UST Founder Do Kwon Shares Plan To Save His Stablecoin From Mass Destruction

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The last few days in the crypto economy have been extremely volatile after one of the largest stablecoins (which should have been) TerraUSD (UST), depeg from its $1 value and fell as much as 70% to 29 cents this morning.

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Do Kwon, Founder of Terraform Labs (TFL) — the organization behind UST, Terra Cryptocurrency (LUNA) and Luna Foundation Guard (LFG) — shared an update on the situation in tweet thread this morning, hoping to fix the ship.

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“I understand that the last 72 hours have been extremely difficult for all of you – know that I am determined to work with each and every one of you to weather this crisis and we will get through it,” Kwon said. “Together.”

UST is algorithmic stablecoin this relies on a system of traders who swap between LUNA and UST when the value of UST goes above or below its 1:1 ratio, so it can hold against the US dollar. Every time $1 of UST is bought, $1 of LUNA is burned, and vice versa.

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If UST exceeds $1, arbitrageurs are encouraged to burn LUNA to gain more UST and bring it back to its $1 value. If demand shrinks and UST falls below $1, as we have seen in the last few days, UST could be burned for LUNA. (Burn is a common mechanism in crypto to withdraw tokens from circulation to keep supply and demand at a good level – in this case, burn reduces the supply in order to make it more scarce and valuable, thus keeping algorithmic stablecoins like UST on their peg. . ) But in this most recent situation, tons of capital was pulled out of UST after arbitrageurs sold LUNA, causing the stablecoin to plummet, putting enormous pressure on its ecosystem.

Kwon acknowledged that due to the algorithmic nature of UST, this had a significant impact on LUNA’s price, which peaked at $119.18 in April but has since dropped 99% to $1.04. According to CoinMarketCap, LUNA has dropped over 96% in the last 24 hours alone. data. “The price of the moon has fallen sharply, absorbing [arbitrage],” is he said.

According to a May 10 announcement, LFG also expects to raise more than $1 billion from investment firms and market makers. article from The Block citing several anonymous sources.

The transaction is not completed; Negotiations are currently underway with investors to purchase LUNA tokens at a 50% discount with a two-year vesting schedule, according to The Block. Since then, LUNA’s value has significantly exceeded that value, so it’s unclear whether investors will consider the deal.

“First and foremost, the only way forward will be to gobble up the stablecoin supply that wants to exit before $UST can reg,” Kwon wrote. – It’s impossible to bypass it.

The impact of this event could have broader implications for the entire market, as seen earlier this week when the value of bitcoin fell below $30,000 and US Treasury Secretary Janet Yellen pushed for stricter regulation of the stablecoin during his annual speech before the Senate Banking Committee on May 10, just as the algorithmic stablecoin Terra, UST, was struggling to maintain its peg.

Answering questions from Senators Pat Toomey and Catherine Cortez Masto, Yellen said it would be “highly appropriate” to introduce stablecoin regulation by the end of 2022, as there are “a lot of risks” associated with cryptocurrencies.

“We really need a consistent federal structure,” Yellen commented.

While some holders (and non-believers) of both the cryptocurrency and the stablecoin have already left the ship, others who deeply believe in the project are ready to give it another go.

“Cheering for the failure of $UST is rooting for the failure of all stablecoins (and cryptocurrencies),” Sheldon Evans, cryptocurrency-focused YouTuber with about 740,000 subscribers. tweeted. “Centralized [stablecoins] where the collateral is not fully public and transparent, such as in US dollars (which [by the way] what most of the crypto market rests on) can destroy everything.”

In the future, Kwon plans to support the Terra community. offer this will quadruple the amount of LUNA that can be minted so that holders can “easier absorb UST” or sell because only a certain amount of UST can be sold daily.

But with an increase in minting power, the price of LUNA may fall even more. Currently, about 95,200,000 votes, based on the number of LUNA tokens and not on the user, have been cast in favor of the proposal, and not a single vote against it.

“Naturally, this comes at a cost to UST and LUNA holders, but we will continue to explore different options for bringing more exogenous capital into the ecosystem. [and] reduce the oversupply on the UST,” Kwon said.

As Terraform Labs rebuilds UST, the team will be adjusting its stablecoin engine to secure, Kwon said.

In April, Kwon told TechCrunch that it plans to support UST with a “basket” of Tier 1 cryptocurrencies over time, in addition to the US dollar and bitcoin.

“Stablecoins are a kind of utility and, in fact, the money of cryptocurrencies,” Kwon said at the time. “Perhaps apart from Bitcoin, stablecoins are the holy grail for cryptocurrencies.”

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