Blockchain wealth management platform SwissBorg recently published a report stating that the mass burning of UST for LUNA and the massive sale of LUNA on the market would “further exacerbate” the fall in value of the cryptocurrency, which is trading at around $0,1 per unit at the time of writing.
In the last days, LUNA has lost more than 90% of its value and its market cap has slipped to $2.500 billion.
However, Terraform Labs founder Do Kwon took to Twitter to share his plan to save the stablecoin UST and LUNA, pillars of the Terra blockchain ecosystem.
On the other hand, the DeFi protocol Anchor Protocol has also presented a proposal to try to stabilize and balance the value of UST and stop the death spiral. The DeFi protocol announced a series of emergency measures to reduce minimum interest rates to 3,5% and maximum deposit rates to 5,5%, the proposal states.
The protocol's current yield or APY of 18% will also be reduced with a target interest rate of 4%, Anchor Protocol explained.
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What steps will Terraform Labs take?
After remaining silent for almost a day, Kwon noted that: “First and foremost, the only way forward will be to absorb the stablecoin supply that wants to exit before $UST can start pegging. There is no way around this.”
As part of this move to absorb the outgoing stablecoin supply, Kwon also backed a Community proposal to expand Terra's minting capacity to $1.200 billion. This proposal aims to solve the problem of large UST outflows, compared to the current slow minting mechanism.
According to Terra Research Forum: “The proposal will increase the BasePool from 50M to 100M SDR and decrease the PoolRecoveryBlock from 36 to 18 blocks. This will increase the minting capacity from $293M to $1.200B.”
On the other hand, the foundation has explained that will change the UST linking mechanism to be collateralizedThis means that UST will be backed by collateral reserves, similar to other stablecoins such as USDT or USDC.
In fact, some Asian media outlets have already published information about a possible attempt by the Luna Foundation Guard to raise over $1.000 billion to collateralize its stablecoin.
However, it will be very difficult for Terra to regain the confidence of investors. In fact, some media like CoinDesk It has been reported that this might not be Do Kwon's first failed stablecoin, as he may have participated (under a pseudonym) in Basis Cash, another algorithmic stablecoin that failed in the past.
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