Terra is a blockchain protocol that uses fiat-pegged stablecoins to power price-stable global payments systems. According to its white paper, Terra combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin and offers fast and affordable settlements.
The algorithmically-governed stablecoin platform is proposing to burn 90 million LUNA, worth $4 billion at current prices and about 10% of the total supply, in the community pool to mint UST stablecoin for the network’s insurance protocol Ozone.
When the native stabilizing crypto asset of the network, LUNA, is burned to mint new Terra stablecoins, the amount of Luna burned is “seigniorage.”
Roughly every week, a portion of this seigniorage goes to fund the community pool controlled by Luna governance and reward Luna stakers.
According to the proposal called “Burn the community pool,” this proposal will burn all remaining funds in the community pool, route all future seigniorage to be burned instead of being routed to community/staking reward pools, and amortize the distribution of the existing reward pool to three years instead of the current one year.
“Next week, we will uphold Terra signal prop 44 and initiate a proposal to burn 90M Luna in the community pool to mint UST for Ozone. This will reduce Luna’s total supply by 90M and increase UST supply by roughly 3-4 billion,” said Do Kwon, founder of the project. Kwon has predicted UST’s market cap to exceed $10 billion by the end of this year.
— Do Kwon 🌖 (@stablekwon) October 22, 2021
Kwon further shared that a byproduct of this operation is that a lot of swap fees will accrue, which is expected to result in LUNA staking returns to 5x to about 15%.
“Pretty sure this is the largest burn ever,” commented Ryan Watkins of Messari, expecting this burn to increase UST’s supply to $6.7 billion overnight and put it within striking distance of DAI, which is $7.4 billion.
“This would also be the first DeFi blue chip to be flipped by a multichain competitor on its number 1 KPI. That said think there’s a place for both, and DAI continues to grow at an impressive pace, even before it’s tokeneconomic revamp.”
At the time of writing, the Terra price is $42.83 USD with a 24-hour trading volume of $1223429368 USD. Terra is down 3.52% in the last 24 hours.
Bewildering Regulation Issues:
In another related story, Terraform Labs and CEO Kwon are suing the US Securities and Exchange Commission (SEC). Kwon confirmed this week that he was served a subpoena by the SEC at Messari’s Mainnet conference last month. According to the filing, the matter dates back a few months; it started in May when the SEC’s Enforcement Division emailed Kwon.