On Friday, Terra’s co-founder Do Kwon, who vanished this past week during the crypto collapse, announced a new plan to resuscitate the beleaguered $30 billion blockchain network, which has seen its algorithmic stablecoin UST depeg and LUNA token crater. Kwon said that he wanted to offer a financial scheme to buoy crypto holders.
In the past, Kwon infamously said that “95 percent [of coins] are going to die, but there’s also entertainment in watching companies die too.”
“Even if the peg were to eventually restore after the last marginal buyers and sellers have capitulated, the holders of Luna have so severely been liquidated and diluted that we will lack the ecosystem to build back up from the ashes,” said Kwon. “While a decentralized economy does need decentralized money, UST has lost too much trust with its users to play the role.”
To revitalize the Terra ecosystem, Kwon proposed a redistribution scheme that would reset the number of LUNA governance tokens to 1 billion from 6.5 trillion tokens. He claims forty percent would go to those who held UST and another 40% would be awarded to those who held UST before it was de-pegged. Another 10% would go to LUNA holders, while the final 10% would fund continued development of the network.
Globally, there are almost 100 stablecoins in existence. Most are pegged to a more stable asset like gold or fiat currency like the U.S. dollar. Over the past week, the algorithmic stablecoin UST and its sister token LUNA dropped precipitously in price, with LUNA going from $100 in April to a jaw-dropping price of $0.0001 on Friday, making it effectively worthless.
UST and LUNA are sister tokens designed to work together via financial engineering that ensures stability through an algorithm. Essentially, if the price of one falls below $1, in theory the sister token would stabilize the other by allowing users to swap one for the other. However, during this past week, both tokens fell dramatically in price and neither could maintain its $1 peg, allowing both to collapse. This also diverges from the normal way stablecoins work, given that it is not pegged to a real-world stable asset like the U.S. dollar or gold.
The de-pegging of UST stablecoin and ensuing chaos for LUNA, which reached an astonishingly low price bordering on zero this week, impacted collateral like Bitcoin. Kwon acknowledged investors’ losses but said he was hopeful “the community can achieve speedy consensus on how to revive the Terra ecosystem,” he said. “I’ll always be here.”
“We’ve built up one of the largest and most vibrant developer ecosystems in crypto, with some of the smartest minds in the world working on products with the best UI/UX,” Kwon said. With the bloodbath at Terra, developer teams are also fast migrating to rival networks.