Terra founder Do Kwon has revealed a plan to rebuild the project’s ecosystem following LUNA’s 99% collapse from its all-time high to below $1 and TerraUSD (UST) losing its dollar peg.
In a Twitter thread, Kwon tells his 532,000 followers that he intends to work with the Terra community to “weather the crisis” and get back to original form.
LUNA crashed to $0.69, more than 99% down from its all-time high of $119 after Terra’s UST stablecoin lost its peg to the dollar. UST was designed to stay pegged to the US dollar and allows holders to redeem 1 UST for $1 worth of LUNA. When UST dipped well below the dollar mark, massive amounts of sell-pressure dragged down LUNA’s prices as aggressive arbitrage took effect.
Says Kwon,
“The price stabilization mechanism is absorbing UST supply (over 10% of total supply), but the cost of absorbing so much stablecoins at the same time has stretched out the on-chain swap spread to 40%, and Luna price has diminished dramatically absorbing the arbs.
Before anything else, the only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to repeg. There is no way around it.”
Kwon also said the team endorsed a community proposal to increase UST’s minting capacity from $293 million to $1.2 billion in order to allow the system to absorb UST quicker.
In the proposal that Kwon references, a community member says that the move will probably put further pressure on LUNA in the near future, but eventually strengthen the entire system over the longer term.
“Allow more efficient UST burning and LUNA minting, will in the short term put pressure to LUNA price, but will be an effective way to bring UST back to peg, which will eventually stabilize LUNA price.
Yes, billion of UST will be burned, and LUNA will be diluted significantly. Nevertheless, there are no limits in LUNA supply, this market mechanism will actually work to bring stable UST and stable LUNA price (although likely at lower price point for LUNA).”
At time of writing, LUNA is trading for $2.28.
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