TFL Proposes an Emergency Response to Recent Terra Ecosystem Collapse

Terra and its ecosystem have been through a rough few days. With UST losing its peg and LUNA in freefall, Terra is under pressure to quickly resolve the “bad debt” and restore community trust in itself.

TFL’s Proposed Solutions for Terra

According to a series of tweets shared by Terra’s official page, TFL has proposed burning the remainder of the UST stablecoin reserves. The team proposes to burn 371,000,000 UST stablecoins which were previously used for Ethereum liquidity.

Just yesterday, Terra’s co-founder, Do Kwon, backed a similar proposition. It was to burn UST which will effectively produce more LUNA tokens. CryptoPotatoAs explained earlier.

In theory, UST’s parity to the dollar would be eventually restored following this route. However, this would come at the cost of LUNA. This would likely cause more damage to LUNA’s already battered price.

CoinGecko data showed that LUNA traded at $0.023, with a remarkable 99.1% drop in price since the last reporting time. Six days ago, the crypto asset traded above $80. The fact that LUNA is in an endless supply doesn’t help matters. Kwon said that even though LUNA’s prices become more stable, they are likely to settle at lower levels than before.

The last of TFL’s proposed solutions is staking 240 million LUNA tokens to strengthen the Terra network against governance vulnerabilities.

Not to be confused, the above emergency actions remain pending community vote. Terra would have consumed approximately $1.4 billion UST if they are approved, which is about 11% of total supply.

Terra also noted:

“Expelling the system’s bad debt with the above items should help restore the on-chain swap spreads to a meaningful level where the peg pressure on UST is significantly alleviated.”

Different Types of a Stablecoin

Since its founding nearly two years back, Terra has prided the stablecoin’s unique algorithmic system as one that was able to maintain the dollar peg without fiat collateral. Earlier this year, the network took on another different modus operandi – to collateralize its UST with Bitcoin (BTC).

Terra went on a Bitcoin shopping spree, with the latest buy being $100 million worth of BTC – bringing its total holdings to over 42,000 BTC. In desperate attempts to save UST, the Luna Foundation Guard had this stash deployed.

UST was trading at $0.48 at the time of writing. This is a more than 50% discount from its stablecoin status.

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