Emergency measures for restoring Terra peg

Author: Daniel Hong (@unifiedh) | Peter Pan Crunch LLC, ex-Terraform Labs & Anchor

On-chain vote

Proposed changes to Terra Core:

Increase base_pool from 50M SDT to 1B SDT, and decrease pool_recovery_period from 36 blocks to 1 block.

This is an amendment of a previous proposal that also implements a similar change, but at a smaller scale.

As this change is fairly aggressive (increasing total minting capacity by ~720x), minting parameters should be rolled back to less aggressive levels immediately as market conditions stabilize.

Proposed changes to Anchor Protocol:

Decrease minimum interest rates to 3.5%, and maximum deposit rates to 5.5%, with a targeted interest rate of 4%.

Based on the current block time assumption of 4,656,810 blocks per year, this translates to:
target_deposit_rate = 0.000000008589570972
threshold_deposit_rate = 0.000000008589570972
dyn_rate_min = 0.000000007515874600
dyn_rate_max = 0.000000011810660087

This should temporarily stop the Anchor reserve from depleting such that TFL will not have to deploy additional UST, which should contribute to stopping the depeg death spiral.

Again, as this change is fairly aggressive, those parameters should also be rolled back when deemed necessary.

For market module parameter changes on Terra Core:

Current market parameters cannot properly contract UST to levels required to restore its peg.

Anchor alone saw a $8B decrease in TVL, let alone all other TeFi applications. Counting in discounts due to UST depegging, this loss in TVL is massive.

Emergency measures should be made to temporarily increase virtual liquidity for Terra <> Luna swaps ~1000x, otherwise UST depeg would be prolonged, worsening the situation.

Another reason for the 1-block pool_recovery_period is Tendermint’s FIFO mempool.

The Cosmos SDK and Tendermint (of which Terra is based on) uses a fixed gas price system with transactions being accepted with a first-in-first-out basis, which may easily get congested during high traffic. This means Terra <> Luna swap transactions may not properly go through during a time when arbitrage is of utmost importance.

Resetting the virtual swap pool every block should help with this, as there would be no competition for better exchange rates and lower slippage immediately after the base_pool is reset.

For Overseer contract parameter changes on Anchor Protocol:

A depegged UST cannot sustain 18% APY any longer.

While some may argue higher interest rates help with less UST circulating supply, when the stablecoin have already lost trust from the public due to a 2-day depeg people would try to exit anyways.

One significant factor for today’s depeg was the release of Terra’s stability reserve into the Anchor reserve every time it was depleted, introducing newly minted UST that was not supposed to be there into circulation.

Back when Terra’s focus was on payments, having a centralized stability reserve at least made sense from a business perspective, because it is capitally inefficient to introduce new Terra into circulation from burnt Luna for a traditional fintech application like Chai.

When you’re doing savings and DeFi products, Anchor could have done better.

Temporarily lowering Anchor’s interest rates should stop the Anchor reserve from being depleted, preventing additional UST from entering circulation. Interest rates could be re-calculated when the depeg is resolved.

Terra Core:

  "subspace": "market",
  "key": "BasePool",
  "value": "1000000000000000.000000000000000000"

  "subspace": "market",
  "key": "PoolRecoveryPeriod",
  "value": "1"

Anchor Protocol:

    "order": 1,
    "contract": "terra1tmnqgvg567ypvsvk6rwsga3srp7e3lg6u0elp8",
    "msg": {
      "update_config": {
        "target_deposit_rate": "0.000000008589570972",
        "threshold_deposit_rate": "0.000000008589570972",
        "dyn_rate_min": "0.000000007515874600",
        "dyn_rate_max": "0.000000011810660087"

hang on, just to confirm is this joint prop for terra and anchor?

the terra prop is to dump luna to burn UST at a rate fast enough to restore the peg am I right? this is going to be insane?? but it will work, when is it being posted?

the anchor side is just to prevent an attack while doing this correct?/

Yes, you are correct.

I will post both proposals onchain after hearing thoughts from the community.

If there’s no stablecoin, there’s no Luna

Both to prevent attacks, and to control UST circulating supply


if I could I would put you in charge right away we should have done this from the start.


Hi, I cannot transfer the UST held here on Anchor to my Binance account, is there a reason for this? Also based on the above, would the UST return to its Pegged rate … my funds have halved in a day for no reason!

TVL has decreased a lot and it doesn’t fall out as fast as it used to. It might be better to leave the interest at or rather increase it to keep the UST peg. The priority is to prevent users from leaving.

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Will changing the Anchor rate to ~4% not mean that pretty much all of the 4b UST that is still there also gets withdrawn?

A rate around 10% might encourage people believing in the peg to keep these funds in.

I suppose the tradeoff is whether the additional potentially billions dumped is worse or not than the yield reserve running dry in the next few weeks & Anchor switching to a dynamic rate.

