TerraForm Labs (TFL), the organization behind Terra and all of the ecosystem’s tokens, has released the most recent emergency solutions.
Terra and its environment have been through a lot in the last several days. Terra is under pressure to immediately handle the “bad debt” and restore community faith in itself, with UST losing its peg and LUNA in freefall.
Terra’s recommended remedies by TFL
TFL has advocated destroying the remaining UST stablecoin holdings, according to a series of tweets provided on Terra’s official website. More precisely, the team wishes to burn 371 million UST stablecoins deployed as liquidity on Ethereum.
Do Kwon, Terra’s co-founder recently endorsed a similar proposal. As CryptoPotato previously described, the goal was to burn UST to generate additional LUNA coins effectively.
Following this path, the UST’s parity with the dollar should be restored eventually. All of this, however, would be at the price of LUNA. The token would be diluted, further damaging it is already bruised and devastated price.
According to CoinGecko statistics, LUNA was trading at $0.023, down 99.1 percent in the previous day alone. The crypto asset was trading at $80 only six days ago. The fact that LUNA has an endless supply adds to the problem. Even if its price stabilizes, Kwon believes it will eventually settle at a lower level than it previously held.
Staking 240 million LUNA tokens to fortify the Terra network against governance vulnerabilities is the last of TFL’s recommended remedies.
The above emergency measures are now up to community vote. If they go through, Terra will have burned around $1.4 billion UST, or almost 11% of the total supply.
Terra also stated that removing the system’s bad debt with the things above could help restore on-chain swap spreads to a substantial level, easing the peg pressure on UST.
Various types of Stablecoins
Since its inception over two years ago, Terra has taken pleasure in stablecoin’s unique algorithmic methodology, which has allowed it to maintain the dollar peg without the need for fiat collateral. Earlier this year, the network adopted a new strategy: it collateralized its UST with Bitcoin (BTC).
Terra has been on a Bitcoin buying spree, with the most recent purchase totaling $100 million, raising its total holdings to over 42,000 BTC. However, the Luna Foundation Guard had to use this stockpile in a last-ditch effort to save UST from its impending doom.
UST was selling at $0.48 at the time of writing, a 50% discount from where its stablecoin status needs it to remain.