[New Cluster Proposal] Introducing LUST: Proposal for the First Cluster on Nebula Protocol

Authors: @tansawit @traviolus @songwongtp @AlphaDefi


With the full launch of the Nebula Protocol approaching, we would like to propose our idea for the first cluster on Nebula: a LUNA + aUST cluster, combining to create a downside-protected yield-bearing asset with LUNA price exposure.

The cluster would enable cluster token holders to benefit from LUNA’s price movement while significantly limiting their potential downside risks. And with its exposure to aUST, the cluster also benefits from Anchor’s stable yield rate, becoming a yield-bearing asset itself.

Cluster Details

  • Name: LUST Cluster
  • Cluster Token Symbol: $LUST
  • Penalty Function: Default penalty function (as implemented here)
  • Inventory Assets: LUNA, aUST
  • Target Weight Mechanism: Asset weight inversely proportional to their relative market cap
  • Target Update Frequency: Every hour

At current prices and market cap, 1 dollar allocated into the cluster would result in:

  • ~$0.3 assigned to $LUNA
  • ~$0.7 assigned to $aUST

2022 Year-to-date historical cluster performance (LUNA vs aUST vs LUNA-UST LP vs LUST Cluster)


We envision that the cluster could serve as a safety option for users already in the Terra ecosystem. Looking at the simulated historical performance chart above, during the first significant LUNA drawdown of 2022, LUNA’s price dropped by over 45%. However, cluster token holders would be much less affected, facing a much milder 15% loss.

And while many already hold LUNA and aUST as part of their portfolio, holding the cluster tokens instead has numerous advantages. First, like all Nebula clusters, the LUNA and aUST in the cluster are not static but dynamically rebalancing. This means that cluster token holders would not have to worry about taking profits or increasing their exposure themselves and can instead focus on other aspects of their portfolio.

The cluster tokens can also be used in numerous ways on both Nebula Protocol itself and other protocols shortly after launch. These includes:

  • LPing and farming in cluster-UST Astroport liquidity pool
  • As collateral on money markets such as Anchor, Mars, and Edge
  • Leverage their exposure through Levana

The cluster also aims to bring more use cases to the aUST token. Previously, the only use cases for aUST were as collateral on protocols such as Edge and Mirror (both of which have liquidation risks) or Kujira’s Orca. And even with these use cases, we’ve seen that there is still unmet demand for utility. This demand is especially noticeable by how Edge’s current cap on aUST is repeatedly filled within minutes of being increased.

Example Use Case

Take the example of a money market. Imagine a user Alice borrowing from Edge using LUNA and aUST as collateral wants to take profit (oh, the heresy) into aUST after LUNA price significantly appreciates. Currently, they would have to:

  • Repay any loans
  • Withdraw the LUNA collateral
  • Swap their LUNA into aUST
  • Deposit the swapped aUST back
  • Re-borrow

This takes numerous steps and requires multiple actions by Alice. Instead, if the cluster token were to be used as collateral, Alice wouldn’t need to pay back any of the loans, withdraw any collateral, or do any of the rebalancing themselves.

Instead, the cluster would automatically handle all of those for them, without its HODLer having to monitor or take any actions themselves, and all while still being actively used as collateral. In short, clusters make possible the following:

  • No loan repaying required
  • No manual portfolio management required

For new users, we also believe this cluster would be a great entry point for users wanting to gain their initial exposure to Terra through 2 of the ecosystem’s flagship assets for the above reasons. The cluster would ensure that they still gain exposure to LUNA, limit their potential losses, and passively earn a stable yield rate, all without spending the time and resources to manage their holdings themselves.

Cluster Target Weights Mechanics TLDR

The $LUST cluster weights are based on the inverse of LUNA’s relative market cap to aUST.

Changes in circulating supply

  • As $LUNA circulating supply decreases => cluster weighted more in$LUNA
  • As $LUNA circulating supply increases => cluster weighted more in $aUST

Changes in price

  • As $LUNA price increases => cluster takes profit into $aUST
  • As $LUNA price decreases => cluster buys more into $LUNA

As $LUNA circ supply decreases, the cluster weight would shift towards $LUNA, increasing the holder’s exposure to a deflationary asset. This then increases their upside to any potential positive price movements.

