UST Founder Kwon Do Shares Plan To Save Stable Coins From Mass Destruction

The past few days have been extremely volatile across the crypto economy after TerraUSD (UST), one of the largest stablecoins, fell 70% from $1 to 29 cents this morning. .

Kwon Doo, founder of Terraform Labs (TFL), the organization behind UST, cryptocurrency Terra (LUNA) and Luna Foundation Guard (LFG), shared an update on the situation. Tweet thread Early this morning to get the boat right.

“I understand that the last 72 hours have been very difficult for all of you. I know I am determined to work with all of you to get through this crisis, and we will make a way through this crisis,” said Kwon. “together.”

UST is an algorithmic stablecoin that relies on a system of traders that swaps between LUNA and UST when the value of UST is above or below a 1:1 ratio, allowing you to hold US Dollars. For every $1 worth of UST tokens purchased, $1 worth of LUNA will be burned and vice versa.

When UST exceeds $1, arbitrage traders are encouraged to burn LUNA to increase UST and return it to $1 value. As we have seen in the last few days, UST can be burned for LUNA if demand declines and UST falls below $1. (Burning is a common mechanism in cryptocurrencies where tokens are taken out of circulation to keep supply and demand healthy. In this case, burning reduces supply to make tokens scarce and valuable, pinning an algorithmic stablecoin like UST. . ) However, in the most recent situation, after an arbitrage trader sold LUNA, a huge amount of capital was withdrawn from the UST, causing the “stablecoin” to drop sharply, putting enormous pressure on the ecosystem.

Kwon acknowledged that the algorithmic nature of UST had a significant impact on LUNA’s price, which peaked at $119.18 in April, but has since continued to decline. sudden drop 85 cents at the time of publication. LUNA has fallen more than 96% in the last 24 hours alone, according to CoinMarketCap. data. “Luna price has dropped significantly [arbitrage],” that said.

According to May 10, LFG also plans to raise more than $1 billion from investment companies and market makers. article The Block cited several anonymous sources.

The transaction has not been completed. The Block reports that they are currently in negotiations to allow investors to purchase LUNA tokens at a 50% discount on a two-year vesting schedule. Since then, LUNA has been discounted well beyond its value, so it’s unclear whether investors will still consider the trade.

Kwon wrote, “First and foremost, the only way would be to absorb the stablecoin supply that $UST wants to end before it pegs it.” “There is no way around.”

The impact of the event has been on the market as the Bitcoin value fell below $30,000 earlier this week and US Treasury Secretary Janet Yellen called for more stablecoin regulation in her annual testimony before the Senate Banking Committee on May 10th. It can have a broader meaning throughout. Terra’s algorithmic stablecoin, UST, was right in the midst of its struggles to maintain a peg.

When asked by Senators Pat Toumey and Catherine Cortez Masto, Yellen said it would be “very appropriate” for stablecoin regulation to occur by the end of 2022 because “there are many risks associated with cryptocurrencies”.

“We really need a coherent federal system,” Yellen said.

While some holders (and non-believers) of cryptocurrencies and stablecoins have already abandoned the ship, others who deeply believe in the project are willing to offer another opportunity.

“Cheering for the failure of $UST is rooting for the failure of all stablecoins (and cryptocurrencies),” said Sheldon Evans, a crypto-focused YouTuber with around 740,000 subscribers. Tweet. “Centralization [stablecoins] Collateral is not fully public and not transparent, such as $USDT [by the way] What most crypto markets support) could destroy everything.”

Going forward, Kwon plans to support the Terra community. proposal This will quadruple the issuance of LUNA, allowing holders to “absorb UST faster” or sell because they can only sell a certain amount of UST each day.

However, increasing the casting capacity could lower the price of LUNA even further. As it stands today, approximately 95,200,000 votes (based on LUNA token counts and not per user) supported the proposal, with 0 votes against.

“Obviously this will come at a high cost to UST and LUNA holders, but we will continue to explore different options to bring more exogenous capital to the ecosystem. [and] Reduce the supply overhang for UST,” said Kwon.

As Terraform Labs rebuilds UST, the team will adjust the stablecoin mechanism to be collateralized, Kwon said.

Back in April, Kwon revealed in an interview with TechCrunch that it plans to support UST as a “basket” of Layer 1 cryptocurrencies in addition to the US dollar and Bitcoin over time.

At the time, Kwon said, “Stablecoins are like utilities and basically cryptocurrencies.” “With the exception of Bitcoin, stablecoins are the holy grail use cases for cryptocurrencies.”

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