LUNA ‘Hardfork’ Review By The Guy Who Forked Ethereum

A couple of words about myself

LUNA crisis in a nutshell

Terra is a blockchain platform that enables its users to create stablecoins. Terra has its own native crypto currency traded at $LUNA ticker. Terra dev team launched their own (stable)coin $UST on their platform.

To fork or not to fork

Terra CEO proposed to “fork” the blockchain and scrap UST altogether.

Notes regarding the “forking plan”

  • The lack of consensus within the community & dev team is what caused the split in the project — not the proposed solution itself. It is important to investigate alternative solutions and handle a proper PUBLIC discussion of different options.
  • A clear process of PROPOSING, INVESTIGATING and EVALUATING of the solutions must be defined and used.
  • It is important to adhere to the policy of transparency when making such critical decisions. The processes must be observable and well-documented. Financial operations must be commented and documented as well.
  • The consequence of the hardfork (and the chain split) was the split of value between the two “projects” and a so-called ETH-ETC race. At this time, it was possible to clearly observe the inverse correlation of prices of $ETC and $ETH at the market and at the peak point ETC was worth 0.4 ETH. Trading community was expecting “ETH-ETC flippening” which didn’t happen though. The same happened to the hashrate wars between ETH and ETC. It is clear enough that the split in a project governance does not just create the value out of thin air — instead the “value” of one initial project is split between it’s two parts.

It is extremely important to note that alternative proposals are presented within the community, most notably this one:

There is another difference. The problem of TheDAO was not the hack. The problem of TheDAO was that it had too much money and it was a significant part of ETH supply locked in the hands of one person with no incentives to be a bagholder. So the solution was to withdraw his stake. In fact, TheDAO bailout was not solving the problem of TheDAO — it was solving the problem of Ethereum ecosystem and the hardfork WAS the solution to this problem.

  1. The algorithm must be re-investigated and the stablecoin must be reworked. There are time-proven examples of working stablecoins (such as USDT). Possibly it is worth to stick to a more traditional approach.
  2. There were funds allocated to “insure” the collapse like this. Take it and use it on purpose.
  3. There is absolutely no need to split the value of the network between it’s parts (if there will be $LUNA and $LUNC as per Do Kwon’s proposal) — this will only lead to further decrease of the overall value of any of the system parts.

Request to LUNA Team

First of all, I would like to maintain financial transparency. There was a BTC fund that needs to be used to deal with exactly this type of situations. So where did the money go?

I would recommend the team to provide a proof of the funds being spent on the UST compensation. I would encourage the team to comment each significant transfer publicly.

Second, I would propose to delay the emergency hardfork and take the time to investigate the proposed solutions as well as review the root of the problem — the stablecoin algorithm that didn’t work as intended. A postmortem report must be published and the lessons learned must be highlighted to the whole Crypto Community as the accident can be a good experience for further projects.

Callisto Team is investigating the issue

Callisto Network is a security organization dedicated to improving the safety of the blockchain industry.



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