News

Terra major development: Set to burn 1.3 billion UST tokens

Updated: Jul 25, 2024

Published: May 27, 2022

Terra, the firm behind one of the biggest stablecoins, UST, and also LUNA, both of which crashed to nothing in a matter of days, has seen significant development. The community has passed the proposal to burn 1.3 billion UST tokens which amount to 11% of the existing 11.2 billion UST supply.

Proposal to burn Terra USD

The Terra governance system, which comprises the community, has voted in favor of burning all the UST tokens held in the project's community pool along with the UST deployed for past liquidity incentives on Ethereum (ETH). This amounts to 1.3 billion UST, which is around 11% of the existing supply of the UST stablecoin, as per data from CoinGecko.

In the past, when LUNA demand used to increase, UST was burnt to mint LUNA, and when UST demand increased, LUNA was burned to mint UST. Interestingly, the proposal aims to "reduce the outstanding bad debt of the Terra economy and help restore the UST peg by burning the remainder of the Community Pool's UST."

"Eliminating a significant chunk of the excess UST supply at once will alleviate much of the peg pressure on UST. This is advantageous relative to the slow burn rate and type of downstream effects that inflated on-chain swap spreads induce on the Terra economy over an extended period.," the proposal adds.

The proposal has received 99.3% votes to burn 11% of the entire supply of UST, and now, the firm responsible for the development of the project, Terraform Labs, will get to the task of burning billions of UST tokens.

Burn to work in 2 phases

The entire burn process will work in two phases. During the first phase, around 1 billion UST will be sent from the community pool of Terra to a burn module, and from there, the tokens will be permanently removed from the supply. In the second phase, the team will manually bridge back 370 million UST to Terra from the Ethereum blockchain and remove them from the supply.

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