3/5. A path to bring value back to the Terra Classic ecosystem. Institutional investment and recovery of Lunac and UstC’s value without debt.

16 min readOct 30, 2022

“But perhaps most importantly, by resurrecting, and dramatically improving, decentralized stablecoin, we can turn one of the biggest defeats of cryptocurrencies into the most impressive turnaround in the history of digital assets.” Edward Kim (1)

“Many of us who invested in Terra before the collapse loved the idea of a decentralized stablecoin because we felt that a cryptoeconomy running on fiat-stablecoin rails was, in fact, no more decentralized than the fiat economy everyone fled to. For all its many flaws, UST was the only distributed system that came close to breaking the paradigm of today’s DeFi-on-fiat-rails decentralized fake industry.” Edward Kim (1)

“We believe that a stable coin backed by decentralized reserves and algorithmic capital controls offers superior scalability, uniqueness and product market fit.” Edward Kim (1)

“What would a successor AFT to UST look like? How would it work? How should we design a product that people want to use, that meets the use cases that large regulated stable currencies don’t, that also won’t blow up in everyone’s face again? How can we guarantee that without minting the new LUNC? Alex (4)

From the creation of a Decentralized Asset Market and generating a new stable exchange currency for it, we could align with the principles stated above, and thus create, “a product that people want to use” (4) empowering “new on-chain features intended to serve the “reserve currency” needs of a “value-driven” blockchain network backed by millions of users” (3).

A New Stable Currency

We propose the creation of a Stable Currency different from USTC for all trading and exchange between the different DApps, the different smaller markets and the global market. For the purposes of this proposal we will call the new currency USMT (Terra Classic Market Dollar). This would be for three reasons:

- On the one hand, it would avoid burdening the current LUNC community with the debt of a failed asset such as USTC, nor with a possible future burden of legal implications that were not generated by the current community and are still under analysis by the courts.

- On the other hand, associating the ecosystem economy ‘only’ to an inflationary fiat currency such as the US dollar (even though it is one of the strongest at present) or another equivalent fiat currency, backed only by trust in the government of the day and central banks that can change the rules of the game suddenly either by endogenous or geopolitical factors does not seem a very adequate path of ‘total’ independence or future Real Value Safeguard. Even more so knowing that the dollar is heading towards a path of greater financial weakness due to the current global reordering changes, and problems stemming from its local economy.

- It is also common knowledge that many investors, in the face of a crisis in the financial system and global markets, take refuge in assets such as Gold, Silver and Platinum. Beyond what they may hold in other assets such as U.S. Treasury bonds. Because they trust in tangible and valuable assets, and not in the issuance of paper without any backing.

For this reason, a stable reference currency is sought that takes into account these implications implicit in the value as an asset. It is therefore deemed convenient to create an asset or “currency”, backed by a COMBINATION of real and fiduciary assets. In this way, it will be possible to minimize the risks on both sides. The volatility of gold or commodities to be taken as a reference and the “apparent stability” of an inflationary fiat currency of credit-based or debt-based economies that implode recurrently over time. The backing funds will be housed in a USMT Guarantee Fund created for this purpose and held by the community, where they can be verified in a transparent and efficient manner. A system similar to that proposed in some of the proposals made by the Terra Rebels team (a) would be implemented for this purpose. In short, to create…

“An ideal stable coin really needs to be both over-guaranteed and decentralized,” he said. “Over-guaranteed to give users of the stable coin confidence that it will retain its value. Decentralized so that anyone can see the on-chain reserves in real time and verify for themselves that the protocol is solvent.” Nik Kunkel (b)

Because as the popular saying goes “he who burns with milk, when he sees the cow, cries”. For this reason, when proposing a new stable currency, it must be guaranteed through reliable means that it is safe and accepted by the market and users in general.

For this reason it is proposed to acquire assets, as an example, such as UPXAU, PAXG, DAI and BUSD (30–30–20–20), to reduce the loss of value of governmental fiat currencies from their recurring crises and at the same time further safeguard the value of those who hold USMT. In this way USMT would use a “Gold Standard” ©, which in itself is an anti-inflationary system and which gives real value and backing that is currently being used by fiat currencies of some countries to get out of their local crises (d), in combination with a fiat debt based standard. It would mix decentralized assets such as DAI and centralized assets such as UPXAU, PAXG and BUSD. But at first one could only use fiat currency assets to converge in a very short term to a Dual Pattern (metal and fiat) as proposed here. But ideally, if possible, from the beginning, apply the Dual Pattern system. Another more “decentralized” alternative would perhaps be, instead of using UPXAU, to use BTC.

