Terra founder Do Kwon on Wednesday outlined plans to support the flailing Terra blockchain. But his plan is likely to pressure LUNA prices further.
Terra (LUNA) has registered a historic dump amid the ongoing carnage in the crypto market. Its stablecoin TerraUSD (UST) has also registered a straight drop of 45% in the last 24 hours.
Kwon warns of more LUNA weakness to save UST
In a series of tweets, Kwon said in order to raise funds to rescue the UST peg, the blockchain will mint more LUNA to be sold on the open market. LUNA can also be burnt to mint UST, which is currently trading at a heavy discount.
UST is trading at 50 cents- well below its 1:1 pegged dollar value. LUNA is also at record lows of little over $2.
But minting of more LUNA is likely to cause the token to slump further, given that supply exceeding demand is deflationary for prices. This could very well result in LUNA prices crashing well below $1.
Kwon said that the only way ahead to absorb the stablecoin supply for those who are willing to exit before UST repegs to its value.
Naturally, this is at a high cost to UST and LUNA holders, but we will continue to explore various options to bring in more exogenous capital to the ecosystem & reduce supply overhang on UST.
Additionally, Kwon said the blockchain is also looking at external capital sources to help support UST prices. But reports suggest that these attempts have so far proven fruitless.
Terra had dumped its Bitcoin to save UST
Earlier this week, as the UST peg began to slip, the Luna Foundation Guard dumped all of its Bitcoin holdings in a bid to support the peg. While this briefly bought prices closer to $1, it proved to be only temporary, given that the Bicoin was sold at a hefty discount.
Critics of the platform are now asserting that Terra lacks any sort of liquidity needed to support its tokens. Its largest DeFi platform, Anchor Protocol, has also seen a mass exodus in funds, and has crashed out of the top-10 DeFi platforms.
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