Edward Kim and Alex Forshaw, two members of the Terra Classic community, unveiled an ambitious proposal to restore the dollar peg of the TerraClassicUSD (USTC) after adopting a 1.2% tax burn slated for September 20, 2022.
It is important to note that in May, the UST, now known as USTC, lost parity with the US dollar, and fell to zero. As a result of the catastrophe, an excess of LUNA tokens—now known as LUNA Classic (LUNC)—were minted, which shrunk the value of LUNC. TerraForm Labs stopped the swaps between LUNC and USTC to prevent further damage.
The 10.3 billion USTC that were still in circulation became around $9.5 billion in bad debt after the blockchain “defaulted” (stopped paying loan payments), according to Kim and Forshaw’s description of the situation. The authors likened the Terra Classic network to a developing country that has had a default on its debt. They said that some sort of debt restructuring is necessary.
The authors argue that regaining the dollar peg only makes sense if they can make sure USTC is no longer exposed to the attack that brought it tumbling down. Secondly, if the process won’t overwhelm the community that must finance it. And finally, if the stablecoin reserves can stop a repetition of the death spiral should it come under attack in the future.
“… by resurrecting — and drastically improving — the decentralized stablecoin, we can turn one of crypto’s biggest defeats into the most stunning turnaround in digital asset history.”
The authors reiterate their conviction that a scalable, fully decentralized stablecoin in crypto is needed, and they also explain how USTC losing its peg will more efficiently burn LUNC tokens using its original algorithmic controls.
The Roadmap to Recovery: Attracting Utility
In light of the fact that practically all projects on the network ceased their operations after the ecosystem collapsed, it is important to note that the roadmap’s ultimate step is to attract utility. While attempts have been made to revive these projects with their vibrant communities as their main selling point, Kim and Forshaw argue that the network is best served by growing in accordance with the project standards. They also mention that Terra 2.0-based projects can work with the classic chain as well.
With the introduction of a 1.2% tax burn, which the authors consider the first step, the community has already made many strides. According to the community, the first step toward making the asset deflationary is the decision to collect and burn a 1.2% tax on all on-chain and off-chain transactions with the support of centralized exchanges.
Following TFL’s approval, the parameter change is expected to go into effect in less than six days. Many exchanges have so far shown support for it.