USTC Recovery Framework: Expanding Utility and Supporting Depeg Affected Holders

TerraClassicUSD (USTC) is a native asset of the Terra Classic blockchain. Prior to the depeg event in May 2022, UST served as the algorithmic stablecoin of the Terra ecosystem and played a central role in the network’s economic model.

Following the collapse and subsequent depeg, USTC lost most of its original functionality. Today, the token primarily serves limited purposes within the ecosystem, including:

Payment of gas fees on the Terra Classic chain
Trading pair liquidity on decentralized exchanges (DEXs)
Participation in swap pools

With the upcoming Market Module 2 (MM2) - a non-minting version of the original swap mechanism expected to be tested after SDK53 deployment - USTC will gain additional utility by being paired directly with LUNC for on-chain arbitrage opportunities.

However, these utilities alone are not sufficient to support sustained demand for USTC and LUNC.

This proposal therefore explores the introduction of a native USTC staking system on Layer 1, enabling holders to lock their tokens on-chain and earn rewards.

Staking is one of the most widely used mechanisms in blockchain networks to encourage long-term participation and reduce circulating supply while providing economic incentives to users.

The objective of this proposal is to introduce a sustainable staking mechanism that complements existing USTC utilities, including:

Gas payments
DEX trading pairs
MM2 arbitrage participation
Future DeFi integrations

Background

Prior to the depeg event in May 2022, UST was the primary stablecoin of the Terra ecosystem and at its peak reached a circulating supply of approximately 18 billion tokens.

Following the collapse and subsequent burns, the current supply of USTC is approximately 6 billion tokens, which is roughly one third of the historical peak supply.

This distinction is important because it highlights a fundamental difference between USTC and LUNC supply dynamics.

During the collapse event, LUNC experienced massive over-minting, which resulted in trillions of tokens entering circulation.

USTC, however, did not undergo the same hyper-inflationary expansion, meaning its total supply remains significantly lower than its historical peak.

Because of this, USTC still has economic room to be used as an incentive layer within the ecosystem, allowing mechanisms such as staking incentives, ecosystem rewards, or controlled inflation models to be explored without facing the same structural limitations present with LUNC.

Goal

The primary objective of introducing a USTC staking mechanism is to remove a meaningful portion of USTC from liquid circulation, ideally targeting between 20% and 33% of the current supply.

A successful staking system would encourage users to withdraw USTC from centralized exchanges and lock those tokens on-chain, reducing the amount of USTC immediately available for sale on the open market.

This can produce several beneficial effects:

Reduced short-term sell pressure
Smaller sell walls on exchanges
Increased long-term holding behavior
Higher on-chain participation
Higher virtual rewards for LUNC delegators and validators
Arbitrage opportunities created by Market Module 2 (MM2), enabling it to scale..

Historically, staking mechanisms in cryptocurrency networks have demonstrated the ability to reduce circulating supply while incentivizing long-term token holding.

Additionally, USTC price movement has direct implications for the Terra Classic staking ecosystem.

Validators and delegators who stake LUNC currently receive rewards in multiple assets, including USTC.

If the value of USTC increases, the real yield of LUNC staking also increases, which can improve the attractiveness of LUNC staking and strengthen validator sustainability across the network.

Expected Ecosystem Impact

A successful staking system attracting 20‑33% of the
circulating supply could significantly reduce liquid supply, increase demand for USTC, strengthen LUNC staking rewards, and increase on‑chain activity within the ecosystem.In order for a staking system to function effectively, a reward distribution mechanism must be established to incentivize delegators to lock their USTC on-chain.This proposal does not enforce a single funding source for the reward pool. Instead, it proposes the creation of a dedicated USTC reward pool, similar in concept to the existing LUNC Oracle Pool, which distributes rewards to validators and delegators based on network participation.The goal of this pool would be to provide sustainable incentives for USTC staking while maintaining flexibility in how rewards are funded over time .Several potential funding sources could be explored by the community, including but not limited to:

1. Community Pool Allocation

The Terra Classic community pool currently holds approximately 61 million USTC , which could serve as an initial bootstrap fund for the USTC staking system.

Using a portion of these funds could allow the network to launch the staking system without introducing immediate inflation , while evaluating long-term sustainability.

2. Ecosystem Contributions

Projects building within the Terra Classic ecosystem may voluntarily contribute tokens or incentives to the staking reward pool in order to increase the attractiveness of the network.

