Terra Luna’s Latest Proposal Seeks to Return 800M USTC From Ozone Protocol to the LUNC Community Pool

Key takeaways:

• The LUNC community has proposed returning 800 million USTC tokens allocated to the Ozone Protocol back to the LUNC community pool.
• There is disagreement in the community about whether returning the funds to the pool or burning the tokens would be more beneficial.
• Burning the tokens could strengthen the $1 USTC repeat narrative while returning them to the pool could provide liquidity.

The Terra Luna Classic (LUNC) community has recently proposed returning 800 million USTC tokens that were allocated to the Ozone Protocol back to the LUNC community pool. This latest governance proposal comes as the LUNC ecosystem continues to pick up steam and rebuild after the devastating LUNA/UST collapse in May 2022.

Background on the Ozone Protocol and 800M USTC

Back in the heyday of Terra Luna, Do Kwon proposed creating an insurance protocol called Ozone to provide coverage for Terra projects. The protocol was set to receive 1 billion UST in funding from the community pool to get development going.

The initial launches of Ozone V1 and V2 showed strong demand, with policyholders quickly utilizing the $10 million capacity for coverage of Anchor protocol smart contract risks. However, it seems that the full 1 billion UST allocation was never fully utilized for building out Ozone.

Now, 800 million of those original UST (rebranded as USTC after the collapse) sit in a wallet linked to Ozone Protocol. And the LUNC community is eyeing getting those tokens back.

The return proposal takes shape

The return proposal was put forth by Vegas, a prominent LUNC community member. Vegas argued that since Ozone Protocol development is lagging and the funds have not been used as intended, the 800 million USTC should go back to the LUNC community pool.

My core mission is to uphold what is right and just. Central to this mission is the restoration of funds to their original source. By achieving this,we will get even more, wewill be able to fund the development of the Chain and take out of circulation approximately 10% of the…

— Vegas (@VegasMorph) July 26, 2023

As Vegas puts it: “Since the project has not been actively following the proposed development plan, the community believes it is in the best interest of Luna Classic to have these funds returned to the community pool now.”

However, not everyone agrees. Alex Forshaw, co-author of the Terra Classic Revival Roadmap, believes the USTC tokens should be burned instead of returned to the pool. He argues that validators and stakers would likely dump the USTC, diminishing its impact. In contrast, burning the tokens would provide a more meaningful boost to LUNC’s $1 narrative.

“Burning these USTC will strengthen the repeating narrative, or else the community can burn part of it and send some to the community pool,” Forshaw commented.

The broader significance

While 800 million USTC is not a huge portion of the current 6.5 trillion supply, the move does carry symbolic weight.

Returning the tokens to the community pool or burning them shows the LUNC community’s commitment to proper governance and upholding community interests. This accountability sets an important precedent.

And reducing USTC supply by 800 million inches much closer to the broader USTC burn and repeg goals. Currently, USTC price sits at $0.0158, a far cry from its $1 peg. But the community remains laser-focused on re-pegging.

As LUNC developer activity ramps up, the ecosystem repeg would unlock tremendous utility. So while incremental, this 800 million USTC proposal is one small step on the marathon path back to $1.

The coming days will see fiery debate around the USTC return proposal on Commonwealth. But regardless of the outcome, this governance exercise highlights the evolving ethos of accountability and community-driven development within LUNC.

The community’s decision on this proposal will reveal its priorities as it seeks to provide value for LUNC and USTC holders in the coming months.