Terra to burn $1.4 billion UST and risk 240 million LUNA to ‘stop the bleeding’

Do Kwon’s initial rescue plan included increasing the base pool, burning UST, and staking LUNA, according to the Terra Money Twitter account.

The Terra rescue story is still unfolding. The Terra Money Twitter account went into additional depth about Terraform Labs CEO Do Kwon’s rescue plan for UST in a Twitter post.

The post gives insight into Do Kwon’s initial Terra approach, Proposal 1164, from May 11. The proposal would improve the balance of the algorithmic stablecoin Terra USD (UST) by extending the currency’s base pool. The proposal has obtained 220,000 votes or more than half of all total votes.

According to the Twitter post, there is a “supply overhang” of UST, which reflects Terra’s (LUNA) “dilution,” or price depreciation. As a result, they now have to burn even more UST:

“The primary obstacle is expelling the bad debt from UST circulation at a clip fast enough for the system to restore the health of on-chain spreads.”

As a consequence, three emergency actions must be taken, one of which focuses on burning additional UST.

The so-called Agora Proposal vote is approaching, according to Terra Research forum user The Intern. The entire amount of UST burned should be 1.4 billion UST, or “11% of the outstanding UST liabilities,” as per the site.

To conclude, the team believes that increasing the coin’s base pool and burning more should save UST.

The third point, including the staking of 240 million LUNA, is said to boost the network regulation of the TERRA ecosystem.

However, some experts believe that staking 240 million LUNA, or around $200 million, is insufficient to rescue the project.

Several analysts have stated that Proposal 1164 will actually boost LUNA and UST’s continuing “death spiral.”

The crypto community was keen to support Kwon’s algorithmic stablecoin, as reported earlier. Moreover, unusual theories about a premeditated “attack” on the ecosystem coordinated by opposing players have been discussed.

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