Sunsetting Lido on Terra

[seichris]

Summary

Lido proposes to sunset operations on Terra Classic. If you’re a stakeholder of Lido on Terra, please read carefully to understand the implications.

Context

As UST and Luna death-spiraled, the native redemption mechanism was overwhelmed by capital seeking exit, and Luna hyper-inflated. This rapidly diluted the staking ratio of the network, threatened its economic security, and led to two consecutive halts and emergency patches. Today, only ~0.004% of the Luna’s supply is staked, ~26% of which is staked with Lido.

The disabling of delegations and the market module has rendered Lido on Terra largely inoperative. New bLuna or stLuna cannot be minted, and the transaction which allows the system to claim and handle rewards is unable to execute. As a result, unclaimed rewards are currently stuck in limbo.

Re-enabling delegations and the market module would return some functionality to the protocol, but seems unreasonable at this time, as the cost of an economic attack remains extremely low (around $10,000 at the time of writing).

The protocol’s permissioned set also faces significant challenges. Whitelisted operators such as Figment and Chorus One have already announced they would be shutting down their Terra Classic validators. How long other node operators will continue to support the network is uncertain and, should delegations be re-enabled, the inflow of even a small fraction of the current circulating supply could dramatically reshape the network’s active set. This would partially or entirely suppress the protocol’s ability to generate yield for its users, and put the protocol’s existence into question.

Finally, Terra’s validators and developers have either pledged their support to the new network or are considering migrating to other chains. As a result, it seems unlikely that Terra Classic will ever return to a normal state of operation.

Sunsetting Lido on Terra Classic

Given the circumstances, we propose to stop maintaining Lido on Terra Classic.

Smart-contracts could be upgraded to unbond all LUNAC and claim rewards. However, given the unstable state of the blockchain, there is no guarantee that contracts would operate as intended, nor that the upgrade wouldn’t cause further losses.

Instead, once a reasonable amount of time has been left for users to withdraw their assets, we propose to burn the keys to the smart contracts. It implies:

Making all contracts non-upgradable,
Updating the Hub’s configuration to make the contract owner invalid.
Finally, shutting down the Terra UI 3,