Such contributions could include:

Native USTC deposits

Ecosystem incentives

Strategic reward campaigns

This approach would allow the ecosystem to support staking incentives without requiring mandatory protocol changes. Only native USTC (probable Lunc as well) would be used for rewards, as supporting CW20 tokens would require the development of an additional Layer 2 module.

3. Protocol Revenue Sources

Future network revenue streams could also contribute to the staking reward pool. Examples include:

Market Module 2 arbitrage fees

Swap fees from DEX liquidity pools

Gas fee allocations

Burn tax redirections

As Terra Classic evolves, protocol-level revenues could partially sustain the staking incentives , reducing the need for external funding.

4. Controlled Inflation

As a final option, the community may consider the introduction of controlled inflation on the USTC side of the network , similar to how many proof-of-stake blockchains fund staking rewards.It is important to note that USTC inflation differs significantly from LUNC inflation dynamics , since USTC supply today remains significantly below its historical peak supply of approximately 18 billion tokens .Because of this, the Terra Classic ecosystem still has economic flexibility to utilize USTC as an incentive mechanism if governance chooses to explore that path in the future .However, this proposal does not mandate inflation and instead presents it only as a possible long-term funding option that would require separate governance approval.

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Economic Impact Simulation and Expected Advantages

To better understand the potential effects of introducing a USTC staking system, it is useful to examine a simplified scenario based on current circulating supply.

The circulating supply of USTC is currently approximately 6 billion tokens.
If a successful staking mechanism attracts between 20% and 33% of the circulating supply, this would result in approximately:

1.2 billion USTC staked (20%)
2.0 billion USTC staked (33%)

Removing this amount of USTC from liquid circulation could significantly reduce the amount of tokens available on centralized exchanges and open markets.

Historically, staking mechanisms in cryptocurrency networks reduce immediate sell pressure by locking tokens for longer periods while providing incentives for long-term holding.

This mechanism could therefore produce several advantages for the Terra Classic ecosystem.

Reduction of Effective Circulating Supply

If between 20–30% of USTC is removed from liquid circulation, the effective supply available for trading decreases.

This may:

Reduce large sell walls on exchanges
Lower short-term sell pressure
Encourage long-term holding behaviour
Increase on-chain participation

In practical terms, the goal would be to move a meaningful portion of USTC from centralized exchanges back to on-chain staking, strengthening network activity.

Strengthening LUNC Staking Rewards

Validators and delegators who stake LUNC currently receive rewards composed of multiple assets, including USTC rewards distributed through the network reward system.

If USTC demand increases and the market price of USTC rises, the real value of LUNC staking rewards also increases, since part of the rewards paid to delegators are denominated in USTC.

For example:

If USTC price appreciation occurs due to reduced circulating supply and increased staking demand, the effective APR of LUNC staking may increase as well, improving validator sustainability and making delegation more attractive.

This could provide:

Higher effective APR for delegators
Additional income stability for validators
Stronger validator commitment to network operations

Additional Tool Supporting Market Module 2 (MM2)

The introduction of a staking mechanism may also support the development and adoption of Market Module 2 (MM2).

As USTC becomes more actively used and held on-chain, it increases liquidity availability for LUNC–USTC arbitrage mechanisms, which are expected to be part of the MM2 design once deployed after SDK53.

This creates an additional economic layer where:

USTC staking reduces circulating supply
MM2 creates arbitrage opportunities
Increased activity strengthens the on-chain economy

Potential Positive Price Pressure Across the Ecosystem

If demand for USTC increases due to staking incentives and tokens are removed from exchanges for on-chain participation, market dynamics may lead to increased price activity for both USTC and LUNC.

A stronger USTC market can indirectly strengthen the entire ecosystem by:

Increasing LUNC staking yield value
Encouraging new users to participate in the network
Expanding economic activity on Terra Classic

Addressing the disappointment of Depeg Victims

Many users within the Terra Classic community were significantly affected by the UST depeg event.

While no mechanism can fully reverse the losses that occurred, introducing new economic tools such as USTC staking may provide a path for affected users to participate again in the ecosystem and earn rewards over time.

This proposal therefore attempts to create a long-term recovery opportunity for users impacted by the depeg, by introducing mechanisms that allow holders to generate yield rather than leaving USTC without meaningful utility.

