Do Kwon, the founder of Terra, announced plans to support the floundering Terra cryptocurrency on Wednesday. However, his strategy is expected to put even more pressure on LUNA costs.
Terra (LUNA) has experienced a historic drop amid the ongoing crypto market mayhem. Its stablecoin TerraUSD (UST) has also dropped by 45 percent in the last 24 hours.
Kwon stated in a series of tweets that the blockchain will mint more LUNA to be sold on the open market in order to collect revenue to save the UST peg. LUNA can also be burned to produce UST, which is now trading at a significant discount.
UST is currently selling at 50 cents per dollar, significantly below its 1:1 fixed value. LUNA is also trading at a record low of just over $2.
However, minting additional LUNA is likely to cause the token to fall even further, as supply surpassing demand is deflationary for prices. This might cause LUNA prices to plummet well below $1.
According to Kwon, the only option to absorb the stablecoin supply is for those ready to quit before UST reverts to its value.
Naturally, this comes at a great cost to UST and LUNA holders, but they will continue to investigate other strategies to bring additional external capital into the ecosystem and minimize UST supply overhang.
Furthermore, Kwon stated that the blockchain is looking into external financial sources to assist boost UST pricing. However, indications indicate that these efforts have so far been futile.
As the UST peg began to deteriorate earlier this week, the Luna Foundation Guard sold out all of its Bitcoin assets in an effort to support the peg. While this temporarily brought prices closer to $1, it was only temporary because the Bicoin was offered at a substantial discount.
Critics of the network now claim that Terra lacks the liquidity required to support its tokens. Anchor Protocol, its main DeFi platform, has also witnessed a massive exodus of cash and has dropped out of the top-10 DeFi platforms.
02 Feb 2023
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