Terra will burn $4.5 billion in LUNA from the community pool.

Terra, an artificial stablecoin project, will burn $4.5 billion of its native token, terra (LUNA), from its community pool. The decision was made via the on-chain governance mechanism, and the LUNA will be burnt and swapped for the chain’s native stablecoin, UST, according to proposals 133 and 134. The price of LUNA is projected to rise as a result of this burn, at least in the long run.

Terra, a smart contract-enabled algorithmic stablecoin project, approved two proposals to burn $4.5 billion worth of its native token, terra (LUNA), from community pools. The burn will take place every 800 blocks generated, and its objective is to adjust the currency system for the new Columbus 5 update, which modified the method UST is produced.

The UST earned from the burn will be transferred to the community pool, with governance in charge of determining what to do with these monies. The first exchange transaction occurred earlier this week. After the whole stockpile is destroyed, the community will be able to determine how much of it will be used to bootstrap Ozone, a decentralized insurance system built on Terra.

The executions of the accepted bids constitute one of the largest — if not the largest — burns of a significant layer-one asset in the crypto market’s history, according to a tweet from Terra’s official account. Because the coin will become increasingly rare, the price of LUNA may grow in the long run. Do Kwon, CEO of Terraform Labs, commented on the fire:

The burn will simplify the narrative of Luna economics, boost staking rewards, and leave the community pool well funded with 10 million Luna.

Kwon further stated that following the Columbus 5 update, “all on-chain stablecoin swap fees are directed to the oracle rewards pool for validators, and we anticipate this will make Luna staking rewards profitable.”

Terra has been singled out for regulatory scrutiny. When Kwon flew to the United States to appear at Messari’s Mainnet conference, he was served with a subpoena from the Securities and Exchange Commission. The subpoena was issued in connection with Mirror, one of the native protocols developed on top of Terra that allows users to trade tokens that are derivatives connected to the price of certain equities. Kwon filed a lawsuit against the SEC last month for the manner it handled the subpoena.

Patrick

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