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Terra’s UST Burn Proposal Gets the Green Light

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All TerraUSD (UST) tokens retained in the project’s community pool, as well as UST utilized for earlier Ethereum liquidity incentives, will be burned, according to the Terra governance system.

This translates to, moreover, 1.3 billion UST, or nearly 11% of the current 11.2 billion supply, according to CoinGecko. The proposition received 99.3% of the total votes cast in favor of it. After the voting period ended, Terraform Labs, Terra’s main development corporation, will carry out the burn.

There will be two steps to this procedure. To begin, around 1 billion UST will be transferred from Terra’s communal pool to a burn module, where it will be permanently removed from the supply. The team will then manually bridge 370 million UST from the Ethereum network to Terra and destroy them, as described in a Terra governance forum explanatory article.

UST burn process will begin soon

The dollar-pegged algorithmic stablecoin plummeted from $1 to $0.04 earlier this month before resuming trading at $0.03. It is now worth 96 percent less than it was before the loss of dollar parity.

Terraform’s resuscitation plan to rebuild the Terra network and issue LUNA 2.0 tokens was approved by Terra’s governance system a day before the burn.

Earlier this month, a request to burn TerraUSD was approved. However, due to technical issues with the concept, it was never realized. According to the new proposal, “the earlier plan attempted to withdraw more from the communal pool than was available, and hence the execution failed.”

The reduction will account for about 8% of total production, perhaps bringing it closer to its original dollar peg.

The relaunched chain will go live today, followed by an airdrop of the new LUNA 2.0 coins to Terra-based asset holders. The new Terra blockchain, on the other hand, will be devoid of UST tokens, and their use will be limited to the original Terra network.

Did Delphi Digital predict UST collapse?

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Delphi Digital, crypto-focused research and investment firm has published a post-mortem on the losses incurred by the collapse of TerraUSD (UST) algorithmic stablecoin last week, concluding that “something like this was always probable.” Delphi wrote late Wednesday on its blog,

“We understood the risks of the algorithmic model upfront and sought to be transparent about them throughout; however, it’s clear we miscalculated the risks. To the vocal critics of Terra’s algorithmic design — you were right and we were wrong.”

Last week, UST de-pegged from the dollar in a disastrous manner, wiping out more than $40 billion in value for investors. Delphi, which competes with The Block for crypto research, was a supporter of the Luna Foundation Guard (LFG), a Singapore-based non-profit with an aim to improve the Terra ecosystem.

LFG’s bitcoin purchases, Delphi digital wrote in an April research bulletin, “gives higher security to protect UST’s peg to the dollar” and “likely reduces the likelihood of it going into a death spiral.” In March, the company announced that customers may pay for their subscriptions with their UST balance and income received from Terra’s Anchor Protocol.

Delphi Digital, one of Terra’s significant operator

Delphi Digital was one of many cryptocurrency exchanges with major exposure to the Terra ecosystem at the time of its demise. For the first time, the group openly assessed the damage in its post.

Delphi Ventures Master Fund purchased an amount of Terra’s native token Luna equal to 0.5 percent of its net asset value in early 2021, according to the company (NAV). Over time, the exposure grew, resulting in “a significant unrealized loss.” Luna and other Terra-native coins accounted for about 13% of Delphi Ventures’ NAV at its peak.

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LFG

Luna received a $10 million investment from LFG in February as part of a $1 billion token sale. Based on the current price of Luna, Delphi said the investment is “completely wasted,” but added that it sold no Luna during the token’s decline. LFG’s governing council includes Delphi Digital partner José Maria Macedo.

Since February 2021, Delphi’s research arm has produced six Terra-focused publications, none of which were paid for, according to the group’s blog post. According to the report, Terra’s demise had little financial impact on Delphi Research.

Terra’s co-founder is devastated but refuses to back down

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After pitching a revival plan, Terra’s creator Do Kwon took to Twitter saying he is devastated by the recent turn of events.

TerraUSD [UST], a stablecoin broke its peg to the dollar earlier this week and fail to recover. Its sister coin Luna too fell from grace this week and is trading at $0.0003974 at press time.

Acknowledging that the UST in its current form is irrecoverable, the founder of the LUNA governance token and TerraUSD stablecoin has laid out a revival plan on Terra’s Agora governance forum, moving forward.

The proposal called for distributing ownership in the network among holders of UST and LUNA. It invited a lot of criticism. One market analyst questioned the move to save UST without the collateral, saying it “made 0 sense”.

