Hopefuls Terra Classic Enthusiast Consider Reviving the Failed UST Stablecoin

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Last Updated on April 28, 2023 by Bitfinsider

Nearly a year after Terra’s spectacular implosion, members of the Terra Classic community are considering reviving the ecosystem’s failed terraUSD classic (USTC).

The original Terraform Labs network, Terra Classic, has survived as a stand-alone blockchain rather than Terra 2.0, a modified version developed after Terra’s failure.

To address the problems with the original design, discussions on community forums began in the middle of April and are describing a model that uses token buybacks, unidirectional swaps, staking, and a “algorithmic peg divergence fee” in addition to other techniques.

A variety of assets, including LUNA and bitcoin (BTC), are used as the basis for algorithmic stablecoins like UST, which are not held centrally by any one entity. But the majority of these tokens frequently experience a “death spiral” in which outflows or sales of the underlying assets result in an abrupt de-pegging of UST-like projects.

A divergence fee mechanism, as explained by member “RedlineDrifter,” would levy a cost equivalent to the price difference between the peg and market price of USTC, which might range from 0% at the peg to 100% at a 50% deviation from the peg. Users who want to buy USTC tokens would be responsible for these costs.

In order to assure the accrual of the more desirable asset, either USTC or the tokens that back it at the time, this design disincentivizes selling below the peg and incentivizes buying.

The protocol is used across all USTC trading pairs both on and off-chain, and the fees retained by it are used to buy back USTC and maintain the peg.

RedlineDrifter proposed a USTC staking tool to attract investment to the token and, at least theoretically, increase its value.
“We are in a unique situation with USTC in that it is currently viewed less as a store of value and more as a speculative asset,” stated RedlineDrifter in the proposal. “The potential to near 50x with a repeg is one of the few drivers of trading as there’s currently no utility.”

The suggestion went on to say, “To bring some utility to USTC and take it out of circulating supply in the process, I propose that we create a new savings/staking module for USTC with 1month, 6month and 12month lockup periods with increasing reward rates for longer lockup.” The sole purpose of this module is to remove USTC from circulation in order to speed up the incremental repeg operations and generate upward pressure on the price of USTC.

Members of the community claim Do Kwon “had the right idea” that a fully decentralized token was necessary for the development of a decentralized economy in the crypto markets. Markets currently place a great deal of reliance on centralized stablecoin lenders like Tether Global and Circle, which, according to groups like Terra, goes against the spirit of cryptocurrencies.

The discredited founder of Terra, Kwon, is wanted by South Korean authorities for his involvement in the endeavor. Daniel Shin, a co-founder of company Terra, was charged earlier this week in South Korean courts.

Last May, as it was reported, sudden outflows from the protocol caused UST to drop to a few pennies within two weeks along with a 99% drop in terra (LUNA) tokens.

Although the project has already been completely written off, communities still struggle to revive it to its former glory.

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