Terraform Labs plans to burn more than $1 billion if LUNA drops below 10 cents


  • LUNA creator Terraform Labs has released an action plan to address the current crisis.
  • The protocol will burn UST holdings to reduce debt.
  • UST on the Ethereum network will also be burned.
  • 240 million LUNA will be staked to protect the Terra ecosystem.
  • The plan came hours after the provincial leader tweeted about his initial recovery strategy.

Terraform Labs We have revealed a series of steps. It is intended to expedite the recovery of the UST after an algorithmic stablecoin loses its peg against the US dollar.

In a Twitter thread posted on Thursday (May 12, 2022), the network announced three additional contingencies as the LUNA price fell below $0.10. The plan also came hours after CEO Kwon Doo tweeted about Proposition 1164.

Kwon explained that 1164 will trigger a new default pool for the protocol that will allow UST holders to exchange stablecoins for LUNA. This process increases LUNA issuance capacity by approximately 4x, but is known to flood the market with more LUNA coins.

Terra’s three-phase plan

The latest action plan begins with the burning of approximately 1 billion of Terra’s UST holdings from the community pool. Additionally, the network will burn an additional 371 million USTs currently available in Ethereum, blocking cross-chain liquidity incentives.

After this process, approximately 11% of the os UST debt will be burned, bringing the total burn of stablecoins to over 1.3 billion.

Kicking out the system’s bad debt with the above will help restore on-chain swap spreads to meaningful levels where pinning pressure on UST is significantly relieved. If the new default pool proposal is passed, the process will also be accelerated.

Finally, Terra hopes to stake 240 million LUNA to strengthen network security and mitigate any attacks on the blockchain.

As of press time, both LUNA and UST prices are down. The stablecoin has recovered 14% in the last 24 hours, but the UST is still about 60 cents off the $1 peg.

LUNA Daily Chart (Source: TradingView)
Terraform Labs plans to burn more than $1 billion if LUNA drops below 10 cents 9
UST Daily Chart (Source: TradingView)



Leave a Comment