TERRA Liquidity Pools Proposal

A proposal for the handling of the TERRA assets LUNA and UST on THORChain drafted to help the liquidity providers

Update 30 May:

The below proposal did not pass a Node Vote. An updated and final plan for Terra holders will be in the next Dev Update.

Context:
The TERRA chain was automatically halted during a period of extreme congestion. LUNA and UST prices have externally decreased 99.9897% and 89.13% respectively since Terra Chain trading and LP actions were halted on THORChain. Due to the trading halt within THORChain, the UST and LUNA pools still hold value — RUNE provided by liquidity providers.

THORChain has not resumed trading for Terra assets in order to give Liquidity Providers a chance to withdraw. If trading were to resume, funds would be taken from liquidity providers who have put their trust and capital in the liquidity pools in THORChain. Low-risk arbitrageurs stand to profit massively directly from liquidity providers via draining the pool through the use of bots. This totals to approximately 1.6 million RUNE.

Currently, Symmetrical and RUNE Asymmetrical Liquidity Providers can withdraw their LP position and are encouraged to do so ASAP. Previously, a proposed change to allow ASSET (LUNA/UST) Asymmetrical Liquidity Providers to withdraw Symmetrically via an emergency memo patch update underwent a vote and was not adopted by node operators due to the security risk presented (see previous Call to Action for Terra LPers article).

Trading was scheduled to re-start on May 25th. However, with 1.6 Million RUNE still left to claim, THORChain does not wish to see a large volume of RUNE dumped onto the market at the loss of its Liquidity Providers, thus the following new plan of action has been proposed and a community vote is underway.

Proposed Plan:

Do not enable trading on the LUNA and UST Pools

Delist LUNA + UST, move the remaining RUNE into a Treasury controlled address

Refund all Node Operator’s bond slashes relating to the Terra Chain

Refund all UST/ LUNA Asymmetrical Liquidity Providers and Liquidity Providers who have not yet withdrawn through a manual claim for a period of 30 days ending 24th June 2022 at 00:00 UTC.

An interface will be created and used to assign a THOR address to asymmetric TERRA depositors to refund their share of RUNE. This has to be done from the current TERRA LP address to prove ownership. TERRA and UST assets will not be returned due to the complexity of the solution required. Impermanent loss protection is not provided if withdrawn through this method.

A community vote on the proposal is currently underway. Should the proposal pass, 100% of node operators must first adopt a node update that accomplishes the above plan. There is no unilateral action that can be taken by any node operator, individual, or the core team to adopt this plan. Decentralization is at the core of the ethos of THORChain and this approach aligns strongly with the liquidity providers of the protocol.

This proposal has been drafted for the benefit of those who put their trust in THORChain and risk the most by providing liquidity. It is clear that the TERRA chain will be completely removed from THORChain in the near future as the infrastructure, development, and maintenance costs do not exceed the benefit of continuing support.

Voting Procedure:

The vote for this plan will take place in the #general channel in the THORChain developer discord. If this proposal reaches a majority (>66%) by Wednesday, May 25th, 2022 at 00:00 UTC, the proposed plan will be enacted. If this proposal fails, trading will be re-enabled.

Links:
- Link to Discussion + Vote

FAQs

Q. Will the UST/ LUNA assets in the pools qualify for the “post-attack” part of Terra 2.0 snapshot?
A. An effort will be made to include these affected users

Q. Who is going to pay the gas and fees, if applicable?

A. THORChain Treasury

Q. What happens to my existing LUNA or UST in my LP?

A. Burned. The monetary value is too low and can’t be rescued from the vault without serious complexity.

Q. What happens if I have Symmetrical or RUNE Asymmetrical LP?

A. You should withdraw as soon as possible, don’t wait for the pools to be closed. That being said, those who forget to withdraw can still apply for the RUNE refund within the proposed 30 day window (no ILP, only RUNE half of the LP).

Q. How will ILP be calculated?

A. There will be no ILP for this refund process, only claim for the RUNE half of your current LP position.

Originally published at https://medium.com on May 24, 2022.