Terra, an algorithmic stabilitycoin project will consume $4.5 Billion worth of Terra (LUNA), its native token from the community pool. On-chain governance was used to make the decision. Proposals 133 and 134 stated that the LUNA would be burnt and exchanged with the native stablecoin of UST. The price of LUNA will rise as a result.
Terra Starts Burning LUNA
Terra, an algorithmic, smart-enabled stablecoin, approved two propositions to deplete $4.5 Billion worth of Terra (LUNA), Terra’s native token, from the community pools. Each 800 block produced will see a burn. This is done to modify the currency’s structure in order for Columbus 5 upgrades, which have changed the production of UST.
The UST resulting from the fire will be redirected to the community pool. It is up to governance to decide how to use these funds. Already this week, the first swap transaction was completed. Once the entire stash is burned, the community will have another opportunity to determine how much to use to bootstrap Ozone. Ozone is an insurance protocol built on Terra.
Simple Economics
According to a tweet from Terra’s official account, The executions of the approved proposals represent one of the largest — if not the largest — burns of a major layer-one asset in the crypto market’s history. The coin may become less common, which could cause a rise in LUNA’s price over the long-term. Do Kwon from Terraform Labs stated this about the burn:
Burn will make Luna economics more understandable, increase staking reward and fund the community pool with 10,000,000 Luna.
Kwon also noted that after the changes that took place with the application of the Columbus 5 upgrade, “all on-chain stablecoin swap fees are routed to the oracle rewards pool for validators and we believe this will keep Luna staking rewards lucrative.”
Terra was targeted by regulator oversight. Kwon received a subpoena from the SEC when he traveled to the U.S. to present at Messari’s Mainnet conference. It was about Mirror, a native protocol built on Terra that lets users trade derivatives based on stock prices. Kwon sued SEC over the SEC’s actions and its response to the subpoena.
What do you think about Terra’s latest community pool burn? Leave a comment below.
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