing aggressively, with many trips scheduled and added this year, and more countries added. However, Do’s primary focus is on large companies using the Anchor protocol.

Governance Timeline

Will the governance changes accelerate progress? Do disputes this. The base layer needs 2 weeks to determine adoption or lack thereof so that it is more stable. the Mirror and Anchor proposals need 1 week. do argues that any shorter approach would put the rights of users who cannot check these protocols regularly at risk.

More AMA

For many people, this event was a severe test. Thanks to all the members of the team and those who supported the community during these events. The basic direction continues to improve and the lessons learned continue to improve.

“We will give it our best shot!” Do said at the end of the AMA.

Posted by:CoinYuppie,Reprinted with attribution to:
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