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They will leave anyways if UST stays depegged for more than a week. No one will use a savings protocol that doesn’t have principal protection.

The current dynamic rate algorithm has a capped interest delta. It won’t be enough to adjust rates quickly before there is another yield reserve bailout

Also this is a temporary measure before UST is repegged. Once the peg is there, then we can talk about higher APR. But not now.


Terras prop is almost at quorum.

community already had all of their collateral blown out which just leave depositors and you know how they feel.

@narco78 whats your take? I think the hole needs to be plugged once and for all imo.

I really don’t see a solution here. The system needs to do what it needs to do, but ultimately LUNA is heading to sub cents and UST going towards zero on the back of no demand. There is no such outcome of UST ‘at peg’ again.

Maybe there can be some kind of a capital raise or some guarantees, but any attempt to salvage this situation is a sunk cost, like Iron Finance was.

I wish I had some ideas or better news, but this is what the outcome was always going to be as a result of poor risk management.

Do Kwon and Matt are the guys who need to be held accountable as heads of each side of the operation.


withdrawal from Anchor protocol to terra station, terra to finance -could take up to an hour to show.

In some form, Anchor probably needs to be purchasing other-chain assets in it’s treasury. The yield reserve is a good idea as it offers stability, but moving to a floating rate and acquiring bonded assets might be better in the long run. If staking yields on ETH, SOL, AVAX, etc are to become the low risk yield in a Defi world, having those assets in treasury can provide a bottom floor for UST demand as all yield is sold for it. Even if those assets depreciate in price, it is irrelevant as there is always loan demand generated from anchor. Kind of like how central banks purchase other CB’s currencies, even if it depreciates.

guys, we should have a live chart showing UST market cap or supply and spam the shit out of it on crypto twitter.

Please, just accept that it’s over. This is the best for you and everyone reading it.

Get rid of the rest of your $LUNA, $UST, $ANC, $ASTRO, any Terra project and NFT and run away. The ecosystem is getting delisted soon.

Move on and next time be wiser.

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Sorry to waste your time asking unhelpful questions, but hasn’t the depeg widened every time luna dropped? They seem to be inversely correlated.

Where will luna be dumped? Onto CEX’s? I don’t understand how reducing UST’s 15 billion circulating supply is going to help restore the peg if there’s no demand for UST to begin with and even less if luna craters further.

Public, perception of luna, false though it may be, is that its market cap is an indicator of value that could be used to provide some partial measure of value to ‘junk bond’ UST bag holders.

Crazy as it sounds, it almost seems like the answer is to pump luna using btc reserves. Every time it goes up, the UST depeg narrows.

Pardon my ignorance. Trying to learn.


The idea is to make UST hyper deflationary, buy as much of it as discount as possible, and burn it by issuing luna. Luna’s nominal value will be destroyed in the process but once all the dust as settled ultimately the number of zeros behind lunas number doesnt matter so long as its able to find a trace of solvency.

Which ironically it does so long as UST exists in the market, luna is solvent, why, because you can redeem the ust for $1 worth of luna. Does this actually work? who the fk knows. 100% terra will be mitigated to a fringe blockchain, 50/50 we hold peg ontop of that. We will never be able to mint UST like lfg did ever again since our market cap and demand is destroyed but so long as the stablecoin lives banks die.


Thank you for taking the time to explain the idea. I really do appreciate that. If you happen to have more time, I have a few follow-up questions:

When you say “burn it by issuing Luna” who exactly is the Luna issued to? Does the protocol automatically dump the new Luna onto other protocols’ and CEX’s Luna/USD pairs?

And if UST’s supply shrinks, can’t legacy market makers just ignore that fact and continue to offer a paltry rate on UST/USD pairs?

It seems like they hold all the cards unless luna demand increases, which the market lately interprets as the peg being restored. In cases like this behavioral finance often seems to have a better guide than fundamentals. Even though I’m a UST holder, I’d rather see Luna pumped outright with all remaining BTC reserves, since the market has consistently treated that as a reason to offer better UST/USD rates.

But I admit I am out of my depth and just trying to find a way to retain as much value as possible in my UST holdings. Welcome to the party, I suppose. Luna holders must feel even worse. I can’t help but to think the rumors and right and Kenny over at Citadel is celebrating this morning.

Thanks again for your time. I really do appreciate it.


This proposal is live for on-chain voting.

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Everyone on terra can help arb the peg back to health with this route:

Solana, portalbridge.com jup.ag terra station and solana wallet needed

Swap UST for luna on terra station
bridge luna to solana via portalbridge.com
swap luna for ust on solana
bridge ust from solana to terra via portalbridge.com
repeat process n times until youve recovered all your capital. rejoyce, you’ve helped push back the peg and made a ton of money in the process.