It should be clarified that the choice of centralized assets, until the possibility of other assets of these characteristics that are decentralized is studied, is given by the fact that UPXAU and PAXG have their safekeeping assets in Australia, which currently has the largest gold reserve in the world and is regulated by the authorities of that country. The choice of BUSD at a quantitative level is due to the fact that this asset has not been the object of controversies with government agencies as has happened with USDT, where it is objected to having created more assets than it has as a reliable backing. On the other hand, BUSD is a stable currency “backed” by the largest exchange that currently exists, Binance, which occupies the 7th position in market capitalization. Finally, it should be noted that on a qualitative level, Binance has supported and continues to support the entire LUNC community.

There are four other factors that we believe the tokens chosen as collateral for USTM minting should have and that should be in balance.

1. The CONFIDENCE offered by the assets chosen as collateral;

2. The degree of DECENTRALIZATION behind the assets and/or their BACKING;

3. The VOLATILITY and LIQUIDITY of the assets;

4. And finally, that they are EASILY AVAILABLE and SECURITY.

It would also be possible to create “Asset Exchanges” to support the creation of USTMs quoted at the Gold benchmark. These asset exchanges would be composed of assets backed by collateral that users deposit (as is done in Mirror Protocol or Anchor). Such assets created as synthetics and which would form part of a particular Asset Pool would take as a reference real assets outside the chain, and which are of interest in traditional markets today and have little or relatively little volatility.

These Asset Exchanges could, for example, emulate some ETFs of traditional markets. The assets that could be used as a reference for the creation of synthetic tokens would be shares of energy, precious metals, water or other natural resource companies of interest and agribusiness. (e)

Market volatility and currency strength can be seen in the graph below. The blue line represents BTC, the orange line represents ETH, the light blue line represents PAXG and the yellow line represents the DXY index which measures the strength or weakness of the US Dollar. Two distinct factors can be seen at a glance. The volatility compared between BTC, ETH and PAXG, where this last asset has been the least volatile in the time range of one year and with daily candles. And on the other hand, it can be seen that the DXY index as the Dollar appreciates GOLD depreciates.

As mentioned above, in the choice of tokens that have GOLD as collateral and reference value, and on the other hand, those that have the Dollar as collateral, all these tokens, maintain over time a certain stability, while the first one balances, gold, works as a safeguard of value in the face of crises.

Volatility ratio of the different proposed assets

The USMT stable reference currency would be used not only as a safeguard of value for the entire ecosystem, but would also generate confidence for future investors and large capitals to place their money within the Terra Classic chain. For this purpose, different useful applications would be created, since the reference asset would be backed by financial assets catalogued as safe in the financial and market world. It would also be used for burning LUNCs whenever new USTM tokens are generated. This will be explained in more detail in point 3 “A path to Debt Restructuring in a safe way”.

Regarding this point Tobias (3) mentioned the following, “In order to attract the long-term capital investmentneeded to “reconnect” to the USTC, we need to establish an “anti-fragile” market making system that incentivizes startups to leverage the existing platform infrastructure in a way that is simultaneously induced to “positive network growth” while being “prohibitively expensive.”

As it is to be noted, what is proposed here, is not to have a stable currency tied has inflationary assets such as fiat currencies as far as possible, or very volatile as Bitcoin as proposed by Alex in his recently launched proposal (4) of which we only take as a positive reference to have a percentage (%) in BTC in reserve, but that in this case would be UPXAU-PAXG, since in case of crisis we do not know beforehand how much money we can really count on to a significant financial crisis or of the chain itself.

Having a parity with less inflationary assets such as the Dollar at present, which could be another in the future, and in turn in another asset less volatile than Bitcoin but with a great “real” value that was used for millennia as is the case of Gold or Silver or other precious metal, would be beneficial in my opinion to generate the necessary confidence for the entry of investments of large capitals with the new USMT Token.

Possible equivalent relations.

Quantification options and ratios are proposed here for feasibility analysis and community realization.

Alternative 1: 1 USTM = 0.01 troy ounce = 50% in GOLD and 50% USD.

