The Terra eco-system, as widely documented, went into a whirlpool on May 9, with LUNA falling by 100% and the Terra USD (UST) stablecoin losing its USD peg (valued at $0.16 at time of writing).
With massive losses for LUNA and UST investors, the community is now searching for methods to repair the ecosystem and maybe provide financial assistance to the many people who have suffered financial losses.
Vitalik Buterin, the co-founder of Ethereum, believes that any suggested payment mechanism for the Terra (LUNA) project should favor small holders.
If the UST dollar stabilizes, one community suggestion is to return all original deposits (not yield) of small UST holders first, in order to “greatly improve general morale and attitude,” while finding out how to separate debtors and larger investors afterward. The payment is expected to cost between $1 billion and $1.5 billion.
“Collaborative worry and alleviation for the normal UST smallholder who was deceived by an influencer about ’20 percent interest rates on the US $,’ personal responsibility, and SFYL for the rich,” Buterin said on Twitter on May 15, supporting the proposal.
While the Ethereum co-founder did not advocate for regulation, he did say that potential protections like bank deposit insurance may be valuable in certain situations.
“An intriguing unconnected one is Singapore labor legislation. For low-wage workers, greater regulation is needed, whereas the wealthy can figure it out on their own. Things like these, in my opinion, are good hybrid formulae,” he remarked.
However, it is still uncertain whether the project will be able to recover or whether it will try to recoup investor losses through a brief rebound, whilst ignoring how tough that may be. It’s also worth noting that the proposal linked to Buterin’s statements has been amended this week, and it now considers paying out all users up to a $50,000 per-wallet maximum.
Strongly support this. Coordinated sympathy and relief for the average UST smallholder who got told something dumb about "20% interest rates on the US dollar" by an influencer, personal responsibility and SFYL for the wealthy. https://t.co/YfNlpvAizg
— vitalik.eth (@VitalikButerin) May 14, 2022
Another proposal floating around the internet is to create a “TERRA 2” hard fork for the Terra blockchain, as well as a liquidity pool to restore UST back to its peg.
The Luna Foundation Guard owned roughly $2.7 billion in Bitcoin (BTC) before the LUNA and UST crashes, and CZ questioned “where is all the BTC that was meant to be utilized as reserves?” in response to the pool concept to rebuild UST
Do Kwon, the creator of Terraform Labs, has suggested a reorganization of the Terra blockchain in order to reset “network ownership” and give 1 billion LUNA tokens to the community.
Personal opinion. NFA.
This won't work.
– forking does not give the new fork any value. That's wishful thinking.
– one cannot void all transactions after an old snapshot, both on-chain and off-chain (exchanges).
Where is all the BTC that was supposed to be used as reserves? https://t.co/9pvLOTlCYf
— CZ 🔶 Binance (@cz_binance) May 14, 2022
Changpeng Zhao, the founder and CEO of Binance, refuted this theory over the weekend, writing on Twitter that “forking does not bring the new fork any value.” “Wishful thinking,” she calls it.
Popular crypto figures, including Dogecoin co-founder Billy Markus, have slammed Kwon’s proposed “Terra Ecosystem Revival Plan,” urging him to leave the industry and stating: “Rather than spending new money from new victims to pay off the victims of their idiotic failed process, they should use the money they already channeled from investors.”