USTC: Will Proposal To Re-Peg Stablecoin Push LUNC To $1?

In one of the most catastrophic events to ever hit the crypto industry, the prominent algorithmic stablecoin TerraClassicUSD (USTC) – formerly UST – became depegged from the US dollar around a year ago. As a result, the Terra ecosystem crumbled, leading to uncontrolled minting and supply of Terra Classic (LUNC) tokens.

However, in the latest developments, the Terra community is looking to approve a proposal to revive the ecosystem and restore USTC’s value peg with the US dollar.

On Saturday, 22nd April, a Terra community member known as RedlineDrifter submitted a proposal that aims to re-peg stable coin TerraClassicUSD to the dollar. This proposal will enforce a re-pegging mechanism that implements divergence fees on USTC trades that slip below or rise above the peg. In this mechanism, the accrued fees will be used to repurchase the asset.

Proposal 11487 – Signal – USTC Incremental Repeg, Buybacks, Staking, Swaps

Is now up for vote on Station. If you agree with this proposal please vote yes and RT. Let's take back control over our money!https://t.co/WuAjDLeNwl#LUNC #USTC $LUNC $USTC #Repeg

— RedlineDrifter (@RedlineDrifter) April 22, 2023

This re-pegging plan proposes the implementation of various mechanisms, including divergence fees, USTC buybacks, and a swap and staking mechanism. What’s more, RedlineDrifter emphasized how these mechanisms will help maintain USTC’s value once it restores parity with the dollar.

The re-pegging proposal looks set for approval, according to the figures from ATOMScan. As of this writing, 49.11% have voted in support of the proposal, while only 6.63% of the total votes are not in favor. That said, it is worth noting that 44.24% chose to sit on the fence. The votes are expected to end later today.

Source: ATOMScan

One major aspect of the proposal that the community will be hoping also goes through is the approval by centralized exchanges (CEXs). This is due to the fact that the proposal would require CEXs to enforce divergence fees on USTC sell orders below or above $1. 

Once the proposal gets the necessary approval, the L1 team will decide on a reasonable timeframe and will launch the re-pegging mechanism in four phases.

While USTC reacted to the recent development with a 10% price jump, LUNC has been somewhat subtle with its response. The cryptocurrency has experienced a 2.43% price increase in the past 24 hours and only a 2.9% rise in the past week.

That said, a broader look at the LUNC’s market performance shows that the coin’s current price is an obvious improvement from the previous week’s slump. Between 15th April and 22nd April, LUNC lost more than 11% of its value, per CoinGecko data.

Since the USTC re-peg proposal was put forward, there have been heavy discussions surrounding the resurgence of LUNC. This is mainly due to the inclusion of a mechanism to reduce the circulating supply of the token. This would involve using 45% of accrued USTC profit from the divergence fees to swap for LUNC.

Hitting $1 is the target for Terra Classic (LUNC), but that would require extensive efforts from all ends, starting with the USTC re-peg mechanism. As of this writing, LUNC trades at $0.00011200, with a $663 million market cap. This means it would take a staggering 892,757% price rally for LUNC to hit the target of $1.