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Terraform Labs Unveils Emergency Plan to Prevent Terra Ecosystem Collapse

  • May 12, 2022
  • Gordon James
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The latest state of the blockchain ecosystem is dire as hackers siphon from exchanges, ICOs are hacked and shut down, so-called “presales” push investors to break their budgets. Even before this current climate, experts were warning about a potentially disastrous future for crypto assets if action wasn’t taken soon. With that in mind, Terraform Labs has released an emergency plan designed to prevent such a collapse.

Terraform Labs Unveils Emergency Plan to Prevent Terra Ecosystem Collapse

 

On Thursday, the crypto market is deteriorating, with numerous assets in freefall. The bulk of cryptocurrencies have suffered significant losses as a result of a protracted bearish wave. Bitcoin holders have seen the coin’s price drop from about $38,000 at the beginning of the month to $27,950 at the time of writing.

Ether, which fell below $2,000 today, has lost about $1,000 in this time and is now trying to stay above $1,900 as the sell-off continues. Terra’s crypto assets, notably its native coin LUNA, are in terrible shape.

In the previous 48 hours, LUNA has lost up to 99 percent of its value and is currently worth less than two cents. According to Coinglass statistics, almost 290,000 traders’ holdings have been wiped out in the previous 24 hours. LUNA contributed $39.50 million to the total liquidation volume of over $900 million over this time period.

Terraforms Labs’ remedial measures to rescue the token have so far failed to even delay the loss of value.

A new strategy has been implemented.

The startup behind Terra has announced a number of efforts to keep the crippled cryptocurrency and its companion algorithmic stable coin TerraUSD afloat in the latest attempt to salvage the ecosystem.

“The present peg pressure on $UST due to its current supply overhang is causing significant dilution of $LUNA. “The main challenge is removing bad debt from UST circulation at a fast enough rate for the system to restore the health of on-chain spreads,” Terraform Labs remarked on Twitter.

The first two projects aim to deplete the quantity of UST on Ethereum and in the community pool. The last one advises investing 240 million in LUNA in order to prevent a governance assault. Terra can no longer support the mint-and-burn pegging mechanism for TerraUSD since LUNA’s market capital has dwindled to $60 million at the time of writing.

As a result, Terraform Labs intends to burn UST, which has a market capitalization of $7.3 billion, without exchanging it for LUNA. The Terraform team suggests eliminating 1 billion UST from the community pool that finances Terra initiatives. The team also advises eliminating the 371 million UST that are functioning as liquidity incentives on Ethereum to further limit the UST supply.

Defending against assaults on governance

While the first two ideas deal with the current market scenario, the third is more of a preventive measure. There are fears that with so much LUNA floating around, holders may use it to approve proposals that are harmful to the ecology. Terraform put up 240 million LUNA to prevent this from happening.

These actions will remove around 1.388 billion UST from the supply, easing the market’s condition.

“Restoring the on-chain swap spreads to a meaningful level where the peg pressure on UST is greatly relieved could help repair the system’s bad debt with the following things.” This will also speed up the process if the new base pool proposal succeeds.”

The vulnerability of crypto companies to Terra assets is clarified.

The recent quick drop in the value of LUNA and UST assets has sparked a lot of discussion on social media. In the past several hours, a number of crypto institutions, including venture capital companies and DAOs, have stepped out to announce their lack of exposure to the impacted assets. OnJuno, DragonFly, Multicoin Capital, Framework, and 6th Man Ventures are among those who have said that they have no exposure to LUNA.

Visit our Terra guide to learn more about these tokens.

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Gordon James

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