As LUNA Price Free Falls, Terra Co-Founder Reveals a Recovery Plan

In an extended Twitter thread on May 11, Do Kwon, the co-founder of Terraform Labs, the group that backs both TerraUSD (UST) and Terra (LUNA), announced a long-awaited recovery strategy.

After being silent for almost half a day, Kwon noted, “Before anything else, the only path forward will be to absorb the stablecoin supply that wants to exit before $UST can start to repeg. There is no way around it.”

The LUNA value is plummeting due to the de-peg fiasco

Terra USD (UST), an algorithmic stablecoin, de-pegged from the dollar earlier this week. The disaster, which upset the ecosystem’s burning and minting mechanisms, wiped out over 90% of LUNA’s worth.

While the price stabilization mechanism is absorbing over 10% of total UST supply, the rate of absorption has stretched out the on-chain swap spread to 40%, according to the co-founder.

And as part of “remedial measures to aid the pegging mechanism to absorb supply,” Kwon endorsed a community proposal to expand the minting capacity of the ecosystem to $1.2 billion. The proposal aims to solve the problem of large UST withdrawals against a slow UST burning mechanism.

As per the information on Terra Research Forum, ‘the proposal will increase BasePool from 50M to 100M SDR and decrease PoolRecoveryBlock from 36 to 18 Blocks. And, this will increase minting capacity from $293M to ~$1200M.’

Kwon predicts, “With the current on-chain spread, peg pressure, and UST burn rate, the supply overhang of UST (i.e., bad debt) should continue to decrease until parity is reached and spreads begin healing.”

While the recovery plan is being put in place to adjust the UST supply, TFL’s liquidity withdrawal in the past days has already led to a wider crypto market meltdown. At the time of writing, this pressure has brought down the price of LUNA to $0.231 while UST remains de-pegged at $0.55 on Coincu.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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