Alternative 2: 1 USTM = 0.01 Troy Ounce = 30% in GOLD, 30% ETH and 40% USD

Alternative 4: 1 USTM = 0.01 Troy Ounce = 20% in GOLD, 20% BTC and 60% USD

Alternative 3: 1 USTM = 0.01 troy ounce = 100% in GOLD, 20% in BTC and 60% in USD.

The first alternative would fulfill the option of safeguarding value. Since gold tends to appreciate in the face of global economic crises or difficulties. Therefore, the USMT would appreciate proportionally against the dollar or other fiat currencies, thus cushioning the loss of value in such cyclical events of the fiat currencies.

The second alternative would be riskier because of the higher volatility and consequent loss of value, as there is a strong correlation between BTC and the Traditional Markets. But it would apparently be a bit more “decentralized” (f).

The third alternative would not fulfill the value safeguard or anti-inflationary function and would copy the fall in value of “stable” currencies from year to year. But with little volatility.

In contrast, the fourth alternative would be less risky than BTC. If we compare with the first alternative in these last two years in key periods, we observe a volatility very close to the option with Gold. This is because the divergence between PAXG-ETH/ETH-USD is almost zero compared to the divergence that occurs in the PAXG-BTC/BTC-USD pairs. Therefore, this alternative retains the much more stable value of USTM compared to BTC. And there are slight differences with alternative 1.

In the following graphs we compared the different alternatives with different ratios between them: The first graph corresponds to a 50:50 usd:gold ratio. The second graph corresponds to a 40:60–40:30:30 usd:gold/btc/eth ratio. The third graph corresponds to a 60:40–60:20:20 usd:gold/btc/eth ratio. And finally, a 40:20:20:20:20 usd:gold/btc/eth ratio was evaluated. From these analyses, it is concluded that if a ratio of two assets to four is taken, the best ratio is still 40:60 as we have previously analyzed in the previous paragraphs. But since in this example the US Dollar is used to buy Gold and not directly LUNC, the green and yellow lines converge.

On the other hand, if we were to take a ratio of 5 assets, the same ratio would be valid but distributed on one more asset. In this way, a better stability and better performance at the time of global crises would be achieved, since in this case, the asset would appreciate if the usd-oro-eth ratios were taken in the proportions described in the graph.

This ratio reduces volatility much more and maintains USTM stability better. Therefore, this alternative is used to make the asset exchange for the creation of the new currency.

Diversity of Contributions

In order to implement and support such a currency, the sources of income and investment would be diversified and thus maintain the decentralization of the chain. The intention here is to take the best of both worlds. The one that is totally centralized and the one that is totally decentralized. Then we focus on taking the capital contribution of the centralized capitals and capturing the sum of the necessary investments of the small investors in order to achieve the optimal decentralization desired and required throughout the ecosystem.

It is proposed to create LuncM tokens, as a guarantee ticket as it was aUST, in exchange for the contributions in LUNCs made by the investors for such purpose, and which may be cashed in a future of “X” time previously established. Said LuncM will have a pre-established limit of amount, where it will not be possible to generate more than that limit. They can also be exchanged by the community for other assets such as aUST. These LuncM tickets will accrue an initial proposed interest of 2–3% per annum.

In the event that at the time of the exchange it is made with amounts greater than 2B LunC (this limit may be adjusted according to the flow of commissions earned for the payment and the general economic conditions of the chain) for the same address, or coming from institutional agreements, it is proposed to pay 2% annual interest on the tickets granted instead of 3%. As the project and capital flow grows, LunC’s revaluation will be exponentially positively affected. Increasing the debt in USTM by the tickets issued in LuncM

These tickets can also be issued for funds coming from other chains using Wormhole. Wormhole would then be used to expand the liquidity of the ecosystem, connecting cross-chain wallets for the generation of new USTM tokens. Granting backing collateral such as NFT LunacM on the home chains of the different investors. This modality would also serve to “repatriate” the LunC hosted on other chains and that were staked after the De-Peg.

When they are exchanged, they can only be exchanged for USTM, so that the Lunc resulting from the exchange with LuncM tickets would be used to acquire the assigned backup assets, such as PAXG or BUSD or other. For this reason, the community will generate a Utility Reserve Fund for the payment of the debt contracted with the investors of the community in general and of the participating centralized capitals.

