Terra Governance Proposal: UST Attracts MIM and FRAX, Increasing Curve Decentralized Stablecoin Pool Liquidity

In order to increase the liquidity of the stablecoin UST on the Terra blockchain on Ethereum, a governance proposal has emerged in the Terra community aimed at collaborating with the popular algorithmic stablecoins MIM and FRAX to add liquidity pools for MIM-UST and UST-FRAX on the Curve protocol.

1/ A new Community Spend proposal on Agora courtesy of resident Terra Briboooorr ETB (@ezaan_) is now posted.

The goal? Further expansion of $UST liquidity on @CurveFinance via dual $LUNA incentive programs matching @MIM_Spell and @fraxfinance 🤝https://t.co/ainRFATYwB

— Terra 🌍 Powered by LUNA 🌕 (@terra_money) December 7, 2021

Increasing UST Liquidity through Curve

On Ethereum, the largest stablecoin liquidity comes from the Curve 3 Pool, where the combination of DAI, USDC, and USDT provides over $4 billion in liquidity. However, these stablecoins are more centralized, and decentralized stablecoins have been gaining market share over the past three months, with UST's market cap growing from $2.5 billion to $8.3 billion; Abracadabra's MIM growing from 0 to $3.7 billion; and FRAX growing from $680 million to $1.3 billion.

Regarding this governance proposal, the proposer suggests that the Terra community should establish strategic partnerships with MIM and FRAX to create sufficient liquidity among these three largest decentralized stablecoins.

Implementation Plan

1. Conduct bi-weekly Curve Gauge votes incentivized with $1 million in LUNA through the Votium protocol.
Total of $12 million over 6 months to enhance liquidity in the MIM-UST pool on Curve. The current liquidity in the MIM-UST pool is approximately $630 million.

2. While there is currently no UST-FRAX pool on Curve, the FRAX team is actively working on adding a new pool through Curve voting. Following a similar model, the FRAX team will provide $500,000 FXS, and the Terra team will offer $500,000 LUNA as incentives. Over 6 months, the Terra team will provide a total of $6 million to strive for the possibility of establishing a UST-FRAX pool on Curve.

Through this approach, liquidity for these three stablecoins on Curve will be enhanced, further emphasizing the importance of decentralized stablecoins. Based on the current voting percentage, the likelihood of this proposal being implemented is quite high. Terra also mentioned on Twitter the potential future establishment of a combination pool of FRAX + MIM + UST on Curve, indicating an ongoing tug-of-war between the market shares of centralized and decentralized stablecoins.