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Do Kwon proposes a token redistribution plan to preserve the Terra ecosystem


May 13, 2022 · By MATheGooner
Terra (LUNA)

Do Kwon, co-founder of Terraform Labs, has proposed a plan to save the Terra ecosystem following the historic depegging of its algorithmic stablecoin, UST, and the ensuing death spiral that drove Terra (LUNA) tokens to near-zero. 

The proposal, which was published on Terra’s research forum, is akin to a Terra blockchain restart. “The Terra community must reconstitute the chain to preserve the community and the developer ecosystem,” Kwon stated. 

Validators, according to Kwon, should reset network ownership to 1 billion tokens distributed among LUNA and UST holders, as well as a community pool for future development funding.

40% of the newly distributed tokens would go to LUNA holders who held the asset prior to the depegging event, 40% to UST holders on a pro-rata basis at the time of the new network upgrade, 10% to LUNA holders just before the chain halted operations, and the remaining 10% to the development pool. 

Given the massive liquidity events that have occurred across the Terra ecosystem this week, Kwon believes that repegging UST to the US dollar would make little effect. In other words, confidence in the stablecoin paradigm has been irrevocably destroyed. He elaborated:

“Even if the peg were to eventually restore after the last marginal buyers and sellers have capitulated, the holders of Luna have so severely been liquidated and diluted that we will lack the ecosystem to build back up from the ashes.”

Instead, he advises rebuilding the network.: “We’ve built up one of the largest and most vibrant developer ecosystems in crypto, with some of the smartest minds in the world working on products with the best UI/UX.”

Kwon’s proposal came two days after he announced a plan to save UST’s dollar peg, which included boosting the protocol’s minting capacity and raising the special drawing rights pool, but failed as the price of LUNA and its sibling token continued to fall.

UST and LUNA were created to work together, with the former being kept around $1 by a burn mechanism that encouraged traders to take advantage of arbitrage possibilities. However, as interest rates in Anchor Protocol, the network’s core use case, fell, capital fled, resulting in a death cycle.

The price of LUNA dropped roughly 100% in a matter of days as UST, the stablecoin it backs, fell from a $1 peg. LUNA is now worth a fraction of a penny, whereas UST is currently trading at $0.13 per dollar. 

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TodayinCrypto is a financial media brand that strives to deliver breaking, accurate and daily news about digital assets to millions of investors in the crypto industry.

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  • SEC Chair Gary Gensler says Bitcoin is the only cryptocurrency he recognizes as a commodity June 27, 2022
  • Anonymous hacker group threatens to expose Terra LUNA founder Do Kwon’s crimes June 27, 2022
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