UST developer Do Kwon has posted a series of tweets explaining the way forward for the stablecoin after recent events. He mentioned some plans to ensure UST recovers after dropping to merely 50% of its dollar peg(50 cents).
Terra’s Way Forward with UST Explained
UST faced its worst moment since its launch when it dropped below its peg by nearly 70% in the past few days. Do Kwon recently highlighted that the events have been hard to take, especially for Luna and UST.
However, Do Kwon mentioned that strategies are already underway to resolve the crisis quickly. When writing his tweets, UST had recovered from merely $0.3 to $0.50, a 50% deviation from the much $1 peg.
The price stabilization mechanism has absorbed the UST supply, having consumed over 10% when writing. Luna crashed while trying to absorb the impact. The next path forward is absorbing come to UST before proper re-pegging starts.
Moreover, Kwon mentioned that the Terra community would endorse “community proposal 1164 to Increase base pool from 50M to 100M SDR *) Decrease PoolRecoveryBlock from 36 to 18. This will increase minting capacity from $293M to ~$1200M. https://station.terra.money/proposal/1164. This should allow the system to absorb the UST more quickly.”
They will also be accepting other ideas on how to control this situation in their community forum. Based on Do Kwon, The Terra, LFG, and UST team is highly committed to ensuring that the problem is controlled and the Terra network continues to develop.
Anchor Protocol Proposed Changes on UST Yields
The recent events have vastly impacted the entire Terra ecosystem and mostly the native currencies like Luna and UST. For instance, Luna lost nearly all of its value in the past few days, plunging to less than $1 at writing. UST deposits have dropped from 14 billion UST to just about 2.5 billion.
Because of the problems noticed in Luna, Anchor protocol contributors recently set an emergency proposal to reduce the yield on UST from 19.5% to merely 4%. The proposal was wa created with a mission to make the yield reserves on UST more suitable.
The governance proposal is currently undergoing a vote closed o May 18th, and if the vote succeeds, the rate will be immediately implemented on newly deposited UST reserves. The protocol contributors suggest that the yield may range between 3.5 and 5.5%, depending on the demand for UST services.
The Issue of De-Pegging
De-pegging is one of the biggest problems associated with algorithmic stablecoins. For instance, in algorithmic stablecoins, once there is a massive withdrawal in the pegged asset, the stablecoin could vastly suffer like the UST case.