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[PROPOSAL] TIERED REPAYMENT: 1:1 USDC REFUND TO ALL UST HOLDERS UP TO A CERTAIN
CAP PER-WALLET USING LFG FUNDS, FAVOURING SMALL WALLETS

Governance & Proposals


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May 11
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May 11

2m ago

FatMan
5
5d


Hey everyone. I would like to suggest a tiered repayment system for the first
batch of users.

The events that unfolded in the last few days have deeply affected all of us,
and I’m sure we can agree that small to medium sized traders have been affected
the most. Families have lost livelihoods, students and working professionals
have lost years of savings, and lower-calibre ‘investors’ have even lost other
people’s money. In a few weeks, everyone will talk about how obvious this event
was, but in truth, it was very hard to see coming. LUNA was a blue chip coin and
Anchor was a state of the art DeFi protocol.

It is clear that LUNA cannot be salvaged and will be used as exit liquidity to
retain some of UST’s peg, which is its purpose anyway. At some level, Terraform
Labs and the Luna Foundation Guard have a responsbility to get UST as close to
$1.00 as possible. This will be a tough task given the sheer amount of money
that’s left to repay.

I think when it comes to analyzing stakeholders, we should put the small trader
first. Someone I know in my circle committed rope last night due to the LUNA
crash. Many people are on the ropes, and I’m sure we’ve all seen the posts
online. This is taking a disproportionate toll on smaller investors, so I
believe we should prioritize paying them.

Advantages of paying small holders first

 * Reduced sentiment impact: given that small holders make up the vast majority
   of the community in terms of numbers, it will greatly improve general morale
   and sentiment since over 80% of Anchor users will be made whole
 * Easier to manage remaining creditors: once most of the creditors have been
   sorted out in a lump payment, the remaining creditors (institutions and
   multi-billionaires) will have greater mobility as solutions can be discussed
   and executed in a tight-knit group
 * Most effective use of funds in the interim: with only $1B or $1.5B, the
   majority of affected users in terms of numbers can be made 100% whole instead
   of making all users 10-20% whole.

I am speaking from experience here. I witnessed a site with investors getting
hacked, and there was a lot of community turmoil. Ultimately, the site owner
paid back most people with a small amount of funds, which made the majority of
people happy and they came back to use the product. The larger shareholders were
issued a debt token which is slowly being paid off. What was most interesting to
me was that the stakeholder who lost the most amount of money (over 50% of the
project was his) seemed the most chill and compliant. You will find that
multi-billionaires tend to be more calm, reasonable, and rational when it comes
to handling monetary losses. It doesn’t affect their QOL that much. For us, this
could be everything.

Proposed mechanism

The exact mechanism can be worked out and tweaked, but here is what I think will
be best.

 * Take a snapshot of all aUST and UST holders on the Terra blockchain at the
   time the depeg happened. This will stop people from splitting funds into
   separate wallets after seeing this proposal.
 * Calculate the amount of money needed to pay out the bottom 75% of users in
   full. It shouldn’t be more than $1B or $1.5B given that the top 100 Anchor
   addresses have over 92% of the funds. I am not sure of the exact figures, but
   something like “all wallets with 250k aUST or less” should be a decent
   parameter.
 * These addresses can then be added to a redemption whitelist. On the whitelist
   page, addresses that are on the list should be allowed to swap their amount
   of aUST or UST directly for either USDC or USDT at a 1:1 ratio, limited to
   the amount they had during the snapshot.

Do Kwon said he is working on arranging some funds (to make UST collateralized),
and I believe my method will be the most effective way of alleviating community
stress, bringing the project back, and creating a more calm, malleable and
navigatable way forward when remaining stakeholders have closer seats at the
table within the captain’s chambers. Thank you for reading.

Edit: 14th May Proposal Update

After a long community discussion surrounding this proposal (over 700 comments),
I have reviewed multiple perspectives from multiple stakeholders and we have
decided to make three major amendments to the original proposal. This will make
it a near-perfect solution.

 1. Only initial deposits made into Anchor will be eligible for the refund, not
    yield. This will free up a decent percentage of capital which can be
    redistributed to more people. We should prioritize giving back people the
    money they actually put in, and refunding Anchor profits would cut into
    that. This can easily be calculated on a per-wallet basis using the
    methodology from this tool 700. Put simply, if you put 20,000 UST into
    Anchor last year and now have 24,000 UST, your refund amount would be capped
    at 20,000 UST.

