The Terra ecosystem fell into a death spiral last week, the governance token LUNA plummeted 100%, and the algorithmic stablecoin Terra USD (UST) lost its peg to the US dollar, resulting in huge losses for LUNA and UST investors. Currently, the development team and the Terra community are actively exploring ways to rebuild the entire ecosystem, and may offer compensation to investors.
In this regard, Vitalik Buterin, co-founder of Ethereum, believes that Terra should give priority to compensating UST small holders.
A community member had earlier suggested that once UST reverts to the dollar peg, Terra should first repay all deposits (rather than proceeds) of UST small holders to “significantly improve overall morale and sentiment” before figuring out how to respond to creditors Compensation with large investors. The proposal estimates spending between $1 billion and $1.5 billion.
Amateur investor PersianCapital also posted on Twitter that the small holders who currently deposit thousands of dollars of UST in Anchor account for 99.6% of the total users. If the small holders can be compensated first, 99.6% of the wallets can be fully compensated , which will be more conducive to stabilizing community sentiment.
In this regard, Vitalik Buterin also supported the idea on Twitter, noting that the focus of compensation should be on retail investors who need funds, and he further suggested that giant whales should bear the losses themselves:
For ordinary UST small households, they are misled by the “20% US dollar interest rate” claimed by cryptocurrency KOLs, so they should express sympathy and relief to these users. As for the wealthy and big, their investments are personal responsibility and can only say “sorry for your loss”.
At this stage, it is still unclear if the Terra project will be able to rebuild, or if it will be able to cover the losses of investors, but it is worth noting that the proposal related to Vitalik Buterin’s comment has been updated within a week and is now weighing compensation to all users is capped at $50,000 per wallet.
Another idea circulating on the Internet recently is to develop a hard fork upgrade called “TERRA 2” for the Terra blockchain, and start a liquidity pool to help UST restore the peg, but this proposal was immediately rejected by Binance. Founder Changpeng Zhao (CZ) slammed it, tweeting that “forks don’t bring any value to new forks. That’s wishful thinking.”
On May 14, Do Kwon, co-founder of Terra, published the proposed content of the “Rebirth Project” on the official Terra forum, with the central goal of “reorganizing the Terra blockchain, protecting the community and the developer ecosystem” and proposing “distribution. The proposal of “1 billion new tokens” has been strongly opposed by the cryptocurrency community. For example, Billy Markus, co-founder of Dogecoin (DOGE), called for Do Kwon to leave the currency circle, and pointed out:
If they want to compensate victims, it should be done with funds previously obtained from investors, not new funds from new victims.
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