Recommended Reward Mechanism Framework

To bootstrap the staking system while maintaining sustainability, the following model is suggested for discussion.

Initial Bootstrap Phase

The Terra Classic community pool currently holds approximately 61 million USTC, which could be used to initiate the staking reward pool.

These funds could serve as the initial reward distribution source, allowing the staking system to launch without immediate protocol inflation.

Inflation Model (USTC Only)

For long-term sustainability, the network could explore a controlled inflation mechanism for USTC, similar to reward structures used in many proof-of-stake blockchains.

Since the current USTC supply (~6 billion) is significantly below its historical peak (~18 billion), the ecosystem retains flexibility to use USTC inflation as an incentive mechanism.

Under this model:

Controlled USTC inflation could fund staking rewards
Inflation would be distributed gradually through validator rewards
Governance would retain control over inflation parameters

Importantly, this mechanism would apply only to USTC, not to LUNC.

Hybrid Funding Approach

A hybrid model could also be explored where rewards are funded from a combination of:

Community pool allocations
Controlled USTC inflation
Protocol revenues (e.g., MM2 fees or network fees)
Voluntary ecosystem contributions

This flexible approach would allow the network to adjust reward funding as the ecosystem evolves.

Risks and Considerations

While a USTC staking system may introduce new utility and strengthen on-chain participation, it is important to acknowledge potential risks and considerations associated with implementing such a mechanism.

Market Volatility

Cryptocurrency markets are inherently volatile, and the introduction of staking incentives does not guarantee price appreciation for USTC or LUNC.

While reducing circulating supply may decrease immediate sell pressure, market prices remain influenced by broader market conditions, trading activity, and external factors beyond the Terra Classic network.

For this reason, staking should be viewed primarily as a utility mechanism rather than a price guarantee.

Inflation Management

If governance eventually chooses to introduce controlled inflation for USTC to sustain staking rewards, careful management of inflation parameters will be required.

Excessive inflation could weaken long-term token value if it outpaces demand growth.

Any inflation mechanism should therefore be:

Gradual
Transparent
Adjustable through governance

This would allow the community to monitor the economic effects and modify parameters if necessary.

Validator Infrastructure Requirements

Introducing a new staking module would require validators to run updated software and support the additional functionality.

Although the infrastructure requirements are expected to be similar to existing staking systems on Cosmos-based networks, validators would still need time to upgrade and integrate the new module.

For this reason, implementation should include sufficient upgrade timelines and testing periods before activation.

Liquidity Considerations

If a significant percentage of USTC becomes staked, the available liquidity on exchanges and decentralized markets may decrease.

While reduced liquidity can support price stability in some scenarios, it may also increase price volatility during large buy or sell orders.

This dynamic should be monitored as the staking system grows.

Governance Oversight

As with any new economic mechanism, ongoing governance oversight will be essential.

Future adjustments may be required regarding:

Reward distribution parameters
Inflation rates (if implemented)
Funding sources for reward pools

Maintaining governance control ensures the community retains the ability to adjust the system as the ecosystem evolves.

Technical Development and Security

Before implementation, the proposed staking system would require:

Detailed technical specifications
Security reviews and testing
Developer implementation and code audits

These steps are essential to ensure that the mechanism operates securely and integrates properly with the existing Terra Classic infrastructure.

Only after proper testing and governance approval should any changes be deployed to the main network.

Summary of Expected Benefits

The introduction of a native USTC staking system could provide several advantages for the Terra Classic ecosystem.

Path Forward for Depeg-Affected Users
While the losses from the UST depeg cannot be reversed, introducing staking offers USTC holders a way to participate in the network and earn rewards, providing a constructive path forward for the community.

Improved Rewards for Validators and Delegators
Because part of LUNC staking rewards are distributed in USTC, increased demand and activity around USTC may improve the effective APR for delegators and provide additional income opportunities for validators.

New Utility for USTC
Staking would introduce a major new utility for USTC, complementing its existing uses such as gas payments, DEX trading pairs, liquidity participation, and future integrations with Market Module 2 (MM2).

Support for Market Module 2 (MM2)
Higher on-chain USTC participation may strengthen liquidity for LUNC–USTC arbitrage, helping MM2 scale and improving overall market efficiency.

