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May 11, 2022

Do Kwon’s Recovery Plan For TerraUSD (UST)

Do Kwon, CEO of Terraform Labs, proposed a possible “solution” to the enormous crash that LUNA and UST suffered over the previous few days. TerraUSD (UST), a stablecoin linked 1:1 to the US dollar, lost more than 50% of its value in an unprecedented incident in the cryptocurrency market.

Because they are backed by solid assets, stablecoins function as safe havens during times of high volatility. Unlike other stablecoins, TerraForm Labs used a unique technique to maintain UST stable. The stablecoin project, in particular, made use of complicated computational procedures tied to Terra (LUNA).

LUNA, on the other hand, fell as investors fled following the de-pegging of UST. As a result, the currency has lost 98.49% of its value in the last seven days. The price of LUNA is now 0.8755. Its trading volume has also dropped by more than half during the day.

At the time of writing, UST is trading at $0.3434, down 64.18 percent in the previous seven days. The stablecoin was trading as low as $0.2998 earlier today. Kwon explained that the price stabilization mechanism is absorbing UST supply (more than 10% of total supply), but the cost of absorbing so many stablecoins at the same time has stretched out the on-chain swap spread to 40%, and Luna price has decreased dramatically as a result of absorbing the arbs.

Kwon proposed a solution, noting that the only way ahead will be to absorb the stablecoin supply that want to depart before $UST can begin to repeg. There is no getting around that. They recommend a number of corrective steps to help the peg mechanism absorb supplies.

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He proposed approving community proposal 1164, which would allow Terraform Labs to boost UST’s basic pool from $50 million to $100 million SDR.

Furthermore, the PoolRecoveryBlock would be reduced from 36 to 18 to assist increase minting capacity from $239 million to roughly $1.2 billion.

Kwon admitted that this method would be expensive for UST and LUNA HODLERS. He did, however, assure the Terra ecosystem that he and his team will continue to investigate ways to bring more external money into the ecosystem and reduce the supply overhang on UST. Terraform Labs will change its collateral method as they construct UST, according to Kwon.