In an effort to re-peg TerraClassicUSD (USTC) to the dollar, the Terra Classic (LUNC) community is once again mulling over a new proposal, submitted by an individual known as Redline Drifter. The proposal involved a mechanism that includes divergence fees on USTC trades that deviate from the peg.
These collected fees would, according to proposal 11487, be used to repurchase the asset and further help it regain its peg. The proposal is currently seeking community support to move forward, and incorporates two primary measures to establish and maintain the peg: Divergence Fees and a Buyback Mechanism.
According to the submitted proposal, the divergence mechanism is designed to stabilize the value of TerraClassicUSD by imposing fees on trades that deviate from the target peg. These fees are determined by the difference between the market price and the pegged price, and they are used to buy back USTC and maintain the peg.
The fees would apply to all USTC trading pairs and markets, excluding regular blockchain transactions. The fees are meant to discourage selling and encourage buying, helping the cryptocurrency recover its peg.
The Divergence Protocol also calls for automatic buybacks to defend the peg by purchasing USTC using the assets accumulated from the fees. The community would own the USTC accumulated through this process, and it could be distributed for various purposes, such as rejuvenating the ecosystem and locking more tokens out of the circulating supply.
If the price of USTC would remain below its peg, the seller of the currency would pay a fee equal to the difference between the target peg price and the market price, with the protocol receiving the fee to uphold the peg.
If USTC were to rise above its peg, the seller would pay a fee equal to the different between the market and the target price. USTC is, at the time of writing, trading below $0.02 per token.
For the mechanism to be properly implemented, it must be enforced on both centralized and decentralized exchanges, and it’s currently unclear whether these platforms would support it even if the community were to approve it.
Per the proposal, the USTC that would belong to the community would be distributed as follows: 47.5% sent to a new USTC staking vault aimed at reducing USTC’s circulating supply; once USTC is above peg, a new USTC/LUNC liquidity pool would be opened, and 47.5% of the accrued profit would go into this new pool in a one-way swap of LUNC to USTC.
The remaining 5% would be evenly divided between the Oracle Pool and Community Pool. The proposal has already seen most voters favor it, with just 21% rejecting it. Some key validators have chosen not to vote on the proposal.
It’s worth noting that the original Terra ecosystem collapsed last year and later rebranded to Terra Classic, while a new, forked blockchain took the Terra brand with it. When Terra’s ecosystem collapsed, its circulating supply jumped from 340 million tokens to 6.9 trillion, and to combat the inflation $LUNC supporters have added a 1.2% tax burn on all transactions conducted on the network.
As reported, the Terra Classic community, has been battling for increased adoption and even created a petition to get listed on cryptocurrency exchange Coinbase.
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