UST De-Peg Update

Announcement, Claim Request, Community / July 13, 2022 / 10 minutes of reading

**The information contained in this blog post is correct as of 4:00am UTC 16th May 2022, but is subject to changes. As new information comes to light from TFL (Terraform Labs) or other industry sources, updates may be released that change elements of this process. Some changes may be subject to a community vote. Please contact our team on Telegram or Discord for further clarification on any questions. Community feedback will enable us to improve this information.** 

Following the last week of events surrounding the issues with Terra, Luna and the resulting De-Peg event of UST, we have the latest update for our policy holders, stakers and wider InsurAce community.  

You can view our last blog post on this matter including a Claim Guide, here: https://www.insurace.io/blog/?p=2936 

Included in this blog post: 

  1. The latest overview of UST de-peg event & information from Terra 
  2. Information for policy holders
  3. Information for stakers
  4. Information about claim voting
  5. Contact

1. Latest overview of UST de-peg event & information from Terra 

As of the time of writing, UST has a current price of $0.15, meaning that it has still lost its peg. Our TWAP trigger price of $0.88 was called at 5am UTC on May 13th 2022.  

The latest information we have from Terra, TerraForm Labs, and Luna Foundation (including Luna Foundation Guard) is as follows.  

Vitalik Buterin, the creator of Ethereum, critiqued the entire premise of UST, stating, 

“‘Algostable’ has become a propaganda term serving to legitimise uncollateralised stables by putting them in the same bucket as collateralised stables like RAI/DAI and we need to really emphasise that the two are very different.” 

Changpeng Zhao (CZ), CEO of Binance, critiqued the proposed hard fork plan for the Terra blockchain stating,  

“This won’t work. Forking does not give the new fork any value. That’s wishful thinking. One cannot void all transactions after an old snapshot, both on-chain and off-chain (exchanges).” 

CZ went to further question the transparency of Do Kwon and the Luna Foundation Guard’s accounting for its BTC reserves. Vitalik also called on Terra to prioritise small retail holders over whales in any proposed reimbursement plans.

Jiyun Kim, CEO of blockchain solutions company DSRV, urged validators in the Terra ecosystem to reject a hard fork in favour of a brand-new community-driven blockchain, stating, 

“The previous Terra chain should permanently vanish. And a completely new chain driven by the community should [be made to] save the Lunatics.” 

DSRV runs a validator node on Terra with 9.36% of the on-chain voting power and recently published an opinion post written by Kim which detailed the unfolding of events from the validator’s perspective during the Terra death spiral. 

According to the post, the Terra Validator League (now renamed the “Terra Rebirth League”) did not take the decision to halt the chain lightly, and the Terra team had failed to give the proper notification using the word “Confirm” to actually confirm with all validators that they should halt the chain, leaving him feeling “betrayed.” 

Kim appears to completely disagree with Kwon’s plan to reconstitute the chain and reset token supply to 1 billion LUNA, stating that re-using the Terra chain “is completely making Terra chain’s internal value to 0.”  

Whilst these plans and proposals aim to compensate UST holders in some form or another, it is unlikely they will be able to compensate all and re-establish any form of a new project at the same time.  

There have been rumours about market manipulation regarding this event, our team are following all major investigations into these allegations.  

2. Information for UST De-Peg policy holders 

Recently we brought out a Claim Information and Guide: https://www.insurace.io/blog/?p=2936 

Policy holders believing they have been affected by the UST De-Peg events should follow this guide and submit their claim as soon as possible.  

They should then transfer their remaining UST to the EVM-based (Ethereum, BSC, Polygon, Avalanche) wallets they used to buy cover with. All evidence should be submitted via email to claims@insurace.io 

There are some individuals who hold their UST in Nexo or currently have it locked in Aperture, Orion Money or Mirror Protocol. We advise that if the situation changes for these, to withdraw as soon as possible and bridge to the EVM-based wallets. We will bring out individual guides for these later in the week if required.  

Users are encouraged to submit as much evidence as possible relating to their holdings for the period between the 3rd – 13th May.  

There have been some instances of individuals attempting to game our system. Some of these have already been flagged by our team.  

Please read the above guide and policy wording carefully.  

Next steps for Policy Holders:

  • Claimants will receive an email acknowledging receipt of their evidence. 
  • If we need more we will email them asking for more info. 
  • There is no “acceptance/approved” email.
  • Some extreme cases will get automatically rejected for obvious reasons, they will be informed of this over email.
  • All other claims will go to the group claim vote stage.
  • Having the evidence received, and not rejected does not guarantee a payout. 
  • First the vote needs to be accepted.
  • Secondly a final proof of funds will be verified before the swap commences.

Policy Holders have until the 20th May to submit their claims.  

Following this time, claims will be processed, and at the same time, a report will be put together about the event and claims, ahead of the group claim vote following the claim process.  

Details of the vote will be released ahead of the vote, but there is also some basic information contained within this blog post.  

