Behind the surge of USTC, is it the expectation of Mint Cash airdrop or LUNA's "comeback"?

Author: Kaori, BlockBeats

On November 21, Terra Classic governance member Dfunk posted a forum thread on the Terra Classic forum regarding the reactivation of the Terra market module and the gradual re-pegging of USTC to 1 USD.

However, this post aimed at saving USTC did not create much of a stir in the market until November 26, when USTC saw a 180% increase in 24 hours, prompting the community to realize that there were more noteworthy developments behind the USTC surge.

Celestia+ New Anchor + Nomic, What Does Mint Cash Want to Do

Behind the dramatic price surge of USTC, the most notable is a new project—Mint Cash, which claims to be the spiritual successor of TerraUSD (UST). Its team members come from the former Anchor team and Aleph Research, including team leader Shin Hyojin and engineer Minjae Yang.

On November 25, Mint Cash team leader Shin Hyojin explained the relationship with Terra on the X platform and mentioned how to obtain Mint Cash's airdrop, which involves locking USTC using an airdrop contract deployed on Terra Classic. Mint Cash will then airdrop an equivalent amount of tokens valued at 1 USD in USTC, while the locked USTC will be burned.

According to team leader Shin Hyojin, after USTC is burned, the circulating supply in the market decreases, which benefits both USTC holders and supporters of the new project, making it seem like a win-win situation.

Thus, the community attributes this wave of USTC price surge to Mint Cash's bundling strategy.

Mint Cash is a stablecoin system collateralized by BTC, based on the original Terra Classic codebase, and is an IBC chain originating from Terra Classic. Its core project content includes a DA layer developed based on Celestia, leveraging Luna's UST savings interest protocol Anchor Protocol, and the nBTC protocol Nomic that locks BTC into the Cosmos ecosystem.

Related reading: “Boosting USTC's over 150% surge in one day, how to correctly understand the stablecoin project Mint Cash?”

Mint Cash will release a new version of the Anchor Protocol called Anchor Sail, which plays a crucial role in the growth and anchoring of the stablecoin within Mint Cash.

However, Mint Cash officially announced on October 8, and to date, its Twitter followers number only about 2,500. Therefore, whether Mint Cash's airdrop rules tied to USTC can genuinely bring such a price increase remains questionable.

USTC "Revival Proposal," Community Interpretations Vary

Returning to the proposal on the Terra Classic governance forum, the main content of the proposal is to gradually restore the peg between LUNC and USTC by reactivating the market module. Currently, the proposal has not officially opened for voting and is still in the discussion phase.

To safely reactivate the market module, the proposal suggests setting the price difference fee at 98% to stabilize USTC at 2 cents, gradually increasing to 3 cents, 4 cents, etc.; then burning 100% of the price difference fee instead of sending it to the Oracle pool, thereby maintaining USTC's stable value.

In addition, by limiting the size of the virtual liquidity base pool and increasing the recovery rate, it ensures that the speed of burning USTC exceeds the recovery speed to prevent oversupply; at the same time, it sets a maximum supply cap for LUNC and USTC to maintain the stability and controllability of the currency supply.

A year ago, LUNC was disabled due to bank runs and the decoupling of USTC, affecting the three major sectors of staking, IBC, and the market module. However, staking and IBC have now been reactivated, while the market module has yet to be reactivated. The proposal suggests that reactivating the market module could potentially re-peg USTC to 1 USD and generate income for validators and trustees through the price difference fees from LUNC/USTC exchanges.

However, most people in the proposal's comment section do not agree with this approach. Terra Classic governance member Neon stated that the risk-reward ratio of this proposal is disproportionate or even negative, describing it not as a plan but as creating a Trojan horse. He stated, "Protecting LUNC's value should be our primary interest, so we must set the maximum supply cap for LUNC at the current level. If this is not feasible, we should look for other ways."

On the other hand, some community members believe this proposal is the key reason for USTC's soaring price. They argue that the proposal has taken the first step toward restoring the peg, and its direct use of the original LUNA's technical solutions is information that the market can understand.

USTC was formerly UST, the stablecoin with the largest market cap on the Terra ecosystem chain, pegged 1:1 to the US dollar. LUNA is the governance token of the Terra protocol, primarily used for paying public chain gas fees, staking mining, and protocol governance. Once the third-largest stablecoin by market cap, UST experienced a severe price decoupling.

On May 10, 2022, the native algorithmic stablecoin UST of the Terra ecosystem faced a severe decoupling event due to capital hunting and a debt crisis, dropping to a low of 0.6 USD.

Related reading: “How 84 million dollars leveraged a 40 billion financial empire, the rise and fall of UST”

Now, the re-pegging of USTC seems to be on the agenda, but the community remains uncertain about the recent USTC price surge and whether it can be re-pegged.

Huobi incubator researcher 0xLoki believes that the proposal's claim of stabilizing USTC at 0.02 USD and gradually increasing will create arbitrage opportunities, leading to LUNC sell-offs. "So USTC's rise is actually bearish for LUNC, but USTC needs to rely on LUNC's market liquidity to support it, creating a spiral of stepping on both feet."

DeFi researcher @cmdefi also believes that USTC's price surge is unrelated to the re-pegging proposal on the Terra Classic forum, and is more likely due to the new project Mint Cash that members of the Anchor team are about to participate in, as well as the new version of Anchor Protocol.

However, community user @gotolab1979 stated that the proposal is a "100% copy of LUNA," and the algorithm for pegging USTC and LUNC in the proposal has not changed, only setting the price difference parameter to 98%. He believes that USTC's price could exist as a stablecoin at 2 cents even if it stays at 0.02 USD for a long time, and this is also a reason the market can understand why USTC has surged dramatically.