Ask Leo: Could Consistent Burning Of The Flawed Minted LUNA Token Helped Stabilize The Price?

I am no crypto guru or blockchain guru or a tokenomics guru but just a free thinker. The LUNA/UST mechanism was designed in a way to regulate its supply and demand through arbitrageurs consensus mechanism. Where minting of one can be done to reduce value thereby enabling the burning of one to increase the value. Which was a nice idea but what happens when it gets flawed and there becomes an uncontrollable amount of minting from both ends of UST and LUNA.

While algorithmic mechanism seems decentralized, the flaw that happened to UST/LUNA is something lots of people need to learn from. The blockchain was minting way too many LUNA/UST more than there was demand. Imagine having 2 Billion apples for 1 Million people in a village to buy, and not everyone in the village likes apples. This will lead to excessive price decline because the price is ready to go down so low it will try to accommodate any price anyone is willing to pay for it, thereby losing its value. Now imagine a tree producing those apples uncontrollably and constantly. Making the price go much more lower, that’s why it was easy to see a lot of people lose a lot of money yesterday. The Terraform shutdown the blockchain, I guess it was done so to stop the minting of the excess coins and tokens, but how can transactions be made across if the blockchain is shutdown.

About few days ago the supply of LUNA was just barely 345 Million, due to some coordinated attack to the destabilization of the UST, UST lost its $1 peg, causing holders to panic who then decided that its time to sell off. Remember that it’s algorithmically based and connected to LUNA, this got more LUNA minted and added to the supply. As the supply went up, the price went down, caused another panic selling for LUNA. Remember that the sell of one mints the other, now imagine getting sold from both ends simultaneously causing uncontrollable minting from both ends. We now have the supply of LUNA increasing from 340 Million to 6.4 Trillion because its minting way too much.

Now the big question is, if Terraform had made an emergency design to burn the Luna Token and UST token simultaneously as solution to its problem, would it have helped stabilized the price? Because, just as technology can help in making work easier, better and faster, flaws is something to look out for and are inevitable. If a mechanism was designed to automatically burn tokens that try to exceed the total amount of supply, just May be, there would have been saving opportunity for the platform. If it’s not possible, then influencing the feature it should have been the next solution.

Don’t forget, I am no blockchain expert, I don’t know how these things work. Just a suggestion that I feel should have helped, but what do I know? If it was an option Do Kwon won’t be in this mess.

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