Strengthening the Terra Classic Ecosystem
By increasing utility, encouraging long-term holding, and improving staking incentives, this mechanism may contribute to stronger network activity, validator sustainability, and long-term ecosystem growth.

Conclusion

USTC was once a central component of the Terra ecosystem, serving as the network’s algorithmic stablecoin and supporting a large portion of the economic activity on the chain. Following the depeg event, the token lost most of its original function and today has only limited utility within the Terra Classic ecosystem.

While upcoming improvements such as Market Module 2 (MM2) may introduce new arbitrage opportunities and trading activity between LUNC and USTC, additional mechanisms are needed to provide sustainable utility and long-term demand for the asset.

Introducing a native USTC staking system on Layer 1 represents a practical and widely used approach to addressing this challenge.

Staking could:

Provide direct utility for USTC holders
Encourage users to move tokens from exchanges back on-chain
Reduce circulating supply by locking tokens through delegation
Increase on-chain participation and network activity
Strengthen the LUNC staking economy, since part of LUNC rewards are paid in USTC
Create oportunies for MM2 arbitrage
Give a final resolution for the community menerbers that lost during depeg event.

With USTC supply currently around 6 billion tokens, significantly lower than its historical peak of approximately 18 billion, the ecosystem retains economic flexibility to explore incentive mechanisms such as staking without facing the same structural limitations present with LUNC supply.

By removing a meaningful portion of USTC from liquid circulation and encouraging long-term participation, a staking system could become an important tool in strengthening both USTC utility and the broader Terra Classic network economy.

This proposal does not mandate immediate implementation but instead seeks community support to explore the development of a USTC staking framework.

References

Vegas

Stegz · March 16, 2026, 2:48pm

no. lunc stake has done nothing. stake and sell the low rewards. same would apply for ustc.
create an incentive for liquidity providers maybe? strenghten the pools for better onchain trading.

Vegas · March 16, 2026, 3:36pm

with all due respect but if not for staking the chain will no loger be.

DanielRiechelmann · March 16, 2026, 4:12pm

In my opinion, the USTC Recovery Framework is a very pragmatic proposal for addressing one of the biggest challenges facing the Terra Classic ecosystem today: restoring utility to USTC without ignoring the people who were directly affected by the 2022 depeg (even though we have no obligations to these people, as 1 USTC is still worth 1 USTC)

Instead of promising an immediate repeg—something that, realistically, is practically impossible under current supply and market conditions—the proposal seems to focus on something more sustainable: gradually rebuilding value by creating real utility and aligned incentives within the ecosystem.

The framework opens the door to new use cases for USTC within Terra Classic’s DeFi, such as liquidity pools, staking, and integration into lending protocols (if possible, of course). This type of utility is essential for generating organic demand, which is what truly sustains an asset’s value in the long term.

Over time, this can help create a healthier balance between supply and demand.

I also see this initiative as a sort of groundwork for Market Module v2 (MM2). By strengthening USTC’s utility, encouraging participation, and gradually reducing the circulating supply, the ecosystem lays a more solid foundation for a more robust economic mechanism, such as MM2, to function more efficiently in the future.

Overall, I view this proposal as an approach that prioritizes economic sustainability and alignment of incentives, rather than attempting quick fixes that often end up being unviable. If implemented well, this type of strategy can help the ecosystem rebuild utility and value in a more structural and lasting way.

Just to clarify, I’m not a technical expert—just another curious person who’s been around here for four years.

Mohankanagala · March 18, 2026, 1:50pm

Can we think of community-driven meme token designed to support and strengthen the ecosystem of Terra Luna Classic and TerraClassicUST just my idea if possible or something like this example BONK on SOL

Unlike traditional meme tokens focused purely on speculation, this token will provide real utility by:

Enhancing USTC staking rewards
Providing liquidity for LUNC and USTC
Creating a sustainable revenue model for ecosystem development

Tokanamics

Total Supply:

1,000,000,000,000 (1 Trillion tokens)

Allocation Structure

25% – LUNC Stakers Airdrop
Distributed to LUNC stakers based on a snapshot.
25% – USTC Staking Rewards Pool
Allocated to incentivize and reward USTC staking participants over time.
25% – Liquidity Pool Allocation
Used to provide liquidity for:
- LUNC pair
- USTC pair
25% – Treasury (Locked & Vested)
Reserved for long-term ecosystem growth, development, and marketing.

