Technology

Proposal to save Terra USD includes sacrificing LUNA price

Key facts:
  • At the time of this publication, the proposal has 99.44% approval.

  • LUNA investors massively sell their coins and cause their price to drop.

A proposal to save TerraUSD (UST), the algorithmic stablecoin that has lost its value in recent days, has been released on the Terra ecosystem governance platform. This consists of burning the UST that the Luna Foundation has as a reserve and the one that is in a bridge with the Ethereum network. To do so, it is necessary to issue an equivalent amount of terra (LUNA), which would considerably increase its currency.

The rationale for proposition 6837 is that “eliminating a significant portion of the UST oversupply will relieve much of the parity pressure on UST.” In other words, by reducing the supply of the currency, They want their demand to increase so that the price can regain parity with the US dollar..

Days ago, CriptoNoticias detailed how the UST issuance and destruction (or burning) process is. Basically, to issue 1 UST you need to burn a similar amount (measured in fiat money) of LUNA. The same happens in the opposite direction: to burn UST it is necessary to emit a similar amount of LUNA.

If the proposal is approved, almost 1.4 billion UST would be burned (10% of those in stock), of which just over 1,000 million correspond to the reserves of the Luna Foundation and 371 million are from the bridge with the Ethereum network. Likewise, a similar amount of LUNA would be created (the number will vary according to its price at the time of the operation).

A terminal sentence for the price of LUNA

An inflationary measure of such magnitude could be a death sentence for the price of LUNA, preventing any chance of recovery.

Moon price at 2 cents.
The price of LUNA (which a week ago was close to USD 80), today is around USD 0.02. Source: CoinMarketCap.

Investors seem to have understood this, and since the proposal was first rumored, they sought to massively dump their coins, which brought their price (which was close to $1) down to $0.02 at press time. .

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Voting is already underway. All addresses that have LUNA staked on the Terra Station platform can participate. So far, the “yes” is imposed with 99.44% of the votes. Abstention is 0.55% and the percentage of voters who oppose it is insignificant.

Moon Proposition 1188.
Most voters want to bail out stablecoin UST, even though that may hurt LUNA’s price. Source: TerraStation.

As CriptoNoticias revealed yesterday, the plan to save UST also includes its collateralization with other assets. In this way, it would cease to be a 100% algorithmic cryptocurrency and would acquire a functioning that perhaps resembles that of other stablecoinsfor example, DAI.

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