The recent movements in the treasury of Terra, a decentralized financial payment network, which is now burning more than $4 billion worth of LUNA due to a governance proposal, have seemingly made the price of the asset rise to all-time high (ATH) levels. This rise has been also accompanied by new proposals to further cement the stability of its stablecoin, UST. Do Kwon, head of Terraform Labs, hinted at the inclusion of a bitcoin reserve to safeguard UST’s dollar peg.
LUNA in full swing
The recent changes in Terra’s issuance model, brought about by the recent Columbus 5 update, appear to have been successful in fostering the growth of the network’s currency, LUNA. The price of its native asset, LUNA, has risen significantly, hitting ATH levels at $ 69.59 yesterday, recording a price increase of over 50% over the past week. One of the more interesting choices made by the cryptocurrency project was the burning of over $ 4 billion of LUNA that was held in the project’s community pool.
These LUNA tokens have been exchanged constantly for UST, the sibling stablecoin of the project, and are now waiting to be used for other purposes. This was part of a change in the issuance model of UST.
New hybrid model suggested
So far, there are no other tokens used as collateral to support the value of UST stablecoin. This can, at times, cause the peg to the underlying currency (the US dollar) to be lost for various reasons. Due to model limitations and the incentives to keep the token peg in certain situations, Terraform Labs CEO Do Kwon hinted at introducing other solutions to address this issue.
Do Kwon stated in a recent Twitter thread:
I’ve grown quite tired of arguing with idiots on Twitter on whether UST can remain stable in bear. So soon I will propose creating multi billion dollar reserves in decentralized assets (BTC and others) in an attempt to save myself time.
If that really happened, Terra would become a hybrid project, with a reserve that would support the value of the UST stablecoin in bear markets. Additionally, Kwon hinted at using the UST locked in the community pool as insurance for the currency and also to serve as a backing to protect the UST from possible de-anchoring.
