P2P's Stance on Terra Current State of Affairs

Admin -

At P2P Validator we have been closely following the current situation with Terra. By now everyone has had an opportunity to bring forward a solution and an important proposal has just been put up for onchain voting. We would like to express our position concerning the current state of things and ways to move forward.

In our governance decisions, we aim to maximize value for the community, represented by the following three groups:

  • LUNA and UST holders from before the depeg event. This is the core community of the Terra ecosystem, including some long-time holders. We can assume that most of them had some degree of involvement, not just a short-term speculative interest. This is also the group which has suffered most from the fast crash of their investments. That is why we believe that any course of action should first prioritise the interests of these people. Inside this group, UST holders should be prioritised higher than LUNA holders, because the former invested on a promise of a low-risk, stable asset, while the latter worked with a naturally volatile asset - thus the difference in approach.
  • Protocol teams and validators. These are the key stakeholders for building value for the ecosystem, who have invested time and money to facilitate Terra’s growth. In addition to being harmed by the current situation, these are the only actors who can rebuild the ecosystem, thus creating new value, which can be used to repay other community members who suffered from the depeg. That is why we have to keep their interests in mind, as a second-level priority.
  • Post depeg holders of LUNA and UST. We should give a lower priority to their interests. These holders joined in on an extremely volatile asset, taking a risk to gain high rewards. The community is not responsible for providing them with an artificial safety net.

And there is also TFL - a major stakeholder, whose actions during the crisis are questionable, with some legal action expected against them soon. We don’t believe that any plan should focus on protecting TFL as they should have been fully aware of the risks they were taking.

To sum up, old holders > protocol teams & validators > new holders >> TFL.

Our options are currently few - we can either find a way to compensate the victims with existing funds (presumably from TFL/LFG) and stop the chain OR try to build new value to do that while also saving the ecosystem (presumably in the form of a new chain). The former option relies on the good will of TFL who are committed to option 2. There is just no valuable asset left in Terra to do that, so it seems like the only option we have is to build. The building option can follow three general paths:

  1. New chain under TFL’s leadership (i.e. proposal 1623) - we can save the ecosystem and the community, try to bring new value, albeit with a dubious leader ahead of the process, who, however, has been the only one capable of decisive actions on the ecosystem level since May 8. We will only be supportive of this proposal if we see a clear indication that TFL and LFG are excluded from the token distribution, TFL has a compelling vision for the new project, and TFL is not perceived as toxic by the community. We can not vote YES for such a proposal at the moment.The issues are: only one address excluded for TFL and none for LFG, no clear vision for the new chain, general disbelief from the community. However, we would support introducing an incentive program for TFL (e.g. tiered unlock of funds tied to the new chain’s market cap) if the aforementioned issues are solved - otherwise there is no reason for them to lead and participate if all their accounts are excluded at genesis.
  2. New chain without TFL. Same as above, but the progress is to be driven by the community (most likely protocol teams + validators). This is a fresh start, but the success without a leadership structure in such turbulent conditions is questionable. We will be happy to support the proposals that follow this path if we see a new leadership team among the community members who can drive this endeavour.
  3. Move projects to other chains and restart there. These might be a good option for some specific teams, but it leaves the victims of depeg alone.w

P.S. Separately, there is an alternative path explored by the ‘Burn LUNA’ proposal. This one in particular lacks sufficient detail to be accepted in such form. Specifically, it does not describe any clear benefits for the stakeholders, and the implementation plan is ambiguous. Nevertheless, we will conduct additional research to see if this line of thinking could be promising for the UST / LUNA holders.

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