Summary 🧵
$UST $LUNA $ADA $DJED #Stablecoin #Cardano #Terra
Author: @GooseCapitalLLC
Original article: thecryptodrip.com/the-stablecoin…
$UST $LUNA $ADA $DJED #Stablecoin #Cardano #Terra
Author: @GooseCapitalLLC
Original article: thecryptodrip.com/the-stablecoin…
History:
- Austrian economist F.A Hayek postulates incentive markets are better than gov FIAT, 1976.
- Sees a world of free people, money, and capital movement.
- Self-interested banks would a better job at value preservation.
- Is being built rn, Stablecoins.
- Austrian economist F.A Hayek postulates incentive markets are better than gov FIAT, 1976.
- Sees a world of free people, money, and capital movement.
- Self-interested banks would a better job at value preservation.
- Is being built rn, Stablecoins.
Stablecoins:
- Current iteration is a liq bridge, ref point Dollar.
- Very difficult for fiat and stables alike.
- Ex Thai baht removal US peg -> currency devaluation crisis.
- EX MakerDao black Thursday, cascading liq.
- Need development and network effects.
- Enter Terra, Djed
- Current iteration is a liq bridge, ref point Dollar.
- Very difficult for fiat and stables alike.
- Ex Thai baht removal US peg -> currency devaluation crisis.
- EX MakerDao black Thursday, cascading liq.
- Need development and network effects.
- Enter Terra, Djed
Djed: (Minimal Djed)
- Hybrid, Algo crypto-backed pegged stablecoin
- Ancient Egyptian symbol for stability
- Targets over 1 reserve ratio with algo
- Stop reserve token buys/sells if reserve is too large or small
- Reserve token holders rewarded with reserve surplus
- Hybrid, Algo crypto-backed pegged stablecoin
- Ancient Egyptian symbol for stability
- Targets over 1 reserve ratio with algo
- Stop reserve token buys/sells if reserve is too large or small
- Reserve token holders rewarded with reserve surplus
EX Djed:
- Purchase reserve token when reserve token buy is enabled
- Absorb volatility of underlying, provide stability for djed purchases
- Purchase reserve token when reserve token buy is enabled
- Absorb volatility of underlying, provide stability for djed purchases
Flaws Djed:
- Bankruns can still happen, reserve holders race to sell before minimum reserve reach and buybacks are disabled.
- Whale exploit during Ergo blockchain deployment, slow oracle update gives price foresight. Fix with 60m -> 12m price update
- Extended Djed under dev
- Bankruns can still happen, reserve holders race to sell before minimum reserve reach and buybacks are disabled.
- Whale exploit during Ergo blockchain deployment, slow oracle update gives price foresight. Fix with 60m -> 12m price update
- Extended Djed under dev
Terra:
- UST stablecoin on the Terra blockchain
- Un-collateralized algorithmic pegged stable.
- Luna is not considered collateral from the traditional definition
- Arb opportunity similar
- UST stablecoin on the Terra blockchain
- Un-collateralized algorithmic pegged stable.
- Luna is not considered collateral from the traditional definition
- Arb opportunity similar
EX Terra stability:
When 1UST < $1. UST holder change 1 UST for $1 Luna
When 1UST > $1. Luna holder change $1 Luna for 1 UST
When 1UST < $1. UST holder change 1 UST for $1 Luna
When 1UST > $1. Luna holder change $1 Luna for 1 UST
Terra explained:
- If demand for UST rises users swap Luna on-chain, mechanism "burns" Luna.
- Price volatility of UST is transferred onto Luna fluctuating supply.
- Luna holders absorb short-term volatility.
- Incentived with seigniorage and transaction fees.
- If demand for UST rises users swap Luna on-chain, mechanism "burns" Luna.
- Price volatility of UST is transferred onto Luna fluctuating supply.
- Luna holders absorb short-term volatility.
- Incentived with seigniorage and transaction fees.
Terra is backed by the growth of the ecosystem.
- Harness growth to Luna holders.
- Growth converts to stability for the ecosystem.
- Luna always has util because arb mech
- Util paid for by fee, tax, and seignorage
- Harness growth to Luna holders.
- Growth converts to stability for the ecosystem.
- Luna always has util because arb mech
- Util paid for by fee, tax, and seignorage
Flaws also in Terra:
- No backing, trust the ecosystem.
- Luna holder lose faith could mean a potential death spiral(Iron/Titan)
- Somewhat happened May 2021. Lose peg 2 days, see anchor liqs.
- Dependency on off-chain liq > on-chain liq to prevent on-chain attacks.
- No backing, trust the ecosystem.
- Luna holder lose faith could mean a potential death spiral(Iron/Titan)
- Somewhat happened May 2021. Lose peg 2 days, see anchor liqs.
- Dependency on off-chain liq > on-chain liq to prevent on-chain attacks.
Flaws also in Terra(cont.):
- Lack of liq in off-chain may allow a bad actor to take advantage of oracle price.
- Price impact off-chain now makes an arb profitable
- Must have a large bag, protocol-level solution required.
- Proposals are underway
- Lack of liq in off-chain may allow a bad actor to take advantage of oracle price.
- Price impact off-chain now makes an arb profitable
- Must have a large bag, protocol-level solution required.
- Proposals are underway
Conclusion
- Terra ecosystem is robust and has many avenues for spurring growth.
- A lot of potential from eco-mechanisms.
- Col 5 connections may open for weak spots?
- Djed elegant solution, no exogenous reliance.
- May or may not be reliable or secure when met with demand.
- Terra ecosystem is robust and has many avenues for spurring growth.
- A lot of potential from eco-mechanisms.
- Col 5 connections may open for weak spots?
- Djed elegant solution, no exogenous reliance.
- May or may not be reliable or secure when met with demand.
Time will tell.
FIN
FIN
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