Thread by @wrapped_dday

For those interested in #Ziggy whitepapers, please see the quote tweet below.

I will go down both and explain each in as much simplified detail as possible. I can produce a litepaper based on reoccurring questions.

This thread will be for 1: Market Module - Demurrage.

https://twitter.com/OnyxNodestones/status/1641839434768470017

1: Upgrading the Market Module - Demurrage

I have been requested by the L1 team to provide a paper on the Market module. This allows for swaps between $USTC and $LUNC.

Keep in mind that these are two separate pools, and they are labeled "Terra" and "Luna" respectively.

There is no "lunc" (ie, "ulunc") in the documentations; "uluna" is the denom used.

"Terra" makes up all fiat currencies that are "not Luna" - such as $UST, $KRT, $JPT, $EUT, $GBT, and more.

"Luna" makes up all other commodities. In #LUNC's case, this is just $LUNC.

Keep in mind that money is a commodity - a medium of economic exchange accepted in mutual consent as a product of the double co-incidence of wants.

Seigniorage captured value on producing money by minting. Demurrage captures value on recycling money by burning.

If we consider any cryptocurrency-of-value as having properties similar to gold, then we can discover the costs aligned with minting, and the costs aligned with burning.

This paper serves as a baseline primitive to this discovery by attempting to determine "cost of writing."

The paper follows a proofing of how values are ascertained. In short, we are trying to determine the value of cryptocurrencies by using "writing to blockchain's memory" as a baseline, then watching money move in and out.

In #TRCRR, when Terra = Luna, costless exchange happens.

Costless exchange, or "perfect swaps," is a double co-incidence of wants where both parties agree that the value is equally valued. To an extent, this is impossible; if the swap was perfect, why is there need to swap in the first place?

Commodity values are, however, subjective.

In order to determine where costless exchanges happen, we must derive roots of demurrage inputs mathematically - and then work around it.

That is to say, if the root of an economy utilizing seigniorage and demurrage at x = 0 occurs, there is risk of a 0-value exchange.

In the above example, a = Terra, and b = Luna. These can be switched as necessary.

As our economic flow trends towards these values, we risk 0-value (costless) exchanges - which risk "singularity" events of value (goes to 0).

We must routinely burn to avoid these events.

There is one hitch - the money needs to move out of the network in the same way it needs to move in.

That is to say, for #LUNC, you cannot rely on only new capital inflow. Eventually, people will sell at loss, or you will use your friends for exit liquidity.

Hoarding, a la Smaug, drives market participants to search out your treasure (and then slay you to claim it). Lietaer, who worked closely with $BNT, suggested to use demurrage to prevent this.

On Terra x Luna, we simply automate burns to a 3rd asset.

wiki.p2pfoundation.net/Terra

The only thing that needs to be done from the governance end is to determine what to swap to. Most protocols might be inclined to opt for BTC, but some that issue native governance tokens might want to routinely buybacks.

As a result, an index is created.

When describing this new model to @luncburnarmy, it was as follows:
1: Each country or alliance (like the US, Japan or EU) has their own chain. ("Terra/Luna")
2: Terra commodity index is made up of fiats.
3: Luna commodity index is made up of crypto+ coins or tokens.

In enabling this, we can also enable market swaps safely - most of the work is on the side of deciding how to weigh each index.

For example, SPRD S&P 500 ETF Trust $SPY uses these weights - but these must be routinely turned over. ("rebalanced")

Let's say that #LUNCcommunity members would like to start their own business, and use their own chain, perhaps via enterprise services like $QNT or a new Cosmos chain.

They can create their own coin or token "Terra" and utilize a simple index like BTC-ETH as their "Luna".

An Automated Market Maker (AMM) can handle turnover in this manner using Balancer Weighted Math - different weights carry different risks associated with Impermanent Loss (IL).

More importantly, we can leverage $BAL-style pools in the form of Terra <> Luna individual chains.

Alternatively, these can be completely handled by governance via handlers. The important thing to note is that users always have a choice because they can fork at any time.

Perhaps $CRV and $CVX want to run a merger for efficiency - simply consolidate this to one chain.

For example, $CRV relies on large holders to work efficiently (convexity). $CVX allows users to use vote proxies (bribes) to create an efficient market - as they are deciding where the 'efficient output' is optimized. (ie, their favorite protocols.)

As an incredibly short-form summary of this thread: whenever we burn, we need a proper output.

Reducing supply is great and all, but if you burn and only you get warm, no one wants to do it.

We need our own "Burning Man", so-to-speak - a place to congregate and have fun.

Ziggy will fork into a new chain, complete with a workshop space, Stardust, and use $SZT (subject to change) as a way of creating an open innovator & creator market.

Going forward, burning must be done with purpose. It can be fun, to save, but it cannot be just for oneself.