The liquidity of the Profit Reserve Fund will come from the commissions paid for the use of the “partitioned groups” and other uses granted to the DApps in the chain, as well as from the swap and commercialization arising from the trading of coin pairs and tokens in general in the chain. And from any other mechanism that may arise in the future for the growth of the capital of said Fund. A quarterly, semi-annual or annual swap limit will be established depending on the funds raised up to that time. As is currently done by the Nexus (g) platform.

Ideally from the 1st year onwards, the re-payment of the debt contracted in LUNCs with the Community would begin, and according to the available capital per period already established. This would be similar to the tokens that are launched in the market, but are blocked for the initial investors in the usual trading rounds, to be cashed out in the future when the token grows in value.

Then:

1 Lunc = 1 LuncM

Community and Institutional Investors for a Decentralized Marketplace

“While we could seek a bailout from an outside investor or entity, the community would be be beholden to them, whether we like it or not. Decisions about the future of the chain and AFT would likely be governed by this entity, centralizing decisions and therefore, the ideal situation is similar in principle to the burn tax: everyone in the community can shoulder the burden. This process would require some percentage dilution or community fundraising, but it would immediately re-latch the AFT to $1 and, most importantly, provide a substantial immediate guarantee of the AFT.” Edward (2)

Because of what Edward has said above, it was decided that a large part of the necessary contribution for the implementation of the MDATC should be made by the community. In this sense it is estimated, based on other projects, that a healthy ratio would be that 70% or more would come from community contributions and 30% or less from contributions by institutional investors or companies.

The 30% of capital would be contributed by direct agreements with companies of the sector or capital interested in backing the launching of this currency and thus supporting the Terra Classic Community in its re-launching. All this, according to a “north” already outlined on the basis of this proposal and others made that are complementary and in more detail by the developers of Terra Rebels, Vegas. And of all those of the Community in general that arise subsequently and provide development solution of the intervening parts of this proposal as a whole. This contribution of collaborating companies would be adjusted to the percentage that has been made by the Community, not exceeding at any time 30% of the total capital allocated for the support of USMT.

For the 70% contributed by the community, a dual mechanism could be implemented: 1. On a voluntary basis. Any person who has Lunc in his wallet could contribute, as if it were a staking, his initial Lunc offer and exchange it for LuncM. 2. In a Mandatory Minimum Contribution Manner. In this case the Community would vote to establish a mandatory contribution in a certain “%”, which will arise from conveniently estimating in a quantitative and economic way the best for the community and the investments. All this point, will be put to consideration in future votes, for its implementation as soon as possible.

It is also possible that for different reasons outside the chain, funds from donations or other reasons may be applied as a contribution on behalf of the Community. In this sense, such Community Funds would be used for the minting of USTM tokens (if the community so approves), thus avoiding or reducing the aforementioned Minimum Mandatory Contribution.

This minimum exchange of Lunc for LuncM would be carried out automatically in all the different wallets of the chain. It should be clarified that this second point can only be done On-Chain. Therefore, it can be foreseen that if there are Off-Chain funds and they want to enter the chain to a wallet “X”, the percentage of the minimum contribution established will be deducted from the deposit. Once per Off-Chain address and already saved in the wallet of each user.

Infrastructure and Development Costs

This proposal does not take into account the implementation and development costs associated with such chain implementation in detail. This is due to the fact that we support and believe it is convenient to move forward with Edward’s proposal to finance the community fund (2), which proposes the idea of “taking a small part of what is going to be burned to finance the community fund” and thus finance the development and operation of the network. This process is very easy to implement, “just a change of parameter”. For this reason, I believe it is convenient to implement it for the operational and development expenses that the ecosystem demands in its different stages and future updates of the same.

Development Considerations

A detailed study of the capital required for the launch of the USMT token is needed to establish what capital would be required initially to implement such a Decentralized Asset Market platform and infrastructure and each of its parts. Much of this is already largely underway or done. That only a few parameters would need to be adapted or modified. But on the other hand there are parts that need to be done from scratch.

Therefore, this proposal only tries to give an initial macro framework of a possible development model for the Terra Classic ecosystem with some specific specifications for implementation and future development. But in no way does it represent a complete and detailed proposal of all the variables that are in play when carrying out the procedures proposed here.

Aleph Arun

Continue reading this proposal here — A Path to Debt Restructuring in a Safe and Secure Way.