The algorithmically-governed stablecoin platform Terra is proposing to burn 90 million LUNA, worth $4 billion at current prices and about 10% of the total supply, in the community pool to mint UST stablecoin for the network’s insurance protocol Ozone.
When the native stabilizing crypto asset of the network, LUNA, is burned to mint new Terra (UST) stablecoins, the amount of Luna burned is “seigniorage.”
Roughly every week, a portion of this seigniorage goes to fund the community pool controlled by Luna governance and reward Luna stakers.
According to the proposal called “Burn the community pool,” this proposal will burn all remaining funds in the community pool, route all future seigniorage to be burned instead of being routed to community/staking reward pools, and amortize the distribution of the existing reward pool to three years instead of the current one year.
“Next week, we will uphold Terra signal prop 44 and initiate a proposal to burn 90M Luna in the community pool to mint UST for Ozone. This will reduce Luna’s total supply by 90M and increase UST supply by roughly 3-4 billion,” said Do Kwon, founder of the project.
As of writing, TerraUSDT (UST) has a market cap of $2.75 billion. As we reported, Kwon has predicted UST’s market cap to exceed $10 billion by the end of this year.
Kwon further shared that a byproduct of this operation is that a lot of swap fees will accrue, which is expected to result in LUNA staking returns to 5x to about 15%.
“Pretty sure this is the largest burn ever,” commented Ryan Watkins of Messari, expecting this burn to increase UST’s supply to $6.7 billion overnight and put it within striking distance of DAI, which is $7.4 billion.
“This would also be the first DeFi blue chip to be flipped by a multichain competitor on its number 1 KPI. That said think there’s a place for both, and DAI continues to grow at an impressive pace, even before it’s tokeneconomic revamp.”
As a result of the news of this burn, LUNA rallied 30% to hit $45.25 on Friday. Currently trading at $42.46, LUNA is up 6,450% YTD but still down 14% all-time high of $50 earlier this month.
In other news, Terraform Labs and CEO Kwon are suing the US Securities and Exchange Commission (SEC).
Kwon confirmed this week that he was served a subpoena by the SEC at Messari’s Mainnet conference last month. According to the filing, the matter dates back a few months; it started in May when the SEC’s Enforcement Division emailed Kwon.
Terra’s decentralized finance (DeFi) platform Mirror Protocol is at the center of the lawsuit, on which synthetic stocks of major US firms are minted and traded.
The subpoena wants Kwon to provide testimony to US regulators, but as a South Korean resident, Kwon is contesting that.
“Rare case of a preemptive lawsuit against a regulator making sense,” commented Anderson Kill lawyer Stephen Palley.
The agency also told Terraform’s lawyers that they might sue the company with the suit saying,
“the SEC attorneys advised that they believe that some sort of enforcement action was warranted against TFL [Terraform Labs] and any cooperation, and implementation of remedial actions as to the Mirror Protocol, would result in a reduced financial sanction as part of any consent agreement.”
Kwon was served just five days later at the conference as he was exiting an escalator on his way to make a scheduled presentation that was not about the Mirror Protocol. At the time, Kwon had denied being served that day.