3. Information for stakers 

Firstly, we would like to apologise for not being as fast to bring out information for stakers as we should have been. The immediate concern over the last week was to understand the situation and enable the systems so that users who had lost 80% of their UST holdings would be able to claim and provide us with adequate information as soon as possible.  

Withdrawals were halted from the InsurAce app after the first claim had come in. Some stakers were able to withdraw funds before that time. There have been no exceptions to this rule since.  

At the time of withdrawals halting our TVL was around $50m it has dropped to $46.6m, this is due to the value of some tokens decreasing (e.g. ETH, BNB, MATIC, AVAX) during this period.  

As of now, we have 128 claims totalling $7.3m.  

There was a total of 234 policies covering $22.2 million. 

We understand that a lot of users are frustrated by both the potential payout in this case, and also the lock-up of funds. This is a common practice as adopted by all insurance protocols to maintain the solvency of the insurance platform, and the staking yields are thus distributed as a reward for this insurance underwriting. As we are working at our best to process the claims as soon as possible, we would also like to seek your patience and understanding with this special situation.  

Withdrawals will be unlocked after the payout (if accepted by the vote) is all settled.  

Here are some of the reasons why we do not expect the impact to be anywhere near the total $22m of cover…  

  • We know of a few big investors who had previously sold their UST 
  • Some double covers from individuals covering anchor and UST separately  
  • Some invalid claims due to selling their UST for arbitration reasons  
  • UST is unlikely to go completely to zero.  
  • Out of ~250 covers, some simply will not claim.  
  • There are a lot of investors who have their UST in long stakes on various platforms (including Binance, Nexo, Orion, Mirror, Aperture), these may be paid out over time. 
  • We will use some premiums and reserves to help minimise staked funds usage.  
  • We are working on ways to compensate stakers  
  • If we are holding UST and it re-pegs later we can use this too. 

Here is the above written in more detail with some data as of now: 

There are 234 policies, we’ve had 128 claims so far totalling around $7.3m. This is before we eliminate any for being invalid (there will be quite a few). 

So, sub $10m payout likely.  

BUT… that’s at full USDC value.  

We are receiving back the UST which can be sold or held for repeg. Let’s take the current price of $0.2. So, selling would reduce this total by $2m.

Using some revenue income ($1m maybe), reduces total by $1m.  

We think there could be some external donations in support (not confirmed).  

But let’s take the $7m figure.  

That’s 15% for stakers (based on $45m)  

Our APYs are typically 20% give or take on average.  

So a fair risk/return for a staker might be 10%.  

Meaning if we find compensation for the extra 5% that should be fair.  

One thing that we will say here is that it was very unlucky that our second payout case has come from our largest product by far. In the future, exposure will be limited to around 5% per product.  

There are many passionate members of our staking community who think that we should not pay out for this at all. They would like a full investigation into the cause of the De-Peg. We will investigate fully to the best of our ability.  

We are also considering some of the following to reduce impact further for example: 

  • Checking for fraud with a bounty 
  • KYC any potential fraud cases to be safe 

But here’s what we can really do to help reduce the impact on stakers, we are working on a compensation plan to help bring down the impact on stakers that are faithful to our project.  

There are currently many different compensation plans we are working on for affected stakers. These compensation plans will be awarded to stakers who do not withdraw following this payout and continue to stake with our project. Potential compensation plans include everything from insurance discounts, revenue shares, token vestings, and external token allocations, amongst others. None of these is confirmed or guaranteed at this time and details will be brought out at the appropriate time.  

Something that should be understood here is that this is a huge case, for InsurAce, for DeFi, for Crypto. We seek your understanding and support if this takes more time and extra complexity.    

4. Information about voting 

Detailed information about our upcoming claim vote will be released after all claims have been received and processed. But for now, here is some basic information on how our voting system works:: https://docs.insurace.io/landing-page/documentation/protocol-design/claim-assessment/claim-assessment-process 

Anyone can participate in the vote by staking INSUR tokens into app.insurace.io , no single user can accrue more than 5% of the vote power.  There will be a detailed investigation report based on all the facts and data as a reference for the voting.

The vote will last 36-48 hours and it will be to accept or reject a group claim proposal.  

There are still many sides to this whole De-Peg event, still yet to be unpacked. We believe that there will be a fair vote given the information provided, both because the winning side will earn voting rewards, but also because the report will highlight the situation objectively and help everyone to understand the situation better. A fair vote is representative of crypto and why we are all here and will benefit all token holders in the long term by establishing the credibility of InsurAce via fair claims. Self-interest may creep in, however, we do not think it will prevail.  

5. Contact

Some of you are already aware that our CMO, Dan, had been manning the Discord and Telegram groups personally since the beginning of this crisis. He is handling most questions personally to reassure the community that the team is working hard on making this right for stakers, customers, and the project’s future.  

We now have dedicated discord servers for both Claims and Stakers. Join the conversation here: https://discord.gg/EKR5ZcNf 

For any other questions, you can reach Dan under the handle @vagrantcrypto on any social media platform. But we advise questions around this staying on Discord for ease and transparency.  

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