Don’t mean to be a party pooper but I think Terra is making a mistake to use LUNA funds that originated from the ICO to build the @LFG_org reserve.
The goal of $UST is to be (i) decentralized and (ii) sustainable.
This reserve is neither of those two things.
The goal of $UST is to be (i) decentralized and (ii) sustainable.
This reserve is neither of those two things.
@LFG_org reserve was funded with 50m LUNA that came from the initial ICO. That’s 5% of the entire LUNA supply. Imo it sets a bad precedent when an algostable chooses to leverage non-renewable liquidity sources to maintain a peg (except for in very early stage bootstrapping).
And when you take BTC and put it into a multisig wallet and make your protocol depend on it, decentralization goes out the window. You can’t fork LUNA because Terraform Labs and @LFG_org get to choose the winner since they control the BTC multisig in control of the reserve.
The reason for establishing this reserve could be thought of as a good idea because stability is often psychological and self-reinforcing. If people are worried about the UST peg, it is harder to maintain it because in turbulent times people will try to ”escape to safety”.
Things that are perceived as having the strongest peg also see much less stress testing of their peg. That’s why a 3B safety net can yield much more than 3B in cost savings, because of the psychological impact that leads to way less stress tests in perpetuity.
But, using these kind of one-off solutions to build a reserve is a huge miss because it still undermines the belief in the system’s sustainability if you leverage ICO funds to build it. It inspires much greater confidence if you sustainably built a reserve from protocol fees.
TL;DR @LFG_org is centralized and funded by ICO money which is inherently unsustainable, violating the two most important tenets of a decentralized algostable.
I didn’t see @stablekwon clarifying anywhere that the reserve was built using ICO money, and he gets super defensive if you want to write a thread about where the money came from that’s longer than a tweet.
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