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Do Kwon reveals Terra’s proposed rescue plan to save LUNA and UST

Finally, outspoken founder of Terraform Labs, Do Kwon, broke his silence and described the new rescue plan he has in place to get the flagshipstablecoin of the ecosystem, UST.

In the most recent Twitter thread, Kwon said that the only way forward is to absorb the stablecoin supply, which wants to exit before UST can start re-binding.

  • The manager added that after accepting the community proposal, there was no other way out. He further explained

“The price stabilization mechanism is absorbing UST supply (over 10% of total supply), but the cost of absorbing so many stablecoins at once has stretched the on-chain swap spread to 40%, and Luna price has dropped dramatically on the Arb .”

  • The main idea is to focus on the arbitrage-Opportunity to focus.
  • The proposal said that allowing UST and LUNA mint to burn more efficiently will put pressure on the price of the latter in the short term. But this mechanism will be an effective way to dissuade UST from deviating from its intended peg and will eventually stabilize LUNA’s price.
  • Burning billions of UST will trigger significant dilution of LUNA. It further added,

“Nevertheless, there is no cap on LUNA supply, this market mechanism will indeed work to bring stable UST and stable LUNA price (although likely at a lower price point for LUNA).”

  • The developers will essentially increase the base pool from 50 million to 100 million Special Drawing Rights (SDR) and decrease the PoolRecoveryBlock from 36 to 18. This, in turn, will increase minting capacity from $293 million to nearly $1.2 billion, four times the minting stablecoin than usual.
  • As the team begins rebuilding UST, Kwon said the team will adjust its mechanism to be collateralised, meaning UST will be backed by other financial assets, including traditional and cryptocurrenciesis supported.
  • Although this proposal was published a few hours ago, it failed to win back trust. LUNA fell below $1 earlier today and has lost around 99% of its value in less than a week.

Source: Crypto News Deutsch

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