Terra (LUNA) Community Approves Proposal To Burn 1.3B TerraUSD (UST)

Terra (CRYPTO: LUNA) tokenholders voted on proposal 1747 and decided to burn 1.388 billion TerraUSD (CRYPTO: UST) tokens after the stablecoin collapsed earlier this month.

What Happened: The implementation of proposal 1747 will result in a reduction of UST’s supply by about 11% according to CoinMarketCap's estimate of the stablecoin's total supply of 11.28 billion UST. More than 99% of all 154 million votes approved the burn proposal while under 1% abstained and only 10,000 voted against its implementation.

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The proposal is meant to reduce the debt within Terra's ecosystem and restore TerraUSD's peg to the U.S. dollar by decreasing UST's supply through a burn of the community pool. Of the 1.388 billion UST to be burned, 1.017 billion are held in the Terra community pool while the remaining 371 million are found on the cross-chain bridge linking Terra with Ethereum (CRYPTO: ETH).

The community hopes that the burn will also reduce the selling pressure on the LUNA token by slowing down its issuance through the burn of UST stablecoins. Each UST token can be burned in exchange for $1 worth of LUNA after the subtraction of a market spread.

This mechanism resulted in a mass issuance of LUNA and mass burning of UST when TerraUSD lost its dollar peg and the continuous burn resulted in an exceptionally high spread that also limited the system's ability to restore the peg afterward. The high reward of on-chain UST burning incentivizes market participants to acquire as much TerraUSD as possible, burn it for Terra and then sell it for UST to repeat the process — resulting in sustained selling pressure.

Photo: SOROKAJPG via Shutterstock

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