 2. All forms of UST on Terra would count in the first refund batch, including
    UST staked in LPs and pools like Osmosis. I received feedback from a lot of
    users that had their funds staked in these services, so we will not limit
    refunds to just Anchor and vanilla UST - it will include all UST balances on
    Terra across all services (as long as they can be tracked on the
    blockchain).

 3. Instead of paying out just small wallets, we will pay out all wallets,
    including whale wallets, up to a set cap per address. This solution seems to
    be a good balance between including whales and having more money to make
    smaller players whole. It will cut into the per-wallet amount by quite a
    bit, but it is a more equitable solution and mirrors real-world refund
    setups like FDIC insurance and bankruptcy proceedings. For example, with a
    hypothetical per-wallet cap of $50,000, someone with $5,000 in Anchor would
    receive the full $5,000 as a refund, and someone with $800,000 would be
    limited to a $50,000 refund. We should still be able to clear out debts for
    most Anchor users depending on how much money LFG has left.

Thank you to everyone for their suggestions and helping me amend this proposal
to make it more equitable and reasonable. It is now likely the most realistic
and most beneficial solution out there, and I hope TFL is able to join the
conversation.

PS. I have changed the title of this proposal from Tiered repayment: airdrop
USDC/USDT to small UST holders on Terra to Tiered repayment: 1:1 USDC refund to
all UST holders up to a certain cap per-wallet using LFG funds, favouring small
wallets. This better reflects the spirit of the amended proposal.

19 Replies
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There are 3049 replies with an estimated read time of 454 minutes.

Summarize This Topic

FatMan
2
5d


Addendum: We should probably set the snapshot block to the block in which UST
depegged. This will allow us to process reimbursements for holders who put money
in while UST was $1 and not people who bought in specifically to make money off
of the depeg (which is fine, but shouldn’t be a priority. Anchor was marketed as
a blue chip savings account, and people put in their actual savings. These
people should be prioritized). Recovering UST is fine and dandy (and I’m sure it
will happen), but it will take at least a year and billions of dollars. With our
first billion, which will be available much sooner, we should engage in
effective altruism and carry out the maximum possible good.

(4:40PM: I am working on the numbers and will edit in an update here shortly.)

(5PM: Okay. For simplicity’s sake I will look purely at aUST for now since it is
the bulk of the protocol’s money and it’s likely that people staking/saving were
using aUST, not just UST that was sitting in their wallet. Based on when we take
the snapshot these numbers can be tweaked a little, but the general idea should
be the same.

 * Outstanding aUST: 8.3 billion
 * The top 10 Anchor wallets own 26.824% of all aUST (!!!)
 * There are a total of 256k Anchor wallets
 * The top 1,000 Anchor wallets own 82.37% of all aUST
 * The poorest wallet from the top 1,000 has 955k aUST

I have taken figures from DAIC which only shows the top 1,000, but these numbers
are incredibly promising.

With $1.46B, we will be able to refund 99.6% of all Anchor wallets, which is
probably over 95% of all Anchor users. The refund amount will be approximately
17.6% of all outstanding Anchor funds. This will be a beautiful use of
resources, as almost everyone affected by the depeg will be made entirely whole,
and a limited number of whales will have to wait slightly longer for a refund
which they can most likely afford to do. Of course, everyone will not like this
idea, but I believe it will bring us the fastest refunds for everyone (yes,
including the whales) and maximum societal good. As it stands, everyone who had
under a million dollars in Anchor will be made whole, which I think would be
really amazing.

TFL currently has around a billion dollars in LUNA and can probably raise the
rest within a few months. This plan will also work with a smaller amount of
money - as long as people in the small/medium bracket are refunded, it will have
a similar effect.)

131 Replies
435

 * Terra Ecosystem Revival Plan153


Rakesh_Gupta
5d


Agreed here.

1 Reply
45



NewLunatic
5d


I agree as well! And using the remaining funds to centralise the collateral
assets to stabilised UST

42



cryptoboludo
5d


Agree

32



Staker
5d


I don’t think this is the right way to do this. They can use the money to save
the entire protocol, why only some of us get our money back? Completely not
fair.

