Is It Possible to Repeg LUNC and USTC to 1$?

LUNC and USTC are two tokens that belong to the Terra Classic ecosystem, a fork of the original Terra blockchain that suffered a catastrophic collapse in 2022. The USTC stablecoin, which was supposed to be pegged to the US dollar, lost its value and dragged down the LUNC token with it. Since then, the Terra Classic community has been working hard to restore the peg and revive the ecosystem. But how feasible is this goal and what are the challenges involved?

The Repegging Proposal

The idea of repegging USTC to 1$ was first proposed by Duncan Day, a Terra Classic developer, in October 2022. He suggested a plan that would re-peg the defunct algorithmic stablecoin on a code and consensus level, using a combination of LUNC burns and USTC mints. The proposal was approved by the community in February 2023, and the development team started working on the implementation.

The repegging process involves three main steps:

  • Step 1: Select a starting ratio of LUNC to USTC, based on the current market prices and the total supply of both tokens.

  • Step 2: Change the ratio on some periodic basis (minutes or hours) based on the amount of LUNC burned and USTC minted in each period. The ratio should decrease over time, as more USTC is created and more LUNC is destroyed, until it reaches 1:1.

  • Step 3: Set a maximum daily transaction limit per wallet to prevent whales, market manipulation, and excessive minting. The limit should be very low at the beginning and increase gradually as the peg is restored.

The Benefits and Challenges of Repegging

The main benefit of repegging USTC to 1$ is that it would help the holders of USTC recover their lost value and restore confidence in the Terra Classic ecosystem. It would also increase the demand and utility of LUNC, as it would be the only way to obtain USTC and participate in the Terra Classic network. Moreover, it would demonstrate the resilience and innovation of the Terra Classic community, which has been working together to overcome the crisis.

However, the repegging process is not without challenges and risks.

The first challenge....

is the cost of repegging, which depends on the difference between the market capitalization of USTC and the fully circulating supply of USTC, excluding the development costs. The larger the gap, the more LUNC needs to be burned and USTC needs to be minted, which could affect the price and supply of both tokens.

The second challenge ...

is the time of repegging, which is estimated to be completed by Q1 of 2024, according to Duncan Day. However, this date is not guaranteed, as the software could run into bugs or delays that could affect the target date. Moreover, the repegging process could face external factors, such as market volatility, regulatory uncertainty, or competitive pressure from other stablecoins or blockchains.

The third challenge

is the security and stability of repegging, which relies on the code and consensus of the Terra Classic blockchain. The repegging process could be vulnerable to attacks or exploits, such as double-spending, 51% attacks, or smart contract bugs, that could compromise the integrity and functionality of the system. Therefore, the development team needs to ensure that the code is robust, audited, and tested before deploying it to the mainnet.

The Future of LUNC and USTC.

The repegging of USTC to 1$ is a bold and ambitious project that aims to revive the Terra Classic ecosystem and restore its original vision. The project has received support and enthusiasm from the Terra Classic community, which has been actively participating in the governance, development, and promotion of the project. The project has also attracted attention and interest from the wider crypto space, as it represents a unique and innovative experiment in the field of algorithmic stablecoins.

However, the repegging of USTC to 1$ is not the end goal, but rather a means to an end. The ultimate goal of the Terra Classic ecosystem is to create a decentralized and scalable platform that supports various applications and use cases, such as payments, lending, gaming, NFTs, and more. The repegging of USTC to 1$ is a necessary step to achieve this goal, but it is not sufficient. The Terra Classic ecosystem needs to continue to innovate, improve, and grow, in order to compete and thrive in the fast-changing and competitive crypto landscape.