On Tuesday night, the Terra community approved a popular proposal to burn approximately 88.7 million Terra (LUNA) tokens. It values at roughly $4.5 billion, at current prices. It will also mint about 4 million to 5 million TerraUSD (UST) stablecoins. Accordingly, this is a move that analysts believe will help the Terra project grow even more.
The burning, or permanent removal of the tokens from circulation, will take place over the next two weeks. With the first 520,000 LUNA to burn on Tuesday night.
Terra Capitalization of Ozone
The program intends to encourage new services in the Terra community. One of them is Ozone, an insurance protocol that provides levered coverage of technical failure threats in any decentralized finance (DeFi) protocol developed on Terra. This is according to a forum post by Terra co-founder Do Kwon. Terra’s official Twitter account is also one of the most extensive burnings of a significant layer one coin in crypto history.
According to Ryan Watkins, a Messari research analyst, a significant amount of $1 million or more will burn. It will further capitalize Ozone, a new insurance strategy for the Terra ecosystem. This is a crucial component of the ecosystem that should help people feel safer.
In recent months, the decentralized finance (DeFi) sector has seen an increase in the number of hacks. According to Rekt data, DeFi protocols have been the target of more than 50 attacks worth more than $1 million in the last two years.
According to data from DeFi Llama, Terra blockchain is the fourth largest smart contract platform by total value locked (TVL) at $11.36 billion. The total value of the coin committed to DeFi protocols established on a layer one blockchain is measured in TVL.
LUNA is a part of an algorithmic balancing method that enables Terra-based stablecoins to maintain parity with fiat currencies.
As noted on the proposal’s page, Terrans had some initial reservations about the burning plan. Some users wondered if burning approximately 89 million LUNAs was excessive.
According to Terra’s Kwon, the burning idea’s design was to limit the number of riches in Terra’s community pool.
Benefits of Burning
In a tweet to CoinDesk, Kwon said that at the [completely diluted market value] of the network of approximately $40 billion, having an excessively huge community pool is essentially a systemic concern. Indeed, the amount of money in the community fund should be just adequate to cover the cost of public services. A DAO [decentralized autonomous organization], on the other hand, does not require billions of dollars to function.
When UST traded above $1 before Terra’s Columbus-5 upgrade at the end of September, the community pool slated to receive $1 worth of LUNA from users. Users would receive 1 UST in exchange. The Columbus-5 upgrade also changes the design to burn LUNA instead of sending it to the community pool. Whenever UST coins, the equivalent quantity of LUNA burns instead of the community pool.
According to Jeremy Ong, vice president of business operations at crypto research boutique Delphi Digital, the burning will ultimately benefit LUNA stakeholders. Because they are not competing against the community pool, LUNA stakers have less competition.
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