Another remarked that “it looks like a captain buying time to save himself before finally announcing that the ship is sinking”.

Even DOGE founder jumped in by advising Kwon to stop bringing “in new victims to fund the previous ones” and leave the space forever.

Others started digging up old videos purportedly showing the founder making some controversial statements that detractors claimed reek of arrogance.

For instance, a tweet shared by cryptowhale contained a 25-sec clip where Kwon was quoted as saying “95% of coins are going to die, but there’s also entertainment in watching them die too” and laughing it off.

Terra’s UST’s algorithmic mechanism was a risky model, doomed to failure

That said, the debacle has sparked discussions on what policymakers should consider going forward with stablecoin regulation. One of them is leading Blockchain lawyer Jake Chervinsky who in a Twitter thread insisted that lawmakers should step in to inject some sort of stability and protect investors.

Calling UST’s algorithmic mechanism, “a risky model that many predicted might fail,” Chervinsky cited the executive order [EO] issued by the US president, that called for identifying crypto’s opportunities & risks, which according to him might be the gamechanger.

He then called for following the process called for by the EO, developing a bipartisan consensus in Congress, and adopting new regulations that are fit for purpose.

Terra experiences a single day crumple

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Terra (LUNA) is in a headlong fall, having lost about 98% in less than 24 hours, causing panic and anxiety in the market as well as among investors. According to CoinMarketCap data, LUNA fell below $1 and touched $0.08384 from a 24-hour high of $32.71.

The market capitalization of LUNA has likewise plummeted by 74%. The third-largest stablecoin, TerraUSD(UST), has dropped to 14th place. Yesterday, UST fell to $0.68 before gradually rising to $0.94 by the end of the day. However, on the second day, it plummeted to $0.2998, demonstrating the volatility of the stable coin.

Market swings are expected, and modest corrections are expected. Stable coins’ entire purpose is to survive market volatility. However, the UST broke its $1 anchor and fell sharply.

UST is an algorithmic stablecoin designed to trade 1:1 with the US dollar. According to Chinese crypto blogger Colin Wu, 46,239,360 LUNA were issued on May 10th. Over 80 million additional LUNA tokens have been created in the last four days.

In an attempt to keep the price at $1, 1.2 billion UST were destroyed on May 10. This burn set a new record for the amount of cryptocurrency burned in one day.

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The cause of Terra’s carnage

It all began on May 9, when a succession of ostensibly suspicious events surrounded the UST. Curve provided Terraform Labs with $150 million in UST liquidity. The Terra ecosystem’s stablecoins were dumped four minutes later, causing a sell-off, and a newly funded address bridged $84 million in UST to Ethereum exactly one minute after.

DO Kwon, the business’s CEO, defended the corporation, alleging that they had seized Curve’s liquidity to place it into yet another pool the next week. He explained that the sell-off was done to alleviate the imbalances and that Terraform Labs had no motive to veer the stablecoin.

Kwon finally broke his silence through a Twitter thread. Considering the fact that the previous 72 hours had been “extremely challenging,” Kwon was ready to reveal his rescue efforts. Kwon explained why LUNA’s price dropped so drastically, saying,

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In a community proposal pitch, Kwon stated that the only way to move forward was to raise the amount of LUNA minted per day. The precipitous drop alarmed exchanges, with some, like as Binance, suspending LUNA withdrawals.

However, despite the carnage of Terra sending tremors throughout the crypto world, its impact on Bitcoin has been minimal, according to numerous crypto experts.

Luna Foundation Is Battling as UST Crashes Again

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The Luna Foundation Guard (LFG) has been fighting to save its embattled UST stablecoin, which has yet again fallen out of favor with the dollar.

If the enormous crypto market crash wasn’t horrible enough, the collapse of the world’s third-largest stablecoin ecosystem has just added to the flames.

The Luna Foundation Guard, a Singapore-based non-profit that maintains the Terra network, has been reaching out to investors in the hopes of obtaining funding to save the beleaguered stablecoin.

According to The Block, which claims “those acquainted with the subject,” the LFG is aiming to raise more than $1 billion to collateralize the UST stablecoin.

The development is unsurprising given that the stablecoin has decoupled from the US dollar, falling below $0.70 twice this week.

Luna suffers as UST crashes for the second time

Kwon Do, the founder and CEO of Terraform Labs has remained silent about the debacle, and the financing has yet to be confirmed. To say the least, his most recent Twitter message at the time of writing was cryptic:

This comes after a tweet from a few hours ago that stated, “Close to unveiling a $UST recovery plan.” “Hold on tight.”

