Almost 12 months back, terrausd (UST), an algorithmic stablecoin, suffered a detachment from the U.S. dollar, causing the Terra ecosystem to crumble shortly thereafter. At present, supporters of the Terra Classic blockchain community are deliberating on a plan to revive the ecosystem by re-establishing the once-stable token’s peg with the U.S. dollar. In response to the proposed development, the value of UST, renamed USTC, has escalated by more than 9% in the past 24 hours.
Terra Classic Community Plans to Take Action to Restore USTC’s Peg With USD
Terra Classic blockchain supporters aim to revive the algorithmic stablecoin’s ecosystem by restoring the token USTC’s value parity with the U.S. dollar. A Terra Classic community member using the pseudonym “Redlinedrifter” submitted the proposal, affirming that Do Kwon’s decentralized money creation was a positive initiative but that “serious issues need to be addressed” for the community to re-establish the token’s value peg with the U.S. dollar.
Redlinedrifter presented the “Divergence Protocol” idea, which “operates by applying an algorithmic/dynamic fee equivalent to the difference between the peg and the market price.” The innovative mechanism would implement a dynamic fee structure to impose a fee proportional to the deviation between the $1 peg and the token’s market value. The divergence fee structure represents a fresh strategy to tackle previous challenges that hindered the USTC’s ability to maintain its U.S. dollar peg.
This is not the first time members of the Terra community have proposed revamping Do Kwon’s stablecoin idea. In October 2022, a new “soft-pegged stablecoin” concept built on the Terra Phoenix network was introduced in a white paper. Following the news of USTC’s revitalization plan, the once-stablecoin asset has increased in value by 9% against the U.S. dollar. After reaching a low of $0.0195 per unit on Friday, USTC has risen to a high of $0.0218 per coin by 1:15 p.m. Eastern Time.
What do you think of Terra Classic’s proposed Divergence Protocol to re-establish USTC’s value parity with the U.S. dollar? Do you believe this innovative approach will solve the challenges faced by algorithmic stablecoins? Share your thoughts in the comments section below.