The Terra LUNA Classic (LUNC) community has successfully passed a proposal to halt the minting and reminting of Terra Classic USD (USTC), the algorithmic stablecoin formerly known as UST. This decision comes in the wake of a tumultuous period for the Terra ecosystem, which witnessed a substantial decline in its total value, plummeting from $45 billion.
The Terra Luna Classic Proposal’s Objectives
Facing the aftermath of the UST de-pegging crisis, the Terra Classic community confronted a challenging decision. This mechanism allowed users to freely swap between UST and LUNA but had proven to be a double-edged sword during times of crisis.
With a 59% approval rate, the Terra Classic community voted in favor of ceasing the swapping mechanism. This decision underscores the community’s dedication to rebuilding trust and stability within the ecosystem. By halting the minting and reminting of USTC, the community aims to prevent future crises and safeguard the value of its assets.
The UST De-pegging Crisis
The troubles began when UST, the stablecoin forming the foundation of Terra’s financial ecosystem, lost its peg to the US dollar in May 2022. This unexpected event triggered a cascading effect that deeply impacted the Terra community. As the UST price plummeted, a critical mechanism designed to maintain stability failed catastrophically.
In a bid to counter the de-pegging, an unprecedented number of LUNA tokens were minted, flooding the market. However, this influx of LUNA tokens created an oversupply, causing the value of LUNA to decline. Exacerbating theissue and pushing UST’s price further below its intended peg.
This frantic minting activity led to UST’s value spiraling out of control, trading at a fraction of its intended value at its lowest point, below the 1:1 peg with the US dollar. The significant loss of value affected not only the Terra community but also external investors along with users who relied on UST for stable transactions and investments.