Vitalik Buterin, the co-founder of Ethereum, believes that any suggested payment strategy for the ailing Terra project should favor tiny hodlers.
As previously reported, the Terra ecosystem went into a death spiral on May 9, resulting in Terra (LUNA) losing its US dollar peg and the TerraUSD (UST) stablecoin losing its US dollar peg, which was valued at $0.16 at the time of writing.
With LUNA and UST investors suffering significant losses, the community is now seeking methods to repair the ecosystem and provide financial assistance to many who have been harmed.
Terra’s proposal to refund all UST holders
If the UST dollar is finally stable, one community idea is to repay all original deposits (not yield) of small UST holders initially in order to “greatly enhance overall morale and attitude” while figuring out how to segregate debtors and bigger investors afterward. It is projected that the payoff will cost between $1 billion and $1.5 billion.
On Sunday, Buterin expressed support for the proposal on Twitter, saying that the focus should be on the smaller investor who needs the money, before adding that the whale hodlers should bear the loss:
“Coordinated sympathy and relief for the average UST smallholder who got told something dumb about ‘20% interest rates on the US dollar’ by an influencer, personal responsibility and [sorry for your loss] SFYL for the wealthy.”
While the Ethereum co-founder did not advocate for regulation, he did mention that potential safeguards like bank deposit insurance may be valuable in certain situations.
It’s uncertain at this point if the project will be able to recover or whether it will attempt a brief rebound to recoup investor losses, however tough that may be. It’s also worth noting that the proposal linked to Buterin’s statements has been amended this week, and it now considers paying out all users up to a $50,000 per-wallet maximum.
Another proposal floating around the internet is to create a “TERRA 2” hard fork for the Terra blockchain, as well as a liquidity pool to restore UST back to its peg.
Do Kwon, the creator of Terraform Labs, has suggested a reorganization of the Terra blockchain in order to reset “network ownership” and give 1 billion LUNA tokens to the community.
Popular players in the crypto world, such as Dogecoin (DOGE) co-founder Billy Markus, have criticized Kwon’s planned “Terra Ecosystem Revival Plan” and have asked for him to quit the industry.