Terra Classic Hopeful’s Mull Revival of Failed UST Stablecoin

Members of the Terra Classic community are considering a revival of the ecosystem’s failed terraUSD Classic (USTC) nearly a year after Terra’s spectacular implosion.

Terra Classic is the original network created by Terraform Labs, which has continued as an independent blockchain in place of Terra 2.0 – a forked version created in the wake of Terra’s collapse.

Discussions on community forums that began in mid-April describe a model that relies on token buybacks, one-way swaps, staking and an “algorithmic peg divergence fee” to solve the problems with the original design.

Algorithmic stablecoins like UST are backed by a basket of assets, like LUNA and bitcoin (BTC), without relying on any centralized third party to hold those assets. However, most such tokens often fall victim to a “death spiral” – with outflows or sales of support causing a sudden disconnection of UST-like projects.

As described by member “RedlineDrifter”, a deviation fee mechanism would charge a fee equal to the difference in price between the link and the market price of the USTC, which could range from 0% at the peg to 100% at a 50% deviation from the peg. . These fees will be paid by users requesting USTC tokens.

This design prevents selling below the peg and encourages buying to secure the earning of the more desirable asset, i.e. USTC or tokens that support it at the time.

The fees retained by the protocol are used to buy back USTC and maintain the link, and the protocol is implemented across all USTC trading pairs both on and off-chain.

RedlineDrifter proposed a USTC staking tool to drive capital to the token, resulting in price appreciation, at least on paper.

“We are in a unique situation with USTC in that it is currently viewed less as a store of value and more as a speculative asset,” RedlineDrifter wrote in the proposal. “The potential to approach 50x with a repeg is one of the few drivers for trading as there is currently no benefit.”

“To bring some utility to the USTC and take it out of circulating supply in the process, I propose that we create a new savings/stake module for the USTC with 1-month, 6-month, and 12-month lock-up periods with increasing reward rates for longer lock-ups ,” the proposal “This module is solely about taking USTC out of circulating supply to accelerate the incremental repeg effort and put increased positive pressure on the USTC price.”

Community members say Do Kwon “had the right idea” that crypto markets required a fully decentralized token to create a decentralized economy. As of today, markets are heavily dependent on centralized stablecoin lenders such as Tether Global and Circle, which communities Terra believes are against the ethos of cryptocurrencies.

Kwon is Terra’s disgraced creator who is wanted by prosecutors in South Korea for his role in the project. His Terra co-founder Daniel Shin was indicted in South Korean courts earlier this week.

The Terra ecosystem imploded last May when sudden outflows from the protocol caused UST to drop to a few pennies in two weeks along with a 99% drop in terra (LUNA) tokens, as CoinDesk reported at the time.

The project has since been irrevocably written off, but the communities continue to argue – hoping to bring the project back to its once-glory days.