Terra Classicthe continuation of the original Terra Network created by Terraform Labs, plans to relaunch its version of the stablecoin UST : the USTC (terraUSD Classic) failed, almost a year after the spectacular collapse of Terra. Community members have been discussing potential improvements to the USTC model since mid-April, focusing on token buybacks, one-way swaps, staking, and “algorithmic peg divergence fees” to address initial design flaws. .
Addressing the “death spiral” of algorithmic stablecoins
Algorithmic stablecoins like UST are backed by a basket of assets, such as LUNA And Bitcoin (BTC), without depending on a centralized third party. However, many of these tokens risk a “ death spiral – a sudden disconnection caused by releases or sales ofassets underlyings. To counter this, the community member “ RedlineDrifter proposed a divergence fee mechanism that charges a fee based on the price difference between the peg and the USTC market price. This design discourages selling below the peg and encourages buying to accumulate theasset most desirable, such as USTC or the tokens supporting it at that time. The fees collected would be used by the protocol to buy back the USTC and maintain the peg on all USTC trading pairs, both on-chain and off-chain.
Staking proposal to boost utility and price of USTC
RedlineDrifter also suggested introducing a tool staking USTC to attract capital to the token, increase its capitalization and maintain its price, at least in theory. The staking tool would offer lock periods of 1 month, 6 months and 12 months with increasing reward rates for longer lockouts. The main objective of this proposal is to remove USTC from circulating supplythus accelerating incremental repeg efforts and putting positive pressure on USTC price.
The Collapse of Terra and the Need for Decentralized Stablecoins
Community members Terra Classic believe that the stablecoins decentralized are essential to creating a truly decentralized economy and that the founder of Terra, Do Kwon, had the right idea when trying to create one. Currently, crypto markets are heavily dependent on centralized stablecoin issuers such as Tether And Circlewhich communities like Terra say is against the ethics of crypto currencies. Kwon, the disgraced creator of Terra, is wanted by South Korean prosecutors for his role in the project. His Terra co-founder Daniel Shin was indicted in South Korean courts earlier this week.
The Uncertain Future of Terra Classic and USTC Stablecoin
Terra’s ecosystem collapsed nearly a year ago, when sudden protocol exits caused the value of the UST to pennies in two weeks, as well as a 99% drop in the price of LUNA. Community members Terra Classic hope that a new model for stablecoin USTC could avoid another death spiral and offer a viable alternative to centralized stablecoins. However, it remains to be seen whether the proposals discussed will lead to a successful relaunch of the project and whether they can overcome the regulatory hurdles that stand in the way of decentralized stablecoins.
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