DEFI

Do Kwon responds: Currently, only able to absorb selling pressure of UST, will transition to a collateralized stablecoin in the future.

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Do Kwon responds: Currently, only able to absorb selling pressure of UST, will transition to a collateralized stablecoin in the future.

For supporters of the Terra ecosystem, today's plummet of UST and LUNA can be seen as the least desirable outcome. After a period of silence, Terra founder Do Kwon finally spoke out. However, it seems that he has not come up with an immediate solution to alleviate the current market situation.

Do Kwon's Confidence Call and Solution

https://twitter.com/stablekwon/status/1524331171189956609

Dear Terra community:

I understand the past 72 hours have been extremely difficult for you. I want you to know that I am going through this crisis with each and every one of you, and together we will find a way out of this.

First, for those who are not familiar with how Terra's pegged stable mechanism works, here is a great overview:

Looking back at the current situation: The current trading price of UST is 50 cents, a significant deviation from the expected peg of $1. The price stabilization mechanism is absorbing over 10% of the UST supply, but at the cost of widening the on-chain exchange spread to 40%. Additionally, to absorb arbitrage opportunities, the price of Luna has also dropped significantly.

In order to move UST forward and re-peg it to $1, we must absorb all stablecoin supply created from selling UST. There is no other way around it.

We will support community Proposal 1,164, which proposes increasing the base pool from $50 million to $100 million using Special Drawing Rights (SDR) as forex reserve assets, boosting minting capacity from $293 million to $1.2 billion.

More ideas will be discussed on the community governance forum.

Given the current on-chain spread, peg pressure, and UST burn rate, the excess UST supply, which essentially is bad debt, is expected to decrease until equilibrium is reached, and the spread will start to recover.

Of course, this comes at a high cost for UST and LUNA holders, but we will continue to explore different options to bring in more external capital to the ecosystem and alleviate the issue of excess UST supply.

As we start to rebuild UST, we will adjust its mechanism to become a collateralized stablecoin.

Terra remains one of the most active ecosystems in the crypto space, with hundreds of passionate teams building and defining App categories within Terra. As long as these ecosystem builders, including Terraform Labs, continue to build, we will navigate through this together.

Terra's development has always been focused on the long term. May's setback is similar to last year's, and it will not stop the #LUNAtics. Short-term mistakes do not define what you have accomplished.

What matters is how we respond to it.

The return of Terra will be a scenario worth watching.

We are not going anywhere, and we will continue to speak up.