Is TERRA/Luna kickstarting a new Bitcoin Standard?

[fillippone]

I admit I haven't been following this topic very closely, but the more I dig into this topic, the less interesting I think the obvious consequences are , the pumping of BTC price being the main one, but the more the deep implication for the economy of Bitcoin.

First, a brief recap of what happened, as it was reported by Theblockcrypto:

Do Kwon reveals plan to increase UST's bitcoin reserve to $3 billion

The Luna Foundation Guard (LFG) has raised $2.2 billion for its bitcoin reserve and hopes to hit $3 billion in the short term, with a longer-term goal of $10 billion, Terraform Labs CEO Do Kwon said in a series of tweets on Tuesday.

LFG, a Singapore-based non-profit working on the Terra blockchain, will use the bitcoin as a reserve asset for Terra (UST), the largest algorithmic stablecoin on the blockchain.

The following actions have been quite brutal. Some chain analysis easily discovered the address of the foundation, then following the buying became trivial.

.

They Started buying on January 26, and since then they have gobbled 31,000 BTC, equivalent to roughly 1.5 Billion Dollars. So they are now the third largest public Bitcoin Treasury after GBTC and Microstrategy.

https://cointelegraph.com/news/terra-smash-buys-139m-bitcoin-wallet-reaches-31-000-btc


But how is going to work in the details?
There have been a lot of misconceptions around the mechanism, and the relailty is a little bit more complex.
The best explanation I found is this Twitter thread, explaining the relationship between Terra, Luna and BTC.



If you want to read it more conveniently, you can use this Threadreaderapp unroll.


Also this thread was recalled inane interview to

Terra founder reveals what will happen to UST if Bitcoin price crashes

Where Laura asks the founder about



On the same interview another very interesting point, the one I was actually thinking about, was raised to the attention: WHAT is Terra? Can we think as a stable coin only? Or being backed, or if not properly backed, at least "assisted" by a BTC treasury, is in reality something different?

It is obviously something different from LN: which is a layer 2 solution allowing users to transact off chain having some BTC " pegged" to their channel.
Here, the concept is quite similar, as UST, if not properly "backed" by BTC is maybe "assisted" by BTC reserves.
The difference is of course in the monetary policy of the two systems: while LN is tied 1:1 with Bitcoin, being essentially LN a "representation " of a (future) state of the blockchain, the UST is tied to the USD, and thus, being stable to the USD, inherits the USD monetary policy.
We could think of mix situation, where a coin is tied not to BTC (deflationary monetary policy), not to the USD (inflationary monetary policy), but to the real purchasing power of the USD (and BTC), à la Hayek Money. (Hayek Money: The Cryptocurrency Price Stability Solution).
I think this is the most relevant aspect: the possibility to bootstrap a new financial system backed by Bitcoin Treasuries, a real Bitcoin Standard: while the USD, before 1971, was backed by true gold (i.e. gold standard.), today, the new system is lead by bitcoin acting as a reserve for the higher level solutions!

Please note that I am considering this as a theoretical feature, I am not shilling in any way LUNA or UST.

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[LoyceMobile]

I've heard about it before, and I still don't get it: what's the point of using Bitcoin for a stable coin?
In my no doubt limited understanding it works like this: if Bitcoin goes up, the company makes a profit. If Bitcoin goes down, they're short on money. Who would invest in this if they'll only take the risk but not the profit?

[_act_]

I've heard about it before, and I still don't get it: what's the point of using Bitcoin for a stable coin?

According to how I understood it, UST is not backed by Bitcoin nor Luna, it is not collateralized but it is an algorithmic stables coin (what I have known about some algorithmic stables coin in the past is that overbuying and overselling of the coins can make the price so volatile. (Although, not about this thread discussion).

Luna serves as UST reserve (not collateralized asset), certain amount of UST minted is burned in Luna's USD equivalent and vice versa. Bitcoin reserve is introduced to provide a further support in a way UST will maintain a stable price and reduce the pressure on Luna.

I got this useful first tweet reply from above from fillippone OP, reading from 10 which focus on why is Bitcoin used as reserve

https://mobile.twitter.com/danku_r/status/1509173542268645377?s=21

In my no doubt limited understanding it works like this: if Bitcoin goes up, the company makes a profit. If Bitcoin goes down, they're short on money. Who would invest in this if they'll only take the risk but not the profit?

There is an onchain mechanism in a way 1 UST would sell for $0.98 worth of BTC. If UST is trading below $0.98, people would be enticed to buy from the BTC reserve. If UST is trading above the pegged price, people would be enticed to sell for profit in a way the price of UST would maintain almost a stable value as a result of market participants trading BTC for UST and vice versa to make profit.

[adaseb]

This is probably the reason why Bitcoin broke the $44K resistance and seems like it might hit $50K in the near term. Basically people are buying bitcoins and will most likely sell when he uses the remaining $450M which is still sitting in that wallet.

Same with people who went short. They covered one the news that he started buying in large quantities and with the news of Saylor borrowing $200M to buy more BTC, the bears are scared right now.

The issue is what will happen when the buying stops? Will it dump and revisit the $30k area or will it head into the ATH?

