Terraform Labs has proposed a number of measures aimed at restoring the algorithmic stablecoin UST and the LUNA cryptocurrency.
2/ To expedite this goal, several measures are being taken. First, the current Prop 1164 will expand the base pool size and accelerate the burn rate of UST – helping deflate on-chain spreads. https://t.co/XLDkQTH4mF
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
The company noted that the oversupply of UST puts pressure on LUNA quotes. According to the developers, their main task is to withdraw “bad debts” in the stablecoin from circulation in a fairly short time.
One of the main measures is the activation of offer #1164, which was previously described by the head of Terraform Labs, Do Kwon. The initiative involves expanding the LUNA base pool and increasing the issuance of cryptocurrency, which supposedly will allow the required amount of UST to be withdrawn from circulation faster.
At the time of writing, UST is trading near $0.47, while LUNA is trading at $0.05, according to CoinGecko. A week ago, the first one was pegged to the US dollar, while the second one was around $85.
Terraform Labs proposed additional measures to stabilize the situation:
- Burn the rest of the community pool of the UST project (about 1 billion tokens);
- Burn 371 million UST on the Ethereum blockchain;
- Allocate 240 million LUNA to protect against potential attacks on the network.
4/ You can find the full Agora proposal for burning the remainder of the community pool UST in the link below, including the proposal to burn the cross-chain UST. The vote will go live shortly. https://t.co/jALjY5T4uM
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
“In aggregate, when these three offers are activated, about 1,388,233,195 UST will be withdrawn from circulation. This is approximately 11% of the total stablecoin supply,” the developers wrote.
The company’s measures have been criticized online. In particular, some users have noticed that proposal #1164 will only accelerate the “death spiral” of the ecosystem. The panellists also noted that an attempt to save UST would lead to the complete depreciation of LUNA.
Prop 1164 will basically accelerate the death spiral. Please protect the value left in the ecosystem instead of wasting it.
— PacMatt ⚡️🌖 (@pacmattt) May 12, 2022
According to The Block analyst Larry Cermak, the only way out for Terraform Labs is to abandon UST and focus on the development of the main network. He emphasized that as the ecosystem grows, the project team must pay off the stablecoin debt.
Of course even if they do what I say the chance of success is probably near zero. But right now it’s 100% zero and can’t possibly be better off for legal reasons. Also if Terra has any reserves left, they should absolutely commit that to making users whole
— Larry Cermak (@lawmaster) May 12, 2022
“Of course, even if they do what I say, the chances of success are probably zero. However, otherwise it is 100% zero and the situation cannot get better for legal reasons. In addition, if Terra still has reserves, they absolutely must send them to compensate for the losses of users, ”Cermak wrote.
Recall that CoinDesk journalists found out that Do Kwon was one of the anonymous co-founders of the crashed algorithmic stablecoin Basis Cash.
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