On January 6, 2022, Terra Research unveiled a governance proposal to expand the network’s stablecoin TerraUSD (UST) across five different DeFi protocols on Ethereum, Solana, and Polygon. The proposal’s author, Ezaan, argues that leveraging $139 million in UST will unlock “awesome use-cases” for decentralized finance (DeFi). At the time of writing, UST is the fourth-largest dollar-pegged stablecoin and the largest decentralized algorithmic one, with 10.4 million UST in circulation and a market cap that grew 21.4% over the past 30 days.
Protocol Breakdown
The proposal outlines five specific collaborations:
- Olympus DAO: Enable UST bonds on Ethereum, Solana, and Polygon with an initial $1 million UST bond forever; also swap 425,000 UST to LUNA via Astroport over 3 months for gOHM-UST incentives.
- Rari Fuse: Seed fuse pools with $20 million UST for 6 months to kickstart UST borrowing.
- Invictus DAO: Enable UST bonds with $250,000 UST.
- Convex Finance: Swap $18 million UST to LUNA via Astroport over 6 months for increased Votium incentives.
- Tokemak: Deposit $50 million UST for 6 months to gain widespread liquidity and farm TOKE.
The largest allocation goes to Tokemak at $50 million, followed by Rari Fuse at $20 million. All deployments are to be executed through cross-chain bridges and decentralized exchanges for transparency.
Community Feedback and Controversy
Most Terra community members reacted positively to the proposal. One commented, “Great ideas. Let’s do it.” Another added, “So far not seeing any drawbacks … we should at least equal 100M or put a little more in Tokemak.” However, some questioned the long-term sustainability of incentives.
Notably, three days before the proposal, MakerDAO co-founder Rune Christensen tweeted that UST and MIM were “solid Ponzis” that would eventually go to zero. The criticism came as UST’s market cap had just surpassed MakerDAO’s DAI to become the largest decentralized stablecoin. Terra supporters dismissed the remarks as FUD from a rival project.
Technical and Economic Context
UST maintains its peg via an algorithmic arbitrage mechanism involving its sister token LUNA. Users can burn LUNA to mint UST when demand increases, or burn UST to redeem LUNA during sell-offs. The proposal includes swapping some UST for LUNA to bolster Terra’s own liquidity. If approved, the move could deepen UST’s liquidity across three major chains, potentially boosting adoption and stability. However, risks include smart contract vulnerabilities and governance complexity from multi-chain deployments.