Vision of how the blockchain should be
In our blockchain, exciting events are taking place, and I see many collaborators dedicated to finding solutions to burn LUNC and raise USTC to $1 or try a peg of 0.01 or 0.02. This is being approached in various ways, with some mentioning divergence protocols, while others propose reopening the treasury module, all with the aim of ensuring security, which I fully support. However, I believe we can guide our blockchain towards greatness, step by step. Before moving forward, let me share my vision of our blockchain: It is like a completely decentralized bank, without any government intervention. In our blockchain, we can generate wealth and withdraw it when necessary. In Brazil, the speculative currency is the Dollar. When I invest in Dollars, I always expect its value to increase, or I am obliged to buy it before traveling. How does this work in practice? I have Dollars, exchange them for my country’s currency (in my case, the Brazilian Real), generate wealth through pension plans, savings, and other means. If in the future I need to exchange back to Dollars, I just need to find an exchange house. This can happen when I need to travel or transfer money to another country. I see our blockchain in the same way. I buy LUNC, exchange it for a stablecoin like EUTC, generate wealth through staking, and when I need to withdraw this value, I exchange it for LUNC and withdraw it on a Centralized Exchange (CEX). However, the ideal scenario is to have a ramp that does not depend on CEXs. So, what is my goal? It’s simple: to cater to both speculators and conservatives.
For speculators:
We can create a unique currency for arbitrage that would be listed on CEXs, but its peg would be dynamic to avoid the so-called “death spiral”. This currency would not need to be listed on major CEXs initially. We could start with a small guarantee of $500 thousand, and as this new currency gained acceptance, it would generate more transactions and security, allowing us to mint more of the new token. However, the challenge remains regarding the adjustment of the new token, as it is not fixed at $1 like USTC and KRT, and my suggestion is to create a dynamic fixing mechanism to avoid the death spiral.
In my view, one of the biggest problems was the fixation at $1 in the source code, which is a significant issue. If the peg is lost, even with all the reserves, it would not be possible to restore it. This may be the reason why TFL closed the market module, as fixing the value and updating the executable with all validators can result in even greater damage. To recap how the death spiral occurred: In the source code, USTC was fixed at 1, so exchanging 1 USTC for $1 in LUNC would result in the minting of 1 LUNC and the burning of 1 USTC. In a market downturn, exchanging 1 USTC for the current price would generate 17,770 LUNC. The system was essentially generating tokens for buyers almost for free. However, if the value were updated to the actual market value of 0.01, only 196.05 LUNC would be minted. We can see the difference; this is a fair exchange.
As developer, we need to create security mechanisms to halt trading or adjust the peg automatically if something goes wrong. So, how would it work? For clarity, we fix the value of the new token at $2. If the peg drops by 10%, indicating something is wrong, when the price reaches $1.80, we deactivate the peg and let it follow the market value. This would avoid the death spiral and allow the operation to continue. When the value returns to $2 or exceeds it, we fix the peg again. If the value rises by 10% and reaches $2.20, we remove the fixation and let it follow the market value.
Additionally, we need to repurchase the new currency on CEXs to maintain price balance, so it will be necessary to create smart contracts where the CEXs themselves generate the binary with the key and install it on our blockchain. Every time the currency value drops, we repurchase the new token, bring it to the blockchain, and burn it by exchanging it for LUNC. Then we burn the token and not the money, after which we send the guarantee back to the treasury. At this point, it is ideal to close the MM, and once the Peg returns, reopen the MM and stop the execution of the repurchase protocol. This currency is designed entirely for arbitrage, where participants seek to profit from small price differences. In a way, this currency would maintain stability with less price volatility. It is worth remembering that all currencies would have a limiter. In the case of USTC and KRT exchanges, the value would follow that of the market.
For conservatives:
They invest in the currency of their choice, ensuring stability and potentially earning through staking, without government intervention. How would this work? They buy LUNC and exchange it for EUTC. If they need to withdraw, they would have three options: exchange for LUNC, USTC, KRT, or the New Arbitrage Token and send it to the CEXs. It would be even better if we had a ramp at our station.
The role of DApps:
They should seek ways to expand the use of stablecoins in the world. DApps, being more centralized, can improve relations with companies such as ATMs, banks, e-commerce, games, and others. This means that we don’t necessarily need to list stablecoins on CEXs, only LUNC is sufficient. Given our high inflation in the trillions, we have three more currency options to withdraw. Currently, we have already developed the decreasing limiter and the update of the peg from 1 USTC to the market value. It would only be necessary to create a new token, establish rules for exchanges, implement a dynamic peg, create the smart repurchase contract for CEXs to install, and try to list it on smaller CEXs. I believe creating a new token is a simple and fast process.
However, we need to consider some risks:
1 A developer warned me about a risk if we put USTC and KRT at the market value, as the size of the virtual liquidity pool of the MM now depends on the price of three highly correlated volatile assets. In a bear market, the size of the MM liquidity becomes quadratic with the price drop. Half the price: 4 times the liquidity. This is a point that needs to be analyzed and simulated. Perhaps it might be possible to create a more dynamic pool limit, as it is currently set via governance.
2New CEXs may refuse to list the new token, and even if they do, they may refuse to install the smart repurchase contract.
3 Because there is a limiter on all currencies, it may not be possible to exchange at some point if the token price falls, as reported publicly by Rediline. However, this is why it is necessary to list a new token, as we will have room for exchanges. In the future, we could create something like currency lending due to the shortage of tokens, since it is not possible to mint them. I believe there may be more risks, so it is necessary for everyone to participate and comment.
Test plan:
I am finalizing a script with over 100k transactions where we can test exchanges like USTC <> LUNC, LUNC <> STABLECOIN, or STABLECOIN <> STABLECOIN. I downloaded these transactions as a CSV from the Quants team. This script will run continuously for up to 30 days, generating reports on how many exchanges were locked due to the limiter and when locked, what were the other successful exchange options. For example, I exchanged LUNC > EUTC, when trying to exchange EUTC > LUNC in case of a limiter error, I try in other currencies like USTC and the new arbitrage token. If the exchange is confirmed, include it in the report.
I would like to thank everyone who gave their suggestions and criticism in the proposal in the past, in a way it helped me a lot in understanding the blockchain, it made me study more. I hope to have feedback from everyone where we can discuss positively or negatively. I believe many want a magical solution, but the truth is that we are out of money to fix the house, we do not have developers or infrastructure, despite being just a collaborator, I believe that L1 and L2 need to be paid and are 100% dedicated to the project, every time I had doubts they were always available to help. In the case of L1, they always looked at the codes I sent and gave suggestions for standards and improvements, taking very good care of the blockchain code standards. In the case of the Quant team, if everyone wants to focus on USTC, we need to have a team that is 100% dedicated, as it is not easy and there is no magic to take USTC to $1. Maintaining a peg in a currency that cannot be minted becomes even more difficult; it requires a lot of collateral that can take years. We must accept that our blockchain is bankrupt, so we need to change our business rule a little, bringing new products to generate wealth and then fix everything that is needed with enough guarantees. Asking CEXs to burn and pressurize does not lead to anything, we have to be grateful that they are still listing our coins. So we all need to stop fighting and move forward, but with innovation. One step at a time, we will get there. May peace reign in the community.
