We have left behind a week that will perhaps go down in history as one of the bleakest for cryptocurrencies, led by the surprising collapse of the algorithmic stablecoin UST and the Luna token.
UST failed but the priority is the Terra community. Source: background image and Terra's logo are in the public domain.
And is that until a month ago the UST was one of the market's favorite stable currencies, even surpassing BUSD in market capitalization, and there are several reasons circulating to explain this abysmal decline of Luna and UST, according to various analysts are several actions and inactions that led to the collapse of the algorithmic model that gives parity to the UST with the US dollar. Some point to factors such as unsustainably high returns for Anchor staking, large volumes of liquidity for UST and an increase in its capitalization compared to that of LUNA, which affects its linkage mechanics; so it seems to be a cocktail of situations that produced this collapse.
On the other hand, the efforts of Terraform Labs, a company led by Do Kwon and responsible for the development of Terra, were not enough to stop the vertiginous fall of UST and Luna, the mechanism used for this was an excessive minting of the Luna token to try to recover the parity of UST with the dollar, among other measures.
Screenshot taken from Do Kawon's Twitter feed.
But these actions proved unsuccessful as they failed to regain parity and triggered a continued fall in the price of the Luna token to steeper and steeper lows. At the time of this publication, the token is trading at $0.0001928 and is ranked 211th in the Coinmarketcap cryptocurrency rankings, while UST is trading at $0.1139.
Luna price crash. Source: screenshot taken from Tradingview.com.
After all these events, Kwon went to a Terra forum to give his opinion and raise the next steps to be taken by the community. And in the face of the debate, he raised the possibility of a fork for the Terra network, to save the community as a priority, and proposed a restart plan led by the community itself, where Luna and UST token owners would be compensated with the new tokens produced in the fork; since after this collapse, there would not be enough ecosystem to restart from the ashes, as Kwon himself pointed out in his publication "Terra Ecosystem Revival Plan". Do Kwon acknowledged with these words that UST failed:
“While a decentralized economy does need decentralized money, UST has lost too much trust with its users to play the role”
In this release, Do Kwon also acknowledges that it is up to the Terra community to rebuild the chain to preserve its ecosystem, that validators should restore network ownership to 1B tokens, and proposes that they be distributed as follows: 400 million tokens (40%) to Luna holders before the dollar decoupling event, 400 million (40%) to UST holders at the time of the new network upgrade, 100 million (10%) to LUNA holders at the final time of the network shutdown, as according to Kwon, "they should be compensated for their role in trying to bring stability to the network," and finally, 100 million more tokens for a community pool to fund future development of the blockchain.
Thus Kwon acknowledges that in its current state the Terra ecosystem will not survive, and if it did it would be nearly impossible to restart anything, but he is betting on the community to continue to grow, and that the only way to do so is to ensure that loyal community members and its builders stay on to provide value.
Kwon also added that Terra's vision has always been "a decentralized economy needs decentralized money", and although UST was unsuccessful this time, the Terra community would work on this idea again in the future.
Debates and proposals will surely continue to be discussed and we will still have to wait to find out which path the developers and validators of the Terra network have chosen to revive their ecosystem or if they opt instead for building a new Terra.
Thanks for coming by to read friends, I hope you liked the information. See you next time.