This week, backers of the failed cryptocurrency project Terra voted to revive the initiative, with a new luna blockchain and token – and without its controversial algorithmic stablecoin, TerraUSD.
The founders had been seeking the next step forward for the project that crashed as quickly as it took off. The collapse of the Terra project led to combined losses of about $60 billion between the stablecoin, also known as UST, and its sister cryptocurrency luna. Earlier this month, UST plummeted below its $1 peg, which incited a cryptocurrency sell-off.
Like many stablecoins, UST was pegged at a 1-to-1 ratio with the dollar. Minting one new UST required “burning,” or destroying, one luna. This structure allowed for arbitrage opportunities that were key to maintaining the peg: Users could always swap one luna for UST and vice versa at a guaranteed price of $1, regardless of the market price of either token at the time.
“What the Luna ecosystem did was they had a very aggressive and optimistic monetary policy that pretty much worked when markets were going very well, but they had a very weak monetary policy for when we encounter bear markets,” said Stuti Pandey, a Web3 investor and venture partner at Farmer Fund.