[odolvlobo]

My understanding is also limited but it seems to be that backing UST with bitcoins a bad idea.

In my no doubt limited understanding it works like this: if Bitcoin goes up, the company makes a profit. If Bitcoin goes down, they're short on money. Who would invest in this if they'll only take the risk but not the profit?

There is an onchain mechanism in a way 1 UST would sell for $0.98 worth of BTC. If UST is trading below $0.98, people would be enticed to buy from the BTC reserve. If UST is trading above the pegged price, people would be enticed to sell for profit in a way the price of UST would maintain almost a stable value as a result of market participants trading BTC for UST and vice versa to make profit.

If the price of a bitcoin drops significantly and the value of the reserve is less than the nominal value of the UST, then UST won't be able to maintain the peg. Suppose for example when the reserve is only 50%, then only 50% of the UST can be redeemed and the rest is worthless.

Furthermore, what happens if the price of a bitcoin goes up by 10x and the $10 billion dollar reserve becomes $100 billion and many times the value of UST. Are the bitcoins locked up forever, or can someone profit from the increase in the value of the reserve?

If someone can profit, then they are able to make a bet on the price of BTC, but shift 100% of the downside risk to holders of UST.

In short, adding Bitcoin to the reserve makes UST less stable because some portion of UST is pegged to the price of a bitcoin.

[_act_]

This is probably the reason why Bitcoin broke the $44K resistance and seems like it might hit $50K in the near term. Basically people are buying bitcoins and will most likely sell when he uses the remaining $450M which is still sitting in that wallet.

Terraform Labs announced the purchasing on March 17, it would be part of the reason of the recent bull run, but also with other reasons like Ukraine war and Russia saying to sell oil possibly in bitcoin also and many other reasons combined.

If the price of a bitcoin drops significantly and the value of the reserve is less than the nominal value of the UST, then UST won't be able to maintain the peg. Suppose for example when the reserve is only 50%, then only 50% of the UST can be redeemed and the rest is worthless.

Terraform Labs CEO Do Kwon said if bitcoin price crash, that it will have negative effect on UST

https://unchainedpodcast.com/do-kwon-is-backing-ust-with-bitcoin-and-heres-what-else-he-is-building/

So let us say he believes in long term price of bitcoin.

[odolvlobo]

If the price of a bitcoin drops significantly and the value of the reserve is less than the nominal value of the UST, then UST won't be able to maintain the peg. Suppose for example when the reserve is only 50%, then only 50% of the UST can be redeemed and the rest is worthless.

Terraform Labs CEO Do Kwon said if bitcoin price crash, that it will have negative effect on UST

So let us say he believes in long term price of bitcoin.

The belief that the price will not drop significantly is completely irrational. Last November, the price dropped 50% from $68k to $34k in two months. And before that, just a year ago, the price dropped 27% from $54k to $34k in just two weeks. It will happen again. UST's peg is very likely to fail if Bitcoin is used as a major portion of the reserve.

And again, who profits when the value of the Bitcoin reserve rises? It is certainly not the UST holders.

[fillippone]

In an interesting interview on Bloomberg, Do Kwon sheds some light on major misconception about LUNA algorithmic features, Bitcoin reserves and future plans, answering simple questions:




It's worth spending those seven minutes, to understand a little. bit more what's happening.

[fillippone]

Another purchase from LUNA:

Terra Blockchain Buys the Dip as Bitcoin Drops Below 46K

IN BRIEF
The Luna Foundation Guard buys over 5,000 BTC.
The company’s Bitcoin reserves exceed $1.6 billion.
Terra’s founder aims to acquire $10 billion worth of Bitcoin.

[LoyceMobile]

Where does the 10 billion dollar come from? Is it paid by people who accept their made up UST token as payment?

[fillippone]

Where does the 10 billion dollar come from? Is it paid by people who accept their made up UST token as payment?

No, the 10 Billion (will) come from Luna Foundation Guard (LFG), a privately held foundation that was capitalized, back in February, by some investors trough a private sales of LUNA tokens:

Singapore-based Luna Foundation Guard (LFG), a nonprofit organization supporting the growth of the Terra ecosystem, has raised $1 billion through the sale of LUNA, the native token of the Terra blockchain.
The funding will go toward building a bitcoin-denominated foreign-exchange reserve for UST, an algorithmic-based stablecoin in the Terra ecosystem, according to a statement.
The funding round, which ranks among the largest in crypto history, was led by Jump Crypto and Three Arrows Capital, with participation from DeFiance Capital, Republic Capital, GSR Ventures and Tribe Capital, among others.

Source: Foundation Focused on UST Stablecoin Raises $1B in LUNA Sale



This reserve has been already raised to 3 billions.

The rest of the money will come from seignorage, or at least a percentage of seignorage , that will be used to build the reserves linked to the UST.