If the $LUNA supply were to instead unexpectedly increases and inflate, the cluster will shift its weight to be denominated in $aUST.

This rebalancing action would reduce the cluster token holder’s exposure to the potential downside of inflation while increasing their benefits from holding a yield-bearing stablecoin.

Comparison to LUNA-UST/LUNA-aUST LPs

At first glance, this cluster may look similar to a LUNA-UST LP position. However, there is one key difference between them.

In a traditional LUNA-UST LP, the relative token amounts between LUNA and UST in the pool change as the price of the assets changes. The proposed cluster has similar mechanics, buying more into LUNA at lower costs and taking profits into aUST as the price appreciates.

However, the cluster’s target asset weights also adjust and rebalance based on LUNA and aUST’s relative circulating supplies.


Price Oracles

  • LUNA: Terra’s on-chain price oracle using the oracle module

  • aUST: Calculated by (amount of UST in Anchor’s market contract / aUST token total supply)

Target Weight Calculation:

The target value weights of the assets are calculated as follows:

The actual target number of each asset held in the cluster’s inventory is then:


Thank you so much for sharing this proposal and strategy. I love the idea of this strategy because it would buy more LUNA when it is undervalued and sell when it is overvalued.

However, I have a concern with the choice of using circulating supply. Anyone who watches smart stake knows that the circulating supply can be heavily affected by different actions from TFL. Do you think volatility in this metric could detract from the effectiveness of the strategy? Personally, i would prefer if the strategy used total LUNA supply instead. This would increase the LUNA weighting, but the strategy would be more consistent over time.

Why can’t we replace the Luna with stLuna or LunaX? This would give provide luna’s staking yield to the cluster was well. If Luna was replaced with a liquid staking derivate it should increase the clusters performance by 5-9% right?

I understand some concern on Twitter was that the liquid staking tokens would cause confusion and ward of newbie users. Well I feel like newbie users won’t jump into Nebula right away, they’ll stick to Anchor and regular Luna or staking on Terra Station. So let’s appeal more to hard core terrans and add in the staked form of Luna to the cluster.

If the cluster uses staked luna that will further aid in locking up the liquid supply of luna benefiting everyone.

Since stLuna and LunaX can go off peg a little bit from time to time, this can drive more arbitrage trades on the cluster brining more value to NEB stakers vs having just plane luna in the cluster.

Do eeeet. I agree stLUNA or LUNAx cluster would be great and perhaps better performing, but gotta start somewhere. Keep it simple to start.


  1. stLUNA and LunaX going off the oracle or “price” from time to time doesn’t actually benefit Nebula. Instead, it’s a risk to us as it opens up an arbitrage opportunity for users to get cluster tokens for less value, essentially draining value from other cluster token holders. For us to be able to safely use stLUNA and LunaX, they will need to be on peg close to 100% of the time.

  2. Arbitrages on Nebula don’t apply to the premium/discounts between the individual inventory assets’ prices, but the difference between the oracle price and market prices of the cluster assets itself. So LUNA staking derivatives going off peg wouldn’t actually benefit NEB stakers since those arbitrages won’t be captured by the protocol

With all of those said, we do agree that using LunaX and stLUNA in future clusters will definitely be interesting and beneficial, and will definitely be looking to use them in any future cluster we propose ourselves.


Another thought… why not have a core portion of the fund be allocated to a LUNA/UST LP position on Astroport or terraswap? Since the strategy already will involve buying low and selling high, the LP position will be doing that automatically and earning fees to do so. The aUST and LUNA held outside of the LP can be used for tweaking the final asset allocation so that the total portfolio follows the inverse market cap weighted strategy presented. I think this change would be much more efficient.

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Fascinating and thrilling proposal. LUST is simple on the surface, with complex implications underneath.

Very interesting how the weights are determined by the relative performance of the two assets, not their absolute performance. Would be interesting to see a chart with back-dated historical weight fluctuations, similar to the back-dated historical price performance. Think you could cook this up, @AlphaDefi?

LUST is a great first cluster for Nebula. However, as a financial product, it’s hard to predict how LUST will perform, given the complex dynamics of both the LUNA and aUST market caps.

This is what the weight distribution would look like (roughly) since the beginning of 2022