Terraform Labs outlines additional measures to restore LUNA and UST

Terraform Labs proposed a number of measures aimed at restoring the algorithmic stablecoin UST and the cryptocurrency LUNA.

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 excess UST supply is weighing on LUNA’s price. According to the developers, their main task is to remove from circulation the \”bad debts\” in the stablecoin within a relatively short timeframe.

One of the main measures is the activation of proposal #1164, which was previously described by Terraform Labs head Do Kwon. The initiative envisages expanding the base LUNA pool and increasing the supply of the cryptocurrency, which allegedly would allow faster removal of the necessary amount of UST from circulation.

According to CoinGecko data, at the time of writing UST trades near $0.47, LUNA at $0.05. A week ago the former was pegged to the US dollar, and the quotes for the latter hovered around $85.

Terraform Labs proposed additional stabilisation measures:

• burn the remaining UST in the project community pool (about 1 billion tokens);
• burn 371 million UST on the Ethereum blockchain;
• allocate 240 million LUNA to defend against potential network attacks.

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 proposals are activated, about 1,388,233,195 UST will be taken out of circulation. This is roughly 11% of the total supply of the stablecoin,

The measures drew criticism online. In particular, some users noted that Proposal #1164 would merely accelerate the \”death spiral\” of the ecosystem. Participants in discussions also noted that an attempt to save UST would lead to a complete devaluation of LUNA.

Prop 1164 will basically accelerate the death spiral. Please protect the value left in the ecosystem instead of wasting it.

— PacMattt ⚡️🌖 (@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 developing the main network. He stressed that as the ecosystem grows, the project team should extinguish the stablecoin’s debt.

Of course even if they do what I say the chances of success are 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

In aggregate, when these three proposals are activated, about 1,388,233,195 UST will be taken out of circulation. This is roughly 11% of the total supply of the stablecoin

As reported in CoinDesk, Do Kwon was one of the anonymous co-founders of the Basis Cash algorithmic stablecoin that collapsed.