Do Kwon’s Terra ecosystem seems to be in a state of decay as its UST stablecoin continues to fall short of its US$1 peg, and its native token LUNA loses almost all of its value. Can Kwon’s support measures bring it back to life?
What happened: It’s been a week for Terra. Prices continued to trend downhill for the blockchain that last week had a $20b market cap stablecoin and a $40b market cap token that has now fallen to nearly zero, leaving investors shook and the entire crypto community feeling the after-effects. People eagerly awaited reassurance from Kwon, and on Wednesday, he outlined the path forward in a Twitter thread.
- A parameter change proposal seeks to “increase of BasePool size and decrease of recovery block, to increase total daily minting capacity 4x,” an idea Kwon supports and says will aid in getting to a rebuilding phase “until parity is reached.” He wants to eliminate the “bad” debt created by the massive liquidity pull.
- UST will switch mechanisms from an algorithmic stablecoin to a collateralized stablecoin.
Terraform Labs halted the blockchain on Thursday afternoon to prevent “governance attacks,” meaning users could process no transactions on the network. Twenty minutes later, the account tweeted that validators would coordinate to restart the blockchain “in a few minutes,” though as of this writing, it was still down.
Dark side of Do Kwon: Amid the turmoil, CoinDesk revealed that Kwon was behind a previous stablecoin project, Basis Cash, that failed. The Ethereum-based cryptocurrency never reached a $1 peg and currently sits below 1 cent.
Why it matters: The news of Kwon’s past failure just piles on in terms of bad news, and at this point, people are wondering if they can rebuild their lost fortunes and trust in Terra.
- The LUNA/UST crash has spread like wildfire among the crypto economy and has everyone questioning the viability of stablecoins, and sent Bitcoin into a tailspin falling below $30,000.
- Regulators are paying attention. Janet Yellen, the US Treasury Secretary, named UST when she asked Congress to create regulations around stablecoins. “I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate,” she said.