Terra believes burning UST and increasing the pool of Luna are good ways to boost the recovery for both while creating an excess of UST.
The primary obstacle is expelling the bad debt from UST circulation at a clip fast enough for the system to restore the health of on-chain spreads.
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 12, 2022
USTUSD up +95.16%, LUNAUSD down -97.40%
Terra stated that the major obstacle is removing the bad debt from UST circulation at a faster rate to restore the health of on-chain spreads.
Algorithmic stablecoins like UST are expected to be automatically pegged to the price of another currency.
A token burn involves taking a cryptocurrency out of circulation on the blockchain. A process is a deflationary event because it boosts the value of the remaining blockchain.
In a new proposal, Terra stated that it wants to burn close to $1 billion UST (almost $690 million) in the community pool by increasing the Base Pool of LUNA available to 100M that expanding minting capacity to over $1B.
The proposal will help to expedite the outflows of UST from the system, pushing it back closer to its peg while reducing the price of Luna.