LUNA has dropped more than 90% in the past 24 hours, while UST remains more than 54% off its dollar peg at $0.43.
Terraform Labs CEO Do Kwon has outlined how the cryptocurrency platform plans to handle the de-pegging from the US dollar that has over the past few hit the TerraUSD (UST) stablecoin.
UST, an algorithmic stablecoin whose minting model is tied to the native LUNA token has continued to decouple from its dollar peg on Tuesday massively. At one point, the UST token stood at $0.25, off 75% from the peg.
On Tuesday, Do Kwon said a “rescue plan” was in consideration, a move that followed failed attempts to push up the peg using Bitcoin reserves.
On Wednesday, the Terraform Labs chief explained via a tweet thread what was being put in place after a brutal 72 hours for the stablecoin and LUNA.
“I understand the last 72 hours have been extremely tough on all of you – know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this. Together,” he tweeted.
Path forward for UST and LUNA
According to Kwon, there is a need to absorb UST supply that is looking to exit the ecosystem first before further measures help establish a path towards the peg. This, he notes, will likely continue to push pressure on LUNA, which is incidentally down over 90% at the time of writing.
“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,” he explained.
He noted that the Terraform Labs team has proposed “several remedial measures to aid the peg mechanism to absorb supply.”
Among these measures is the teams’ endorsement of a community proposal to increase minting capacity from $293 million to $1200 million. With more LUNA minted, UST absorption will happen faster and help the recovery plan.
He, however, added that these measures come at a cost for holders of the Terra tokens.
“Naturally, this is at a high cost to UST and LUNA holders, but we will continue to explore various options to bring in more exogenous capital to the ecosystem & reduce supply overhang on UST,” he wrote.
Kwon has also hinted at a redesigning of the UST stablecoin, with future plans being to make it collateralized.
LUNA down 92%
On 11 May the UST token traded as low as $0.25, de-pegging the dollar by 75%. A brief relief in the crypto market had the stablecoin up to $0.50, but pressure has it back to $0.43 and more than 54% off the dollar peg.
LUNA was down an astonishing 92% in the past 24 hours at the time of writing. According to data from CoinGecko, the LUNA/USD pair was trading around $2.20 as a panicked community continues to wonder what next.