An algorithmic stablecoin project by the name of Terra is planning on burning around $4.5 billion worth of its native token terra (LUNA) from its community pool. The on-chain governance system was used for making the decision.
According to proposals 133 and 134 that were presented, the token will be swapped and burned for the native stablecoin of the chain known as UST. In the long run, this burn is expected to give the price of LUNA a solid boost. This algorithmic stablecoin project is smart contract-enabled and a pair of proposals were passed by it that let to this decision.
The token will be burned after every 800 blocks are produced and the aim of this act is to ensure that the structure of the currency is adapted to the new Columbus 5 upgrade. This new upgrade has changed the way the UST token is produced. The burn will help obtain the UST and this will be reallocated to the community pool.
The decision of what to do with these new funds will be taken by the governance. Earlier this week, the first swap transaction had already taken place. Once the whole stash is burned, the community will have another period for deciding how much of it to use for bootstrapping a decentralized insurance protocol known as Ozone on top of Terra.
A tweet from the official account of Terra stated that the execution of the proposals put forward is one of the largest burns in the history of the crypto market, when it comes to a prominent one-layer asset, if not the largest one.
In the long term, this might give the price of the LUNA token a boost because it is understood that burning so much of it will make it scarce. The chief executive of Terraform Labs, Do Kwon also talked about this burn. He stated that LUNA economics would be simplified due to this burn and it will also give staking rewards a boost.
Plus, the community pool will still remain well funded with around 10 million Luna. Kwon also talked about the changes that had occurred after the upgrade of Columbus 5. He said that Luna staking rewards have become very lucrative as a result because the on-chain stablecoin swap fee is now being routed towards oracle rewards pool that can be handy for the validators. There has been some regulatory attention diverted towards the Terra protocol.
The US Securities and Exchange Commission (SEC) had subpoenaed Kwon when he had traveled to the United States for presenting at the Mainnet conference of Messari. The subpoena was in relation to Mirror, which is one of the native protocols that have been developed on top of Terra.
This native protocol allows its users to trade tokens that are basically derivatives that have been pegged to the price of some stocks. Kwon did not take this sitting down and last month, he sued the SEC for the way they had acted and how the subpoena had been served to him.
By SergeiShimanovich – shutterstock