Luna Collapse Highlights the Need for An Inflationary Crypto

[bitflate]

Original Post: https://bitflate.org/post/2022/05/15/luna-collapse-hightlights-the-need-for-bitflate.html

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to unlock the Medium of Exchange use case.

The crypto market crashed again. The crash centered around the Terra ecosystem which consists of the Luna token, the Terra (UST) stablecoin, and Luna Foundation Guard’s Bitcoin reserve. The Luna token and the Bitcoin reserve are supposed to provide backing for the UST stablecoin. However, when the peg failed, the market went into a death spiral. The Terra ecosystem could not withstand the speculative attack. It collapsed. The future of a decentralized stablecoin remains elusive. We can’t create stability on unstable foundations. The Luna token has no value beyond trust in the system. Bitcoin is inherently volatile. We have seen the lessons of the DAI stablecoin and the UST ecosystem. The collapse of Luna highlights the need for an inflationary cryptocurrency.

Bitcoin is inherently volatile

Bitcoin is inherently volatile due to its limited and disinflationary supply. Bitcoin’s use case is a Store of Value. The system incentivizes people to hold bitcoins. In the long term, Bitcoin gains value and rewards holders. However, in the short term, it is an instrument for speculation. Its price is affected by market trading. Bitcoin is stuck with the Store of Value use case. The Luna Foundation Guard (LFG) made a rational choice by building up their reserves. The Luna token is backed by nothing. A Bitcoin reserve can provide some support. However, the Terra community underestimated the inherent volatility of Bitcoin. Given enough capital, it is not difficult to conduct a speculative attack on Bitcoin’s price.

The Terra ecosystem is centralized

A centralized ecosystem introduces a single point of failure. The LFG wanted to live up to its promise of a pegged UST/USD. The consensus algorithm increased the supply of the Luna token to shore up the price of UST. This drives down the price of the Luna token. By following the market, the algorithm is prone to manipulation. When the algorithmic adjustment failed to halt the crash, the LFG leadership panicked. They sold the Bitcoin reserve to defend the peg. The sale of Bitcoin exacerbated the crash of both Bitcoin and the Luna token. The ecosystem made mistakes by trusting a centralized consensus algorithm and a centralized organization.

Stability through Constant Inflation and Proof of Work

We have seen failures of algorithmic stablecoins. An algorithm following the market will be manipulated by the market. We need to rethink our approach. To create a stable system, we need to make the market follow the coin. The algorithm is constant inflation. The market needs to follow the coin. We don’t need a company or a foundation to manage the ecosystem. The system needs to be decentralized. Proof of Work is a proven and decentralized consensus. Bitcoin is the Store of Value. An inflationary Proof of Work cryptocurrency can unlock the Medium of Exchange use case. In the short term, it may be volatile due to the supply constraint. In the long term, it may provide ways to create a stable monetary system.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to unlock the Medium of Exchange use case.

[leea-1334]

No, just no.

Luna may have been designed to be a deflationary coin but the reality is that it was inflationary. I mean,,, come on look at the UST project,,, giving 19.5% APY just for doing nothing.

You call that inflationary? And the minting-burning to create more coins of each other please.

We do not need another shitcoin.

[WalkerIVIV]

quite literally non algorithmic stablecoins have solved this medium of exchange things, remember that the algorithmic stablecoins like UST is just outlier, but the traditional ones like USDT, USDC , and etc are the ones that got most of the market shares as of today and they are getting backed up by real money so the inflation more or less following the real money that alone already make them great medium of exchange, this is also the reason so many traders considers them as safe haven for keeping their assets
this kind of thing that you mentioned honestly kinda unnecessary.

[asriloni]

So the purpose if your thread to promote your bitflate token? The case that already faced by luna was not about inflationary but the algorithmic mechanism that has a loop hole. I meant you must also aware if LFG didn;t have enough funds to backed UST and Terra lunas has become a way for terra foundation to back UST. This is a very wrong mechanism to use volatile asset as a way to defend the peg.
UST burn more luna generated. The worst thing is big inflation like what happened with luna and there's no hope to fix it.
Majority of holders are also refusing the forking solution as well.

[Kemarit]

And just like what most posters here, we don't need another coin with this nature. For me it's better to protect your assets and wealth in BTC simply as that. And I'm not sure how the coin you are promoting here will solved any problems that was unravel with Luna's debacle.

As for Luna, there could be lots of factors that involves the collapse of this coin. Maybe the people behind are to blame for this.

[bitflate]

For stablecoins like USDT and USDC, there are centralization risks. People can misplace funds, make mistakes in accounting, fraud. As the ecosystem grows, the risks increase. Centralization prevents digital native payment innovations.

For decentralized stablecoins, they are not achievable by using only a crypto native asset like Bitcoin. The problem is volatility. The disinflationary supply encourages people to hodl and speculate. The crypto ecosystem faces volatility when speculation increases. No algorithm can fix this. A constant inflationary crypto is a new crypto native asset class. It can break into the Medium of Exchange use case. As more people use it for payments, the whole system may be able to escape speculation.

With Bitflate, the block rewards halve from 50 to 6.25 before inflation starts. Halvings create incentives for early adopters to hold the coins.