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Terraform Labs has announced plans to burn 1.3B UST from the community pool following a successful governance vote. After the “Rebirth of Terra” passed some days ago – the burn proposal is the latest in Terra’s ultimate revival plan.
Terra will Absorb the UST Supply
On Thursday, the burn idea, proposal 1747, passed with staggering support from the Terra community. 99.3% of participants in the vote (154.579 million) pushed for TFL to destroy a huge part of the UST supply.
With support from Terra holders, the dev team will now move forward with burning the TerraUSD in the community pool. In addition, they will destroy the residual cross-chain tokens deployed as liquidity rewards on Ethereum.
Proposal 1747 aims primarily to cut the debt and restore UST’s peg to the US dollar. There are suggestions that Terra could reduce over 10% of the UST debt overhang with this move. This makes sense considering the designed 1.3B UST is approximately 11% of the available 11.2B stablecoin supply.
Other details of the proposal claim that destroying a sizable portion of the UST supply will ease the peg pressure on the stablecoin.
Other Details of the Proposal
The burn was one of the earliest suggestions in the days after the crash. It came up as a way for the system to get rid of the excess UST supply and thus repeg the stablecoin. However, CEO Do Kwon did not seem very keen on it. Also, the team briefly abandoned the plan after they ran into a few problems.
Expectedly, the quantity of UST tokens in the pool fell short of what the proposal required. TFL had gone through with a different proposal that led them to withdraw a quantity of the stablecoin. After the initial failure, the community submitted a similar proposal which, as seen, successfully passed.
Going forward, Terra will execute the proposal in 2 significant steps. First, sending 1 billion UST from the community pool to a burn address. Here the tokens will exit the supply permanently.
After this, the team will manually bridge 371 million cross-chain tokens from the Ethereum blockchain to Terra. Proposal 1747 will see Terraform Labs destroy these tokens as well.