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Validators vote on the current exchange rate.

https://docs.terra.money/docs/develop/module-specifications/...

Ah, that makes more sense. Thanks for the link, all this stuff is so interesting from a thought experiment point of view.

It's really fascinating all of the stuff that exists or at least has been tried out in the cryptocurrency space.

Do I understand this correctly: there's no inherent incentive to put the "correct" price, they just need to agree with each other. Essentially playing "Guess 2/3 of the average" but it's just "Guess the average".

Validators have staked a lot of LUNA and it's in their best interest not to crash the ecosystem.

Miners put the price (in dollars) in the blocks, and the medium price is taken as the price. You get penalized if the price you put in is 1 standard dev. or more off. You get 1% less of the block award you would get normally.

Things like this rely on off-chain "oracles"

I know the thing is crashing and burning as we speak, but that seems like a crazy single point of failure for something claiming to be decentralized...

What if the oracle has downtime?

Many Many nodes :) i.e distributed