5 Replies
61



FatMan
5d


I have explained exactly why in the main post, but I will try to elaborate a
little bit.

Firstly, this proposal is a tiered repayment. The repayment (or general plan
execution) should happen in stages. For now, it looks like there will be some
sort of mass socialization of losses - Do Kwon is allowing bad debt to drop off
by letting people exit UST, and there will be some sort of low level
collateralization that will apply equally to everyone. This is fine, and it will
work (albeit progress will be incredibly slow), but I think my solution is
better.

A tiered repayment plan favouring smaller wallets is so much more powerful
because it lopsides money, emotion and community power to the place where it
matters first. The rest won’t be ignored, of course. Their payment will simply
be slightly delayed. Think about two situations: in situation A, 5% of
everyone’s losses are refunded. In situation B, 100% of 60% of people’s losses
are refunded. The second one will be amazingly powerful for the community and
morale.

We must also keep in mind that I am proposing that the first refund go purely to
smaller/medium wallets for good reason. People with 250k aUST or less should get
this. I may offend someone by saying this, but I have to be brutally honest.
People with millions or billions in Anchor do not need the money as much as
someone who put half their $50k life savings in. Someone with a billion dollars
can afford to wait for their 5% repayment. I prefer we prioritize people who
need the money. This doesn’t mean the billionaire won’t get it - he will just
have to wait a bit, and this is fine, because like I said, it won’t affect his
core quality of life. A billionaire’s marginal utility derived from each
additional money unit is very low compared to a millionaire or a normal person.

This plan will also most likely speed up the whole plan in general, since a
top-heavy community morale injection en masse will add momentum and confidence
to the project as a whole, likely speeding up ventures to get more backing funds
and/or kickstarting Anchor again.

Please feel free to ask if you have any questions about my proposal because I
feel very strongly that it’s the best way to get out of this situation and I
will be happy to elaborate on any aspect you like.

19 Replies
166



krb
5d


Repaying the community will help a lot in bringing confidence back to the users
of UST w/c is right now in shambles. Hope this proposal is approved.

61



FatMan
5d


I have run the numbers and added an edit to my very first reply in this thread.
The rough conclusion I came to is with around $1.5B, we will be able to refund
over 99% of Anchor users (everyone who had a million dollars or less in Anchor)
with a 1:1 USDC or USDT redemption. This is likely the best way forward in every
way as I explained in the original post. I would love to hear what someone from
TFL thinks about this. I would encourage whales to think about this as well,
because although it may not result in immediate financial gain, it will likely
result in a faster long-term refund overall since it will increase health and
confidence in the protocol as a whole.

4 Replies
104



789789789
5d


Hello FatMAn,
Your proposal is actually what would make a lot of impact in the crypto
community, it would shut a lot of “ponzi” or “rugpull” claims. Moreover, it’s
actually sawing the seeds of trust in an ecosystem that protects its holders.

Your explanation is on point, I truly hope your proposal makes it to the voting
stage and positively goes through it.

2 Replies
104



FatMan
1
5d


Thank you for the support. To be honest, I’m not quite sure if a vote would be
useful/necessary. This is a suggestion directly to TFL regarding how to use
their funds. They made billions of dollars from the LUNA machine selling an
algorithmically pegged stablecoin and earmarked away hundreds of millions for
the support of the peg. This is not meant to sound accusatory - the team is
highly competent, but they do retain some level of responsibility when it comes
to taking care of Anchor users. IMO, following this proposal is the best way to
both restore confidence in the peg/system/community/team and to restore the
hearts & wallets of the people. I hope someone from TFL can comment (and
criticize!) so we can work out a practical solution based on this system and
move forward.

2 Replies
107



FraP
5d


I think is a good idea! I’m Italian and here a bank did something similar with a
great gain in trust and popularity, during the Lehamn crysis in 2008.

https://amp.ilgiornale.it/news/doris-e-fininvest-salvano-i-clienti-lehman.html?fbclid=IwAR04COgC4dNONdVFv889S27NLP8zGffcfV9EleRUtdHJFl6YMMJQOR_c6jk
103

This is the link for the story. It is in Italian but you can use Google to
translate it.

