• May 27, 2022

Terra plans to burn $1.4MM in UST and bet 240 million LUNA! Why?

Terra plans to burn $1.4MM in UST and bet 240 million LUNA! Why?

After registering a “terrifying” crash in the assets of Terraform Labs, a proposal has been presented to try to correct the inconvenience. Terra plans to burn a significant amount of UST in order to restore the balance of the stablecoin, in conjunction with a MOON bet to “reinforce” its appeal. Below we show you the details of the situation.

The “devaluation” must be stopped

The initiative proposed by Terra aims at reducing the number of UST coins in existence. It is intended to “balance” the assessment of the stablecoin while the pool is expanding and facing “oversupply” in the market.

To this end, Terraform Labs CEO Do Kwon is moving forward with proposal 1164, which has already received more than 220,000 votes. In the first instance, Terra plans to burn about $1.4MM in UST, in order to “rescue” the price of these currencies.

Incentive for users

While a burning of UST would be agreed, it is not the only strategy that Terra’s representatives have in mind. It would be necessary to quickly expel all the “unpayable” debt generated by the depreciation of these assets.

“The main obstacle is to expel bad debt from UST circulation at a fast enough pace for the system to restore the health of spreads on the chain,” Terra’s official Twitter account said.

With this in mind, Terra plans to burn coins with the “Agora” proposal, seeking to cut 11% of outstanding UST liabilities. Apart from this, the existing devaluation would be met with a new process of staking at the Luna Market.

In this sense, the initiative will have a capital of 240 million in LUNA (about $ 200 million), which will be staked to “reinforce” the influence of the asset. However, this amount maintains a sense of doubt among some analysts, who point out that the proposal would not be enough.

Price crash

For a couple of days now, the market has witnessed a massive devaluation of LUNA. Its price went from an amount above $80 to bottoming out at less than $1. We are observing a crash that oscillated more than 99% at the time of this publication

The price of LUNA assimilated a massive volatility that led it to lose more than 99% of its value, trading at $0.02 on Thursday morning. Source: TradingView.

Volatility took over the expectations of traders, which forced the generation of a wave of sales that did not stop on Thursday morning. In the same way, the UST stock price received the impact of investor distrust, thus losing the balance that characterizes the stablecoins.

The instability of the market was reflected in the UST stablecoin. Terra plans to burn part of these coins to generate a process of "stabilization" of the price. Source: TradingView.
The instability of the market was reflected in the UST stablecoin. Terra plans to burn part of these coins to generate a process of “stabilization” of the price. Source: TradingView.

The irregularities visualized create suspicions that Terra plans to burn part of its coins after having received “attacks” from competitors, in order to find an explanation for what happened. However, everything would remain in “rumors”, while UST tries to recover from the minimum of $0,31 on May 11.