By George Ward
The Terra Classic protocol has moved to stop minting terraUSD (USTC). This token plummeted by 99% during the collapse of the formerly thriving Terra ecosystem last year.
Following a recent community vote on Terra Classic’s governance forum last week, 59% of the community members approved to end USTC minting.
Voting To Stop USTC Minting
The event that unfolded within the Terra ecosystem in 2022 was triggered by the collapse of TerraUSD, the network’s algorithmic stablecoin. This turn of events resulted in a staggering 99.9% drop in the valuation of LUNA tokens (the network’s governance token), leading to the loss of $28 billion by Terra-based DeFi applications.
This chain of events caused the failure of several crypto funds. Following the ecosystem crash, members of the Terra community have continued to show their commitment to reviving the once-promising network.
One of the agreements by the stakeholders was to burn USTC tokens to re-establish stability for the embattled platform. In this context, “burning” refers to permanently removing tokens from circulation to make them more valuable by limiting their supply.
This is done by moving them to an address beyond any entity’s control, rendering them permanently inaccessible. The community sees this effort as a critical step in reclaiming and restoring balance to the troubled Terra ecosystem.
Algorithmic stablecoins like USTC hold critical positions within the digital asset industry due to their reliance on diverse assets for support. Some of the help these stablecoins rely on include Bitcoin (BTC) and LUNA.
Surprisingly, algorithmic stablecoins function autonomously. They don’t require the supervision of any centralized third party tasked with protecting the underlying assets.
However, most of these types of assets are usually affected by the “death spiral.” This scenario occurs when a significant departure or liquidation of the assets underpins these projects, resulting in an abrupt and destabilizing de-pegging of USTC-like initiatives.
The Token Burn Strategy
The original USTC design involved pegging the asset to the value of the US dollar. That is 1:1 to the USD, a feat dependent on the mechanism in place.
Nevertheless, community members remain optimistic that the strategic burning of the USTC tokens could pave the way for the stablecoin to regain its dollar peg. However, this strategy requires the burning of trillions of USTC tokens to achieve the needed stability for the asset.
Furthermore, the proposal expressed concerns that minting or reminting would negatively impact the community’s collaborative spirit. Additionally, the proposal will pave the way for major players like Binance to start burning USTC, even when the minting or reminting process is over.
It also expressed concerns about the potential exploitation of the minting and reminting processes, particularly by these leading crypto platforms, stating that it could endanger the stability and integrity of the USTC ecosystem.
These propositions and strategies were suggested by a select group of engineers united in their desire to restore Terra’s former glory. Among them is the “Samurai Six,” a group working to develop Terra Classic-based applications.
Meanwhile, this group is calling for incentives for developers who contribute their expertise to stabilize and improve the network.