2 Replies
24



Justinomega
FatMan
5d


I understand and agree with the intention of the proposal of making everyone
whole. I’m hoping this includes people like myself that does hold UST in Osmosis
and inside the UST/OSMO/ATOM/LUNA pools. However, to protect the ecosystem from
people exiting upon being made whole, maybe that amount can have a 6 month
lockup where it is staked earning APY, and then followed by a dynamic vesting
schedule based on how the market recovers and confidence increases in UST as a
stablecoin. Anyone who doesn’t want their funds locked up can get a sort of
severance package where they receive a fraction of UST back that increases over
time.
I also think that maybe LFG can launch a buyback program for those that want
immediate liquidity and at the same time offer loyal followers the chance to buy
tokens at a discount that will be locked up for a period of time. People are
selling and flipping, we need to buy back and lock to stop the bleeding, and
give Terra the chance to rebuild.

Intentions

 1. Stop the bleeding and decrease in value ASAP.
 2. Provide investment opportunity to people who want Terra to succeed.
 3. Provide the time and new funding to Terra that will help rebuild quickly.
 4. Allow a better distribution of Luna/UST to long term holders to avoid this
    from happening again.

Thanks for taking the time to read this and put up the proposal you did. #wagmi

3 Replies
38



JuanPeligro
5d


What about users that had aUST on AVAX? Can there be any consideration for them?

3 Replies
2



FatMan
5d


Yeah, sure. The proposal can easily be tweaked around the edges to accommodate
all chains, a slightly higher/lower budget, etc. The numbers I used (Anchor
users on Terra) were just to get the big picture and prove viability, ie. the
fact that the vast majority of people can be made whole with a relatively small
amount of funds.

Smaller chains like AVAX in particular should be fairly trivial to account for.
AVAX only has around 54m aUST on it (compared to Terra’s 8.3b) and about 65% of
those funds are in non-millionaire wallets, so it shouldn’t prove an issue to
add them to the whitelist. If we can refund 99.6% of Terra wallets in full with
< $1.5B (up to millionaires), then surely if we adjust the parameter to a
maximum of $500k or $200k per wallet, with less than a billion we can do wonders
and uplift virtually everyone on every chain into a full recovery.

7 Replies
25

 * [Tiered Repayment Proposal amendment] Whitelist 5,000 users of the
   Anchor-based Stablegains (custodial) app for relief9


frederick
5d


Totally agree to this.

But what about people who held during the depeg but sold during the way down?

If we are paying them, they would get a reimbursement + their salvaged UST money
when they technically ‘contributed’ to the downfall.

Open for discussions.

2 Replies
16



FatMan
5d


That’s a great question!

There are a few solutions we can talk about, but here is what I propose.

 * A snapshot is taken of aUST holders right as the first depeg happened. This
   will prevent future buyers and sellers from reaping rewards from the buyback
   program, as only original Anchor holders/savers will benefit.
 * People who bought UST/aUST after this snapshot will not be entitled to the
   refund and will have to wait out redemption on the open market. This
   shouldn’t be a huge deal, as UST should edge closer and closer to $1.00
   organically anyway.
 * Whitelisted addresses will not simply get the USDC/USDT: there will be a page
   where they can redeem a set amount of aUST for their USDC/USDT. This amount
   will be limited to the amount they held during the snapshot. If they panic
   sold their UST, they can buy it back on the open market and redeem it. If
   they bought additional UST, they will be limited to what they originally
   held.

This method makes the most sense to me. What do you think?

8 Replies
52



TeemoneyofAfrica
5d


Can they create a bridged version of usdc or usdt and do an airdrop to the 99%
of anchor users you selected ?

All they would then have to do is bridge back

1 Reply
1



cocreate
5d


I would love to see this proposal be implemented. It would certainly have a huge
impact to those who need it most, and send a powerful message of what this
community is all about.

10



frederick
FatMan
5d


What I meant was, let’s say I have 100k UST on anchor, during the depeg event I
didn’t sell it so I got the snapshot for the refund, but then after UST
continued to depeg and I sold the 100k UST for 40k USDT on Binance. Would that
means I get the 40k USDT I sold my UST for and the 100k refund?

Would it be better to take 2 snapshots? Before depeg and for example now. If
they don’t take their money out, they get reimbursed. This would make the money
needed way less and there will be no double spend problem. Plus rewarding people
that believe Luna until the end.

4 Replies
6






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