Utility & Ecosystem Benefits

Supports USTC staking rewards, increasing demand and utility
Strengthens LUNC and USTC liquidity pools
Introduces a transaction-based revenue model
Enables future ecosystem expansion through treasury funding

Revenue ModeL

A small transaction tax (around 1%) will be applied:

Portion allocated to USTC staking rewards
Portion used for LUNC burn mechanisms
Portion directed to development and treasury

This ensures continuous value flow back into the ecosystem.

Risk Mitigation & Safeguards

To ensure long-term sustainability and community trust, the following protections are recommended:

1. Airdrop Vesting (Avoid Dump Risk)

Airdropped tokens should not be fully unlocked at launch
Suggested approach:
- Gradual vesting over 3–6 months
- Or claimable only through staking

Prevents immediate sell pressure and price collapse

2. Liquidity Lock (Prevent Rug Pull Concerns)

Liquidity pool tokens should be locked for 1–2 years
Lock details must be public and verifiable

Builds investor confidence and ensures stability

3. Controlled Treasury Release

Treasury funds should be time-locked and released gradually
Suggested vesting: 2–4 years

Prevents misuse and ensures long-term commitment

4. Low and Transparent Tax Model

Keep transaction tax low (≤1%)
Clearly define allocation and usage

Avoids discouraging trading activity

5. Burn & Buyback Mechanism

Allocate part of revenue to:
- LUNC burn
- USTC buyback or rewards

Directly contributes to ecosystem recovery

6. Smart Contract Security

Conduct independent audits before launch
Ensure contract is immutable or governed transparently

Reduces technical and security risks

7. Governance & Transparency

Introduce community governance for key decisions
Publish regular updates on:
- Treasury usage
- Rewards distribution

Conclusion

This meme aims to create a sustainable, utility-driven meme token that:

Supports LUNC and USTC ecosystem growth
Provides real economic value
Minimizes common risks associated with meme tokens

With proper implementation, transparency, and community involvement, this initiative can become a meaningful contributor to the Terra Luna Classic ecosystem rather than just another speculative asset.

Vegas · March 18, 2026, 3:02pm

Proposal Modelling

Overview

This section presents a simplified economic model to illustrate the potential impact of introducing a native USTC staking system. The model focuses on supply dynamics, reward sustainability, market structure, and secondary ecosystem effects.

1. Model Assumptions

The following baseline assumptions are used:

Target staked amount: 2,000,000,000 USTC
Community Pool allocation: 61,000,000 USTC
Initial mint for rewards: 139,000,000 USTC
Initial reward pool: 200,000,000 USTC
Target APR: 10%
Inflation rate: 10% annually (distributed daily)
Illustrative circulating supply: 6,000,000,000 USTC
Illustrative price: $0.005
Illustrative daily volume: $1,500,000

This model is designed to demonstrate directional outcomes rather than exact market predictions.

2. Reward Model & APR Sustainability

To sustain a 10% APR on 2 billion USTC staked, the system requires:

200,000,000 USTC per year

Bootstrap Structure

Community Pool: 61M USTC
Direct Mint: 139M USTC
Total Rewards Pool: 200M USTC

This allows the system to fully fund one year of staking rewards at the target APR.

Daily Emissions

Annual rewards distributed daily result in:

≈ 547,945 USTC/day

This represents the ongoing emission rate required to maintain the target yield.

3. Circulating Supply Impact

If 2 billion USTC are staked:

Total circulating supply: 6.0B USTC
Staked (non-liquid): 2.0B USTC
Remaining liquid supply: 4.0B USTC - OP

Reduction in Liquid Supply

≈ 33.3% of circulating supply removed from active market circulation

Interpretation

This represents a structural shift in supply dynamics:

Reduced immediately tradable supply
Lower baseline sell pressure
Increased holding incentives
Improved market conditions for price responsiveness

4. Supply Evolution Over Time

Assuming rewards are fully funded through emissions:

Year	Total Supply (USTC)
Launch	6.0B
Year 1	6.2B
Year 2	6.4B
Year 3	6.6B
Year 5	7.0B

Interpretation

Short-medium term: strong reduction in effective circulating supply
Long term: gradual supply increase if emissions remain constant

Sustainability depends on:

staking participation levels
reward retention (restaking vs selling)
ecosystem utility growth
future governance adjustments
future fees recycling

