Terra Classic Makes Major Move towards TerraClassicUSD (USTC) Repeg: Details

Proposal 11487, a signal proposal that seeks to repeg TerraClassicUSD (USTC) in the long run by using a divergence protocol and buyback mechanism is still up for voting on the Terra Station. Voting on the proposal which also addresses issues regarding USTC unidirectional swaps and staking will end on April 29. 

Notably, May 2023 will mark a calendar year since USTC lost parity with the dollar, leading to the hyperinflated supply of Terra Classic (LUNC). Since then, several USTC repeg proposals have been introduced by different community members with most of them failing to pass governance voting. Meanwhile, the few which passed governance voting are yet to be fully implemented. 

Accordingly, Redline Drifter recently rolled out Proposal 11487, outlining an approach to revitalize the Terra Classic ecosystem in an equitable manner that will appeal to both USTC and LUNC holders. As per the signal proposal, the two approaches suggested by Drifter to re-peg the supposed stablecoin USTC include the implementation of an algorithmic peg divergence fee and a buyback protocol. 

“The Divergence Protocol works by charging an algorithmic/ dynamic fee equal to the difference in price between the peg and market price. The fee can range anywhere from 0% at peg to 100% fee at a 50% deviation from peg. Basically the greater the difference in price from peg and market price, the more you will be punished and the higher the fee you will pay,” Drifter wrote. 

Thereafter, the funds derived by charging divergent fees on all USTC trading pairs both on and off-chain except for regular transactions such as purchasing products/ services or sending money between wallets will be used to buy back USTC.  “The fees then retained by the protocol are used to buyback USTC and maintain the peg,” part of the proposal read. 

However, for these approaches to be implemented and perhaps get USTC re-pegged, the signal proposal must cross the pass threshold. But at the time of writing, it is yet to get the needed support from the Terra Classic community. So far, 51.39% of votes on Proposal 11487 indicate “Yes” while 21.61% of voters are opposing the proposal and many other voters including Allnodes and LUNC DAO have abstained from voting.

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