Terra is an algorithmic stablecoin project that will destroy $4.5 billion worth of native token terra (LUNA) from its community pool. The decision was made using the on-chain governance system. According to Proposals 133 and 134, LUNA will be destroyed and exchanged for the chain’s native stable currency UST. At least in the long run, this burning of money is expected to increase the price of LUNA.

Terra starts burning LUNA

Terra is an algorithmic stablecoin project that supports smart contracts. It has passed two proposals to destroy its native token terra (LUNA) from the community pool, worth 4.5 billion U.S. dollars.Every 800 blocks will be destroyed once, the purpose is to adapt to the new currency structure Columbus 5 Upgrade, which changed the way UST produces.

The UST obtained from the destruction will be redistributed to the community pool, and governance is responsible for deciding how to dispose of these funds. The first swap transaction was conducted earlier this week. After the entire storage is burned, the community will be able to decide how much of it will be used to guide Ozone, a decentralized insurance agreement based on Terra.

Simplified economics

According to a tweet From Terra’s official account, the execution of the approved proposal represents one of the largest (if not the largest) burns of major first-tier assets in the history of the crypto market. In the long run, this may increase the price of LUNA as coins will become more scarce. Regarding this burn, Do Kwon, CEO of Terraform Labs, statement:

Destruction will simplify the narrative of Luna’s economics, increase staking rewards, and allow the community pool to obtain sufficient funds of 10 million Luna.

Kwon also pointed out that after the application of the Columbus 5 upgrade and changes, “all on-chain stablecoin exchange fees are routed to the validator’s oracle reward pool. We believe this will make Luna staking rewards profitable.”

Terra has become a target of regulators. Kwon received a subpoena from the US Securities and Exchange Commission when he went to the United States to attend Messari’s mainnet meeting. Subpoenas are related to a native protocol built on Terra, called Mirror, which allows users to trade derivative tokens linked to certain stock prices.right Prosecute The way the SEC acted last month and how it served the subpoena.

What do you think of Terra’s latest community pool burning incident? Tell us in the comments section below.

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