5. Market Structure Impact

At an illustrative price of $0.005, a daily volume of $1.5M implies:

≈ 300,000,000 USTC traded per day

With 2B USTC staked, the locked amount equals:

≈ 6.7 days of trading volume

Interpretation

This indicates that the proposed lock-up is significant relative to current market activity:

Reduced exchange-side liquidity
Lower immediate sell-side availability
Improved depth and stability conditions
Greater sensitivity to demand-side changes

6. Sell Pressure Dynamics

The staking system transforms supply behaviour:

Metric	Without Staking	With Staking
Liquid Supply	6.0B	4.0B
% Tradable	100%	66.7%
Daily Emissions	0	~547K
Holder Incentive	Low	Higher

Interpretation

Large portions of supply transition from idle → yield-bearing
Only emissions enter circulation gradually
Principal supply becomes semi-locked

This structure reduces structural sell pressure even if some rewards are sold.

7. Participation Sensitivity

Impact scales with staking adoption:

Staked USTC	Annual Rewards	Daily Emissions	% Supply Locked
500M	50M	136,986	8.3%
1B	100M	273,973	16.7%
1.5B	150M	410,959	25.0%
2B	200M	547,945	33.3%
2.5B	250M	Adding fees	41.7%

Interpretation

Higher participation → stronger supply reduction effect
Lower participation → reduced impact but lower emission requirements
System effectiveness is directly tied to adoption

8. Secondary Impact on LUNC Staking

Assuming:

Current LUNC APR:~3.89%
~7% derived from USTC-based rewards

USTC-linked component:

≈ 0.27% of total APR

If USTC price doubles (e.g. $0.005 → $0.01):

USTC reward value doubles
Total APR increases to approximately 4.1%–4.2%

Interpretation

Improved USTC valuation strengthens LUNC reward value
Increased attractiveness for validators and delegators
Potential positive feedback loop across the ecosystem

9. Key Outcomes

Under this model:

~33% of circulating supply can be removed from liquid markets
10% APR is sustainable with a 200M USTC reward pool
Daily emissions remain controlled at ~548K USTC
Locked supply equals ~6-7 days of current trading volume
Potential indirect improvement in LUNC staking incentives

Final Interpretation

This model demonstrates that a USTC staking system can:

materially reduce effective circulating supply
introduce meaningful utility for holders
improve market structure through supply tightening
create positive secondary effects within the Terra Classic ecosystem

While not a price model, the framework adds a clear shift from passive supply to an active, yield-driven system which is a necessary step toward long-term ecosystem recovery and sustainability.

BiNodes · March 20, 2026, 8:31am

Hi Vegas, great proposal to give USTC utility. However, to protect long-term holders if we fail to hit the 2B staked target, we can consider add these 3 safeguards to the smart contract:

Dynamic APR (Inverse to TVL): Instead of a fixed 10%, APR should auto-scale higher if participation is low (e.g., 20%), creating a “liquidity black hole” to force the market into staking.
Unbonding Penalty & Burn: Keep the 21-day lockup, but offer an “instant unbond” for a 5-10% penalty. Crucially, 100% of this penalty must be burned to offset the initial 139M mint.
Real Yield Injection (The “Day 366” Solution): To survive Year 2 without printing more USTC, route a percentage of on-chain LUNC/USTC transaction taxes directly into the staking reward pool.

This makes the model defensive: it burns tokens when people dump and self-corrects if participation is low. Would love to see these parameters integrated

Vegas · March 20, 2026, 9:20am

Hi, thank you very much for the thoughtful feedback , really appreciate you taking the time to go through this in detail.

Regarding point 1, this is indeed how the model is intended to work. The APR is effectively dynamic by design, as the goal is to attract participation toward the ~2B USTC staking target. For example, if only 1B is staked, the effective APR would increase (e.g. ~20%), naturally incentivising more users to stake. This is quite similar in spirit to the current LUNC staking dynamics.

For point 2, I actually like this idea a lot. It’s something I suggested in the past for LUNC staking as well, although it wasn’t accepted at the time. Perhaps sentiment has evolved since then. My honest view is that this could be better suited for a future proposal, but we can certainly consider leaving the parameter open at the technical level now so it can be enabled later without major changes.

