Thoughts on Do Kwon deploying more capital to prop up UST 🧐

mistakili (76)in LeoFinance • 3 years ago (edited)

Heavy is the head that wears the crown

UST is loosing its peg and crypto Twitter is loosing their shit! Legendary Do Kwon steps in to save the day by deploying more capital and I’m here liiike, what the heck is really going on!

There are rumors of a coordinated attack on UST as payback for Do Kwon starting a stable coin war on ETH saying he would kill DAI. Catch up on that in this post. Really, catch up first.

FUDers are capitalizing on this market action and pushing so hard for people to sell their LUNA, further depegging UST, there are talks about a particular whale constantly dumping UST as well? And everyone is going bananas.

......I actually like that UST is being tested, perhaps to its limit, I like that it is going through this very tough time, this is how we know how efficient and resilient what we want to make our stable coin representative in the decentralized economy should look like. Heavy is the head that wears the crown.

Technically, when UST goes below 1$, say $0.93, anyone can buy UST for $0.93, mint 1$ LUNA on terra station by burning that UST. Sell the 1$ LUNA and pocket $0.07. However, if more people do this and sell their LUNA for other currencies, then there will be downward pressure on LUNA as we are currently seeing resulting in more people dumping LUNA.

Since UST is minted by burning LUNA, demand in LUNA helps keep the UST stable. Otherwise UST looses its peg. So for UST to maintain its peg, there must be constant demand of LUNA. At the moment the most use case for LUNA is staking it for 10% apr, the apr is garnered from transaction fees on terra.

Certainly, LUNA needs much more users transacting on Terra and more use cases. However, I don’t think it’s cool that someone would need to step in to save a supposed decentralized stable coin even in the face of a coordinated attack. It’s decentralized and algorithmic for a reason.

You don’t just come in to “deploy more capital” to prop the peg. Code it! Smart contract it into your blockchain and make it automatic, create a reserve that feeds itself. Bot it. But don’t randomly step in to save the day as an entity.

Like HBD as the perfect example, if HBD depegs, goes below $1, there’s a bot that works with the DHF that fix’es it known as the HBD stabilizer, the stabilizer converts a certain allocated amount of HBD from DHF to HIVE(over 3 days conversion period) then uses the Hive to buy back the HBD and sends it back to the DHF.

And if it depegs harder enough, then it opens an avenue for traders to arbitrage, in the sense that, the HBD stabilizer will work over time to return the HBD to its peg, so a depegged HBD to the low side is an opportunity to buy cheap HBD that will surely get back to its peg as a result of the demand that will be generated. This market making opportunity also exists on UST.

Algo stable coins depegging should naturally not cause as much fear as is happening with UST and LUNA community especially if there are mechanisms to restore the peg.

This just shows how early we still are to all of this, perhaps UST needs a bit of centralization to get things right in its early stages, this attack combined with the current market price action is the first of its kind and needs solutions that need to be implemented on the move.

It’ll be cool if people were a little bit more patient but what do I know...