A new proposal has been introduced to fix legacy CosmWasm contract execution on Terra Classic. This change involves a small patch (about 30–50 lines of code) to the chain core, aimed at restoring functionality that was broken during the v2.1.0 upgrade in 2022.
The fix would re-enable a number of liquidity pools, including several Astroport and possibly Terraswap pools, that are currently inaccessible. More importantly, it would also allow many legacy contracts with tax handling features to operate again without requiring contract migration.
Background and Context
During the v2.1.0 upgrade, changes to Terra’s custom query support broke contracts that relied on querying the on-chain tax rate or oracle exchange rates. This disrupted multiple liquidity pools holding large amounts of LUNC and USTC, along with other tokens.
As a result, liquidity became locked and traders were unable to use the affected pools—either fully (native ↔ native) or partially (cw20 ← native).
Testing at the node level has shown that the proposed patch allows transactions against these contracts to succeed again.
Example of currently locked balances:
● LUNC/USTC pool: ~700M LUNC, ~6M USTC
● bLUNA/LUNC pool: ~150M LUNC
● MIR/USTC pool: ~6M USTC
● ASTRO/USTC pool: ~3.9M USTC
● kUST/USTC pool: ~2.9M USTC
● Across 465 Astroport contracts: ~959M LUNC, ~27.4M USTC
These tokens are currently unreachable due to the broken execution path.
Why It Matters
Re-enabling execution would immediately “re-open” these pools and make the locked liquidity available again. This has both positive and negative implications.
Positive impacts:
● Liquidity and trading opportunities return to the ecosystem.
● Tokens that should be in circulation become usable again.
● Many legacy contracts resume functioning without the need for migration.
Negative impacts:
● The pools are heavily imbalanced. Arbitrage bots are expected to exploit price differences within minutes of the fix going live.
● Example: The LUNC/USTC pool is currently priced at roughly 2× the fair market ratio, which could cause rapid price swings for both LUNC and USTC across DEXes and CEXes.
Risks and Concerns
● Arbitrage drain: First movers, mostly bots, will capture the majority of profits rather than long-term holders.
● Public perception: Some may view this as “unlocking” a large supply of tokens, even though the liquidity was only locked due to the 2022 upgrade issue.
● Timing: Liquidity providers in broken pools cannot exit before the fix is applied.
● Precedent: Concerns may be raised about setting a precedent for L1 patches to support dApps. However, this patch addresses an issue originally caused by an L1 upgrade and is relatively small and contained.
Why Not Just Refund Liquidity Providers?
An alternative suggestion was to refund all liquidity providers directly, but this is considered technically unfeasible.
● It would require thousands of queries, calculations, and contract executions during the chain upgrade, raising risks of errors.
● Collecting all holdings upfront would require trust in those preparing the list, and refunds could end up going to inactive wallets.
● It would not guarantee catching all malfunctioning pools across the ecosystem.
Options Moving Forward
According to the proposal, there are only three realistic options:
1. Fix the contracts with a chain upgrade.
2. Leave everything as it is.
3. Migrate each affected contract individually.
While bots will likely capture early arbitrage opportunities, this will help bring pools closer to fair market value. Moreover, some users are currently stuck in one-way contracts (cw20 ↔ native), and fixing execution would restore full functionality.