On May 10, the Luna team issued some explanations in response to the flood of misinformation that has swept the mainstream media. There will be no “death spiral” if the UST market capitalization exceeds that of LUNA, the token that serves as collateral.

It also noted that user on-chain activities and Terra economy demand, such as network economic activity and accompanying cash flow, support UST. “Peg recovering takes time due to the restrictions,” it said, “but it bounces back.”

According to a Google analytics dashboard, the stablecoin was backed up with virtually all of the USD reserve value. It has dropped from about $4 billion to roughly $146 million where it is now.

On May 10, the stablecoin returned to moreover 90% of a dollar, but on May 11, it took another downward dip. According to CoinGecko, UST just plummeted for the second time, hitting $0.4436. 

Janet Yellen: TerraUSD’s Depegging Underscores The Need For A Regulatory Framework

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Treasury Secretary Janet Yellen wasted no time saying how the recent Terra’USD breaking its dollar peg exposed the threat to financial stability and the urgent need for a regulatory framework to offset the risks, in a Senate Banking Committee hearing on 10 May.

“A stablecoin known as TerraUSD experienced a run and declined in value,” Yellen said. “I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.”

Stablecoins risk a “run” on the funds backing them if investors lose confidence in the token’s ability to maintain its stable value.

Last year, President Joe Biden’s Working Group on Financial Markets published a report asking Congress to make stablecoins issuance by federally regulated banks mandatory. This is to ensure investor confidence and avoid the sort of asset-run scenario like the one recently experienced.

Even Chairman Gary Gensler of The SEC has not ruled out regulating stablecoins like securities.

Terra’s co-founder announced a recovery plan

According to reports, the reason the TerraUSD debacle has been exacerbated is due to the LUNA foundation that manages TerraUSD and LUNA announcing recently that it would lend out bitcoin from its reserves to traders who would buy the stable coin and bolsters its price.

Unfortunately, prices have not recovered, and top exchanges had to temporarily halt UST and LUNA withdrawals due to network load and sheer transaction volumes, only to resume later.

Analysts blamed this move has instead made matters worse and led to the further decline in the price of bitcoin.

In a tweet thread addressed to the community, Kwon admitted that the last 72 hours have been extremely difficult and that he hopes that they will come out of the crisis.

“Before anything else, the only path forward will be to absorb the stablecoin supply that wants to exit before UST can start to repeg. There is no way around it,” he said on Twitter.

To start with, Kwon is endorsing a community proposal that will increase LUNA’s minting capacity per day. “This should allow the system to absorb the UST more quickly”, the tweet read.

Binance Freezes LUNA, UST Withdrawals Amid Market Bloodbath

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Binance has temporarily put on hold withdrawals for LUNA and UST tokens on the Terra [LUNA] network on 10 May 2022 in the early hours citing a high volume of pending withdrawal transactions.

According to the notice published on the website, this was caused by network lags and high congestion. Once it stabilizes and the volume of pending withdrawals comes down, Binance said it would resume the transaction.

“We will not notify users in a further announcement. We apologize for any inconvenience,” the blog read.

Multiple reports began to surface on Twitter that traders were unable to sell UST for anything below 70 cents.

Kraken and CoinList too joined in suspending withdrawals at the time of this post. However, FTX is still processing withdrawals of UST. Following the suspension, Terra’s official Twitter handle account requested users to not indulge in spamming during the high volume saying,

“If you are using the public infra, please do not spam it at this time as we are experiencing naturally high levels of transaction volume. Please be mindful of our public infra usage.”

LUNA foundation attempts to salvage its stablecoin UST’s de-pegging

The news comes at a time of high market turmoil, especially for Terra’s algorithmic stable coin UST which has spiraled uncontrollably, registering a sharp decline against the dollars in the past few days. 

TerraUSD [UST] has lost its dollar peg for the second time in three days, falling to $0.65 on Monday. As UST has “depegged,” the price of LUNA the Terra blockchain’s native asset has also declined from around $61 to roughly $29 in a matter of 24 hours at press time, data from Coinmarketcap showed.

Efforts were made to salvage the token to prevent it from further falling. Its creator Luna Foundation Guard [LFG] announced a plan to lend $1.5 billion worth of bitcoin and UST to third-party trading firms in a bid to bolster support for UST’s peg on May 9.

The LFG even emptied its bitcoin reserves, which were liquidated to defend the peg. But the price continued to plummet against that of USDT, the largest dollar-pegged stablecoin.