You must be proud! You were not alone sharing the same trough:


More info here: https://twitter.com/adam3us/status/1506274220048887810?s=20&t=P2vMva_0ai690duqG3XsnA

[stompix]

More info here: https://twitter.com/adam3us/status/1506274220048887810?s=20&t=P2vMva_0ai690duqG3XsnA

And more info in the next tweets:
https://twitter.com/adam3us/status/1506283043153231873
https://twitter.com/adam3us/status/1506578928466632707

So rather than :

Singapore-based Luna Foundation Guard (LFG), a nonprofit organization supporting the growth of the Terra ecosystem, has raised $1 billion through the sale of LUNA, the native token of the Terra blockchain.

is actually means they have sold privately 1 billion worth from their own stashes as at launch Terraform Labs had 45% of the total supply of coins, basically the mother of all pre-mined coins and dev share ever.

But receiving investors, funds backing, and funding rounds sound better. 

[fillippone]

So rather than :

Singapore-based Luna Foundation Guard (LFG), a nonprofit organization supporting the growth of the Terra ecosystem, has raised $1 billion through the sale of LUNA, the native token of the Terra blockchain.

is actually means they have sold privately 1 billion worth from their own stashes as at launch Terraform Labs had 45% of the total supply of coins, basically the mother of all pre-mined coins and dev share ever.

Mi do share your doubts.
Again, I am. It here to shill LUNA or their tokens: I am here to think: “is it possible to build a decentralised, trust less bitcoin standard?

The answer so far: no.

What design could make it happen?
Terra luna? This is the project that went further down the road.
Leveraging LN with the latest TARO protocol? Looks very promising, but we still are in the design of a new scheme.

[Coinshots]

any specific long-form article on how will LFG operate and how will the BTC reserves will used.

[fillippone]

any specific long-form article on how will LFG operate and how will the BTC reserves will used.

The best article I found is the Twitter thread I unrolled in the OP, together with the video, you find as the last tweet in the thread.

[zasad@]

TERRA collaboration with Avalanche
https://twitter.com/terra_money/status/1512111691395473409?s=20&t=UmB0Ecs0QpZZNFUPiYDY5w
"6/ In particular, Avalanche’s subnets are a powerful method for building the next generation of scalable Web3 applications within niche use cases.
As a result, Terra and Avalanche will be collaborating on a new gaming subnet – with details to be released at a later time."

[hugeblack]

Again, I am. It here to shill LUNA or their tokens: I am here to think: “is it possible to build a decentralised, trust less bitcoin standard?

All I understood here is that the altcoin developers and  instead of trying to buy bitcoin indirectly they are buying bitcoin directly with promises to investors that they will get paid in return for giving developers more money for free.

Perhaps the thing that made them more tempted is that people continue to believe in 1 USDT as USDT == 1 USD EVEN there is no reserve equal to 10% of the assets sufficient for all coins that have been printed. Therefore, as soon as the fees are low, and you gain trust, the free money will flow to you.

In short, they will buy more until people start to trust the project and then the money will flow.

[fillippone]

TERRA collaboration with Avalanche
https://twitter.com/terra_money/status/1512111691395473409?s=20&t=UmB0Ecs0QpZZNFUPiYDY5w
"6/ In particular, Avalanche’s subnets are a powerful method for building the next generation of scalable Web3 applications within niche use cases.
As a result, Terra and Avalanche will be collaborating on a new gaming subnet – with details to be released at a later time."

Well, this is disappointing.
One thing is to decide to hold “reserves” in Bitcoin, and one other is to hold in a DeFi shitcoin.
You cannot bootstrap a new monetary system holding your reserve in AVA, or at least a monetary system Fillippone wants to be part of.

[stompix]

Well, this is disappointing.
One thing is to decide to hold “reserves” in Bitcoin, and one other is to hold in a DeFi shitcoin.

Now you understand why I'm always going koala panda polar bear after page two or three is those discussions?
Every single time there must be some unseen fuckery happening behind all those shiny letters and when you go deep you see there is no BTC , there is no real backing, it's a shitcoin backed by the promises of a shitcoin. I'm deliberately going full bear mode, at least this way when I'm disappointed I'm no going angry anymore, if it turns out to be true I'll be a happy bear but I least I don't end up as a depressed cyberbull with the important parts missing 

But let's still look a bit at the bright side
- they tried to bring in BTC because they know that's what matters to the masses
- they are using shitcoins because only with shitcoins they can get away with everything
- if this fails it shows you need only to hold bitcoin and that every altcoin IOU soup there is completely flawed from the start
- both terra and avalanche are going down faster than BTC, good luck with their whatever stable coin

[zasad@]

Ethereum, Polkadot, Cosmos are the most promising blockchains.
https://twitter.com/MoonriverNW/status/1478851453016068096

TERRA/Luna, Avalanche, Nier also continue to develop.

The Future is NEAR.
https://captainkole.substack.com/p/the-future-is-near?s=r

https://twitter.com/WuBlockchain/status/1512280760023015425?cxt=HHwWgoCj3dfV2fwpAAAA
"Zoran Kole revealed in "The Future is NEAR" that Near will announce the launch of the stablecoin USN on April 20, which will provide an annual interest rate of about 20%, modeled on UST.  Additionally, Near will be listed on Coinbase in the coming months. "

The more clone control regulators will have on top blockchains, the more people will go to other blockchains. Thanks to the regulators, I learned the TERRA/Luna ecosystem