The Terra Money Twitter account shared the finer points on Do Kwon's initial rescue plan: expanding the base pool, burning UST and staking LUNA.
The Terra rescue story continues to unravel. In a tweet thread, the Terra Money Twitter account went into greater detail regarding the CEO of Terraform Labs, Do Kwon's rescue plan for UST.
The thread sheds light on Proposal 1164, Do Kwon’s initial strategy for Terra from May 11. The proposal would better balance the algorithmic stablecoin UST by expanding the base pool for the currency. The proposal has received 220,000 votes, at over 50%.
The tweet thread also explains that there is a “supply overhang” of UST which explains LUNA’s “dilution” (or price depreciation). As a result, now they must burn more UST:
“The primary obstacle is expelling the bad debt from UST circulation at a clip fast enough for the system to restore the health of on-chain spreads.”
Consequently, there are three emergency measures to be implemented, one of which focuses on burning more UST:
3/ TFL is also initiating three more emergency actions:— Terra (UST) Powered by LUNA (@terra_money) May 12, 2022
1. Proposal to burn the remaining UST in the community pool.
2. TFL will burn the remaining 371 million UST cross-chain on Ethereum.
3. TFL just staked 240 million $LUNA to defend from network governance attacks.
The so-called Agora Proposal vote is imminent, shared by user “The Intern” on the Terra Research forum. In total, the burn should take the total amount of UST burned to 1.4 billion UST, or “11% of the outstanding UST liabilities,” the site details.
In summary, the team hopes that expanding the base pool for the coin and burning more should save UST.
Point three, concerning the staking of 240 million LUNA, will reportedly strengthen the network governance of the TERRA ecosystem.
However, for some observers, staking 240 million LUNA, (roughly equivalent to $200 million dollars) is not enough to save the project:
Regarding 3, the way things are going you would need to stake a lot more than 240 million $LUNA to ensure the safety of the network. $LUNA crashing in price and having the peg not restored is also a problem, the longer it takes the more $LUNA gets minted.— Meto (,️) (@hodlmastermeto) May 12, 2022
Other commentators have suggested that Proposal 1164 will actually accelerate the ongoing “death spiral” of LUNA and UST.
Cointelegraph previously reported that the crypto community was quick to call out Do Kwon’s algorithmic stablecoin. Plus, out-of-the-ordinary theories have also been shared regarding a planned “attack” on the ecosystem orchestrated by competing players.