LUNC (Terra Classic) and USTC (Terra Classic USD) operate as two interconnected cryptocurrencies in the Terra ecosystem. While the price of USTC is fixed, LUNC acts as a mechanism used to keep USTC stable. The connection between them is automated, especially in the processes of **arbitrage**, **supply and demand** balance, and **token burn (burn/mint)**. However, some key figures and mechanisms must be taken into account for this system to work efficiently.

### 1. **Supply Balance:**

An automatic balance is maintained between LUNC and USTC. If the price of USTC deviates from $1, the system tries to correct this deviation using LUNC. This process works in two stages:

- **When the price of USTC falls below $1 (e.g. $0.95):**

- To reduce supply, USTC is burned and LUNC is minted in return. This reduces the supply of USTC and increases demand, pushing the price up.

- **Numbers:** The amount of USTC burned and the amount of LUNC minted are adjusted according to the magnitude of the deviation. Supply and demand are balanced to bring the price back closer to $1.

- **When the price of USTC goes above $1 (e.g. $1.05):**

- To increase supply, LUNC is burned and new USTC is minted. This process aims to reduce the price of USTC and re-peg it to $1.

- **Numbers:** How much LUNC is burned during this phase is determined by the increase in demand. This expands the supply, pushing the price down.

### 2. **Supply and Price Nexus (LUNC – USTC):**

LUNC acts as a reserve asset to stabilize USTC. The circulating supply of LUNC has a direct impact on the price of USTC. If the price of LUNC drops too much, its ability to support USTC decreases. Therefore, the price and supply of LUNC are important.

- **LUNC supply:** There are currently **6.9 trillion** LUNC in circulation. A significant portion of this amount may need to be burned to support USTC.

- **LUNC's price:** The higher the price of LUNC, the easier it is to balance USTC. The lower price of LUNC reduces the effectiveness of USTC's peg mechanism.

### 3. **Arbitrage Mechanism:**

When price deviations occur between LUNC and USTC, arbitrage opportunities arise. Investors can help the system remain stable by evaluating these opportunities. The system automatically provides these arbitrage opportunities so that users can maintain the balance by profiting from the price differences.

- **Numbers:** Usually 1-5% deviations are important for arbitrage. For example, when USTC is 5% below $1 ($0.95), LUNC can be arbitraged.

### 4. **Effect of the Reserve System:**

Reserves are critical to the price stability of LUNC and USTC. A strong reserve mechanism supports the value of both LUNC and USTC. The size of reserves is an important tool to ensure price stability in the exchange rate mechanism.

- **Reserve size:** Reserves corresponding to 10-20% of USTC supply ensure the healthy operation of the system. This means a reserve of 1-2 billion dollars.

### In summary:

The interconnected systems of LUNC and USTC operate algorithmically. If the price of **USTC** deviates from $1, automatic interventions are made by balancing supply and demand via LUNC. This process is supported by token burn and mint mechanisms, arbitrage opportunities and reserves.

**Connection points**:

- **When USTC deviates from $1**, the supply and price of LUNC comes into play.

- **The higher the price of LUNC**, the easier it is for USTC to remain stable.

- **PEG mechanism between LUNC and USTC** depends on supply-demand balance and arbitrage opportunities.$AVAX $LUNC $USTC #BinanceCommunity #BinanceHerYerde @CZ #yihe #DOGE #referral

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