Terra will burn US$ 1.4 billion in UST and ‘lock’ 240 million LUNA to try to contain collapse

The loss of parity with the US dollar of the TerraUSD (UST) stablecoin and the consequent fall of almost 100% in the price of Luna, from the Terra ecosystem, is shaking the market this week.

And, to try to stem the widespread bleeding and further losses – if that’s even possible – Terraform Labs (TFL) CEO Do Kwon has announced a series of measures.

Among other things, he said he will burn the equivalent of $1.4 billion worth of UST and will “lock in” staking 240 million LUNA tokens. The idea is to try to recover the prices of these cryptoassets.

Terra ecosystem collapse – LUNA – UST

LUNA practically went to zero from $85 on May 5th to its price $0.0062.

Meanwhile, the stablecoin UST – which was supposed to be paired 1:1 with the dollar – was quoted at US$ 0.30 last Wednesday (11). At the time of writing is at $0.17, still well below its intended $1.

The overall picture of the cryptocurrency market is critical. All top 100 digital currencies are in the red.

The market is experiencing its second longest period of making losses in the history of BTC. This means that investors are getting rid of their cryptocurrencies fearing the worst, even at a loss.

But the case of Terra (LUNA) and UST is even more critical. After all, there was practically a collapse of ecosystem assets. Furthermore, the crash of the stable digital currency has raised debates and further alerted authorities about the risk of stablecoins.

Measures to contain collapse

Do Kwon tries to reverse the situation in an almost terminal state with the newly announced measures.

As the Terra team highlighted on their Twitter account, the main obstacle at this point is “to expel bad debt from the UST circulation quickly enough for the system to restore the integrity of the spreads in the chain.”

To streamline this process, the main measure is Proposition 1164, which will expand the size of the pool and accelerate the UST burn rate. More precisely, what the TFL is going to do is increase the amount of UST that can be exchanged for LUNA by four times.

The aim is to allow stablecoin holders to make withdrawals, in hopes of regaining parity with the dollar. However, this action puts further pressure on the LUNA price.

In addition, Terraform Labs announced three other actions. First, it will burn the remaining UST in the Terra community pool. Today, that equates to about 1 billion UST. That is, about US$ 570 million considering the current price of the stablecoin.

Second, the TFL will burn the 371 million UST that are in ETH for liquidity incentives. Stablecoins will be uploaded to the Terra network and then burned.

“In total, approximately 1,388,233,195 will be eliminated from the provision of the UST through the execution of the three items proposed above. This equates to about 11% of the outstanding offer,” he said the TFL.

LUNA staking against network attacks

Finally, the TFL reported that will lock 240 million LUNA units to protect the network from potential attacks.

With the extremely low price of LUNA, it is not unlikely that someone will buy a lot of tokens to attack the network. However, with this amount of tokens defending the network, this becomes much more difficult.

“Please note that TFL is in the war room and has not stopped for the past four days working on solutions and possible avenues to help affected users and stop the bleeding. Publicly, we will continue to release updates as developments unfold.”