UST Postmortem and Future of White Whale

Notes from Community Call #10 on May 20, 2022, at 2 pm EST on our Twitter

Listen to call on Terraspaces

Announcements

Our Actions during Crash

• The last two weeks were disastrous for the Terra blockchain. Nevertheless, we are very proud of the way our team and community handled the crisis. We fought until the very bitter end, and so can hold our heads high.
• In the heat of battle, there was network congestion, bugs, node issues, and more. There was panic in the streets. We pushed through it all, and our bots ran with 100% uptime, hitting as many as 6 inter-dex arbitrage trades every block. Our UST Vault weekly apr reached 14%.
• We kept looking after the interests of the White Whale community as best we could. Unlike other protocols, White Whale did not break the safe on our Treasury and cash it in as the sky was falling; nor did we dump Whale tokens, thereby emptying our liquidity pool. Even as the ship was sinking, we felt it would be a violation of the trust of our community and holders to make any such moves without going through governance. White Whale will not rug our community.
• White Whale had plenty of liquidity until the end and still does. Everyone could exit freely and easily, and even now still can. Simply put, there was no run on WHALE because of our deep POL and because our loyal holders wanted to fight with us until the end. We quickly became the largest liquidity pool on Terraswap even as all the other liquidity pools on Terra were drained.

What Happened to the Peg — From our point of view

• In early community calls, Sebastian and the team have been saying for months that the UST Peg was susceptible to an attack. This fell on deaf ears. Most people thought talking about an attack on UST was fear-mongering.
• The explosive growth and proliferation of UST made the peg vulnerable in several different places simultaneously; i.e. Eth (curve pool), Binance, and CEXes. Initially, the peg was kept on-chain despite depegging off-chain. By the time the peg was lost on-chain, it was already too late.
• The explosive growth was elicited in part by 19.5% APY on ANC that was not backed by a sustainable, stable yield. This inorganic growth came from mercenary capital that was primed to run at the first sign of trouble. The community was trying to fix this by slowly lowering the anchor rate and planning to add a locking mechanism for boosting aUST yield to reduce capital flight risk. But, it was too little too late: the balloon was inflated and ready to pop.
• The parameters that limit the daily mint/burn amount of LUNA made the spread too large to arb the UST peg to 1.00 on-chain. The market price is the redeemable price where 1 UST is redeemable for 1 UST worth of LUNA. The Terraswap and Astroport prices are the trading prices. When LUNA’s oracle/market price was at $48.72 (see left panel) and the dex price on Astroport was $51.65 (see right panel). The UST peg at this point was: 48/51 ~ $0.94. This UST price should provide a massive arb opportunity. However, no arb could be made because the spread made the expected price at the market ($51.76) similar to Astroport price ($51.65). This spread was caused by the limits imposed on the LUNA-mint/UST burn mechanism each day. In normal conditions, this limit prevents too much LUNA from being minted by adding a tax that makes it expensive to print more LUNA than the daily limit. The idea is that the mint/burn limit prevents an attacker from printing infinite LUNA rapidly by tampering with the oracle price. However, in this crisis, we needed to rapidly print more Luna with no tax to restore the peg. The mint/burn limit created the spread and killed the arbs making the mechanism to restore the peg inoperable.

These screenshots were taken during the UST depeg at station.terra.money

• Read a similar explanation and analysis from May last year by TFL and Jump: Here
• The limits on the mint/burn mechanism need to be analyzed and re-tooled for any algo-stable coin to have a chance.
• Organic growth on-chain with locking to reap high rewards is needed to prevent a run on the bank scenario that LUNA experienced. No system can withstand the withdrawal of >20% of its assets in a short period of time without crashing. Banks lock up funds for this reason.
• We still believe there is a need for decentralized money. However, the controls need to be dynamic, adjusting to market conditions. The fixed limit of $200 million LUNA per day provided an easy target for attackers. The concepts of control theory should be implemented to manage the key parameters.

Alpha

Transition Steps for White Whale

• WW has been active in the rebuilder discussions regarding the launch of Terra 2.
• The UST in the UST vault will be eligible for the pre and post snapshots for Terra 2
• We still have not made final decisions on which chain our Treasury, Multisig, and Governance will be housed.
• We are meeting with other chains and teams, especially in the IBC and Cosmos ecosystem.
• With UST Peg arb now dead, WW will focus on taking flash loans and dex arbitrage interchain by deploying arb bots and contracts across several chains with an initial focus on IBC chains.
• New Litepaper detailing our plans is in progress.
• If Terra V1 continues, old WHALE tokens will remain there (maybe as WHALE classic) and our contracts may continue to arb and generate value for the protocol.

Airdrop + Other Rewards

• New Whale tokens will be airdropped based on pre-depeg snapshot — block 7544910.
• Users who held WHALE and kept deposits in the UST vault to defend the peg until the end will be rewarded.
• Pylon depositors who were not able to claim their vested tokens will also be rewarded.
• Rewards TBD.

New vision

White Whale will be an interchain liquidity protocol that provides tools for efficient markets through arbitrage, flash loans, and interchain liquidity pools.

• After depositing into a vault, your deposit is used to seamlessly arbitrage every dex on every chain and earn the arb rewards to grow your bag.
• WW will focus on the infrastructure and contracts for arbitrage as a service to other protocols. Flash loans, which are a huge market on Ethereum, will be provided to enable other devs to run their own bots using flash loans across the cosmos ecosystem. Other protocols may want in-house peg bots to minimize the amount of liquidity that they need in their LPs. We will still run our own bots internally but in a more limited fashion.
• We are fortunate to get some assets off-chain before everything crashed completely. While our dev funds and runway took a serious hit, we do have sufficient funds to continue operations for the foreseeable future and we are securing additional funding.
• More details coming soon

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