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Terra completes Columbus-5 upgrade, burns all minting fees, integrates with Cosmos

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Terra completes Columbus-5 upgrade, burns all minting fees, integrates with Cosmos

The leading public blockchain in South Korea, Terra, has seen rapid growth in its token price from the beginning of this year until now. Yesterday, it also completed the upgrade operation of its Columbus-5. What are the major reforms in this upgrade and what changes will it bring to the Terra ecosystem? Let's take a look.

Token Burn and Minting Tax

To understand the token minting tax, one must start with Terra's unique dual-token mechanism. The two tokens are LUNA, used for governance, staking, and validation, and TerraUSD UST, a stablecoin pegged to the U.S. dollar. UST is an algorithmic stablecoin that does not require collateral and stabilizes its value through arbitrage. Whenever UST is minted, LUNA is burned. If the value of UST rises and decouples from the U.S. dollar, miners mint UST by burning LUNA to increase its circulation and reduce its value to maintain the peg to the U.S. dollar. The burned LUNA is referred to as the "minting tax."

Prior to the Columbus-5 upgrade, a portion of the burned LUNA was allocated to the community fund pool to support protocol development and serve as oracle rewards within the Terra ecosystem. After the upgrade, the allocation of LUNA will be eliminated, meaning all LUNA will be burned and not allocated to the community fund pool. This upgrade is somewhat similar to Ethereum's EIP-1559 token burn mechanism and is expected to accelerate token scarcity, potentially driving up the price of LUNA in the future.

Launch of the Ozone Insurance Protocol

The community fund pool currently holds approximately 98.6 million LUNA, equivalent to around $3.5 billion. After the upgrade, $1 billion worth of LUNA will be burned through Terra's SWAP mechanism, generating an equivalent value in UST. This fund will support the funding needs of Ozone, an algorithmic ecosystem insurance protocol that is currently under review and is expected to launch in late October.

Becoming Part of the Cosmos Ecosystem

Terra has integrated with Cosmos' cross-chain communication protocol, Inter-Blockchain Communication (IBC) "Stargate," allowing Terra developers to use the Cosmos SDK Software Development Kit for deploying Dapps that can operate on any blockchain adopting the Cosmos SDK. Furthermore, through the data serialization protocol Protocol Buffers of the Cosmos SDK, data sharing between Terra and different blockchains is facilitated.

These are the key points of the Columbus-5 upgrade, which are expected to facilitate greater interaction between the Terra ecosystem and other public chains. The launch of the Ozone insurance protocol will provide financial protection in case of different risks encountered on the Terra chain. The standout feature of the Terra chain is its native stablecoin, UST.

Recent Developments in Terra

September 9: Announced the launch of the $150 million Project Dawn, with five million LUNA unlocked for improving infrastructure, including expanding technical team collaborations, exploring non-cloud validation nodes, and diversifying oracles. There may be ongoing unlocking of LUNA for operational costs, with an official commitment of up to 3 million LUNA per month.

September 10: Launched the Astroport project, Terra's AMM.

Currently, Terra's locked assets amount to $8.46 billion, ranking fourth in smart contract public chains, following Solana, with a relatively low token market capitalization-to-locked assets ratio.