I "death spiraled" Luna. Tail end scenario assumption: Anchor fails completely, 100% of $11B UST on Anchor want out of Terra ecosystem. What happens to Luna?
For the uninitiated: ALL Luna staking rewards come from fees previously accrued by Terra. When someone mints UST a swap fee % is charged in UST. When someone burns UST a swap fee % is charged in Luna. When UST expands Terra accrues UST fees. Contraction = Luna fees.
Luna staking yields stablecoins+Luna. This has a beautiful property in which [ unlike ETH, BTC, AVAX etc whose staking return depends purely on coin price ] as Luna price drops, yield goes up naturally since (stablecoin+Luna)/Cheaper Luna = higher APR.
Important to repeat: Staking comes from FEES accrued, not inflationary levels to entice user to stake like most cryptos.
One last thing. There is no limit how much UST can be burned/minted but it is a function of swap fee tolerance. The more you are willing to pay in swap fees the more UST you can burn.
LET'S DEATH SPIRAL! 95% Luna price drop.
LET'S DEATH SPIRAL! 95% Luna price drop.
Rational Actors: 2% swap fee tolerance (willing to take 98 cents per UST), takes 43 to happen.
Urgent Selling: 10% swap fee tolerance (90 cents per UST), takes 8 days to contract.
Total Panic: 50% swap fees, takes 1.3 days.
What did we learn:
In all scenarios where Luna falls to $5, based on the current accrued fees in Terra, Luna becomes an asset that can yield you 5.87% in dollars alone.
On top of that it will ALSO yield you 1-24% in volatile asset.
All from ACTUAL fees.
In all scenarios where Luna falls to $5, based on the current accrued fees in Terra, Luna becomes an asset that can yield you 5.87% in dollars alone.
On top of that it will ALSO yield you 1-24% in volatile asset.
All from ACTUAL fees.
Just for fun, let's assume 70% staking conviction is too high. Let's say only 35% (we lose 50% of all stakers).
Now "death spiral" = 11% yield in dollar denomination. And 58% in total. (from FEES!)
Now "death spiral" = 11% yield in dollar denomination. And 58% in total. (from FEES!)
My only question is: Does this sound to you like a distressed asset?
To pay 30% APR, other blockchains mint away their token to incentivize staking. And here you have an asset that can payout that 30% in diversified dividend assets...
and people are fudding.
To pay 30% APR, other blockchains mint away their token to incentivize staking. And here you have an asset that can payout that 30% in diversified dividend assets...
and people are fudding.
@tlagomi thank you for fixing my mistakes!
Clarification: Price didn't fall down to $5. I assume the entire $11b happened at each Luna price, this gives worst case scenario at each ending price for Luna. ->
The real inflation would be lower since price would go down over time.
LUNA PRICE DOES NOT DROP TO $5 AFTER $11B.
no one can predict price change. I fixed the prices for the entire $11b burns to get the worst-case maximum minting.
In thread, I focused on $5 because it was the worst-case scenario!
I'm sorry for not explaining that.
no one can predict price change. I fixed the prices for the entire $11b burns to get the worst-case maximum minting.
In thread, I focused on $5 because it was the worst-case scenario!
I'm sorry for not explaining that.
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