LUNC News: Terra's New Proposal Aims To Bring UST Back To $1

UST Proposal Aims For $1 Repeg

Almost a year after Terra’s gruesome debacle, members of the Terra Classic community are considering resurrecting the ecosystem’s doomed terraUSD classic (USTC) stablecoin. The failed chain got renamed to Terra Classic whereas the forked version — developed in the aftermath of UST’s de-pegging event — converted into Terra 2.0.

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Discussions on community forums that date back to March are proposing a new model that addresses the problems with the initial design by utilizing staking, algorithmic peg divergence fees, token buybacks and unidirectional swaps. A divergence fee mechanism, as detailed by member “RedlineDrifter,” would levy a cost equal to the disparity in price between the peg and the market price of USTC. This fee may vary from 0% to 100% at a 50% deviation from the peg. Users who purchase USTC tokens would be responsible for these fees.

UST Repeg Proposal Details

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This design eliminates the incentive to sell below the peg and increases the incentive to buy in order to guarantee the accumulation of the more valuable asset, which is USTC or tokens that back it. The protocol is said to be applied across all USTC trading pairs, both on-chain and off-chain, and the fees that are collected by the protocol are used to purchase back USTC and ensure that the peg is maintained.

Additionally, RedlineDrifter offered a USTC staking tool as a means of attracting funds to the token, which would, at the very least, result in an increase in the token’s price. According to the suggestion, in order to give USTC some utility while simultaneously removing it from circulating supply, a new staking mechanism should be developed for USTC with lockup durations of one month, six months, and one year with increasing incentive rates for longer lockup periods. The proposal was quoted as saying:

This module is purely about taking USTC out of circulating supply in order to accelerate the incremental repeg efforts and put increased positive pressure on USTC price.

As reported earlier on CoinGape, the Terra ecosystem collapsed in May of last year due to abrupt outflows from the protocol, which led UST to plummet to a few pennies within two weeks along with a 99% loss in the value of LUNA tokens. In the wake of this LUNC news, the price of Terra Classic is currently exchanging hands at $0.0001081 with a market cap of roughly $637 million.

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