On point 3, you are absolutely on point. A key objective here is to bring more activity on-chain, especially from participants who are currently only operating off-chain. As users engage with staking, they are more likely to explore the broader ecosystem (including layer2 like garuda , terraport,terraswap or even juris and more and layer 1 products like MM2), which in turn increases on-chain transactions and fee generation. If that happens, the community could then redirect part of those fees into USTC rewards - and at that stage, we could look at reducing or even turning off emissions.

Thanks again - really valuable input

Vegas · March 20, 2026, 9:37am

Vegas:

Overview

This section presents a simplified economic model to illustrate the potential impact of introducing a native USTC staking system. The model focuses on supply dynamics, reward sustainability, market structure, and secondary ecosystem effects.

1. Model Assumptions

The following baseline assumptions are used:

Target staked amount: 2,000,000,000 USTC

Community Pool allocation: 61,000,000 USTC

Initial mint for rewards: 139,000,000 USTC

Initial reward pool: 200,000,000 USTC

Target APR: 10%

Inflation rate: 10% annually (distributed daily)

Illustrative circulating supply: 6,000,000,000 USTC

Illustrative price: $0.005

Illustrative daily volume: $1,500,000

This model is designed to demonstrate directional outcomes rather than exact market predictions.

2. Reward Model & APR Sustainability

To sustain a 10% APR on 2 billion USTC staked, the system requires:

200,000,000 USTC per year

Bootstrap Structure

Community Pool: 61M USTC

Direct Mint: 139M USTC

Total Rewards Pool: 200M USTC

This allows the system to fully fund one year of staking rewards at the target APR.

Daily Emissions

Annual rewards distributed daily result in:

≈ 547,945 USTC/day

This represents the ongoing emission rate required to maintain the target yield.

3. Circulating Supply Impact

image766×581 21.7 KB

If 2 billion USTC are staked:

Total circulating supply: 6.0B USTC

Staked (non-liquid): 2.0B USTC

Remaining liquid supply: 4.0B USTC - OP

Reduction in Liquid Supply

≈ 33.3% of circulating supply removed from active market circulation

Interpretation

This represents a structural shift in supply dynamics:

Reduced immediately tradable supply

Lower baseline sell pressure

Increased holding incentives

Improved market conditions for price responsiveness

4. Supply Evolution Over Time

image455×349 15.1 KB

Assuming rewards are fully funded through emissions:

Year Total Supply (USTC)

Launch 6.0B

Year 1 6.2B

Year 2 6.4B

Year 3 6.6B

Year 5 7.0B

Interpretation

Short-medium term: strong reduction in effective circulating supply

Long term: gradual supply increase if emissions remain constant

Sustainability depends on:

staking participation levels

reward retention (restaking vs selling)

ecosystem utility growth

future governance adjustments

future fees recycling

5. Market Structure Impact

At an illustrative price of $0.005, a daily volume of $1.5M implies:

≈ 300,000,000 USTC traded per day

With 2B USTC staked, the locked amount equals:

≈ 6.7 days of trading volume

image394×296 14.1 KB

Interpretation

This indicates that the proposed lock-up is significant relative to current market activity:

Reduced exchange-side liquidity

Lower immediate sell-side availability

Improved depth and stability conditions

Greater sensitivity to demand-side changes

6. Sell Pressure Dynamics

image560×421 18.1 KB

The staking system transforms supply behaviour:

Metric Without Staking With Staking

Liquid Supply 6.0B 4.0B

% Tradable 100% 66.7%

Daily Emissions 0 ~547K

Holder Incentive Low Higher

Interpretation

Large portions of supply transition from idle → yield-bearing

Only emissions enter circulation gradually

Principal supply becomes semi-locked

This structure reduces structural sell pressure even if some rewards are sold.

7. Participation Sensitivity

Impact scales with staking adoption:

Staked USTC Annual Rewards Daily Emissions % Supply Locked

500M 50M 136,986 8.3%

1B 100M 273,973 16.7%

1.5B 150M 410,959 25.0%

2B 200M 547,945 33.3%

2.5B 250M Adding fees 41.7%

Interpretation

Higher participation → stronger supply reduction effect

Lower participation → reduced impact but lower emission requirements

System effectiveness is directly tied to adoption

8. Secondary Impact on LUNC Staking

Assuming:

Current LUNC APR:~3.89%

~7% derived from USTC-based rewards

USTC-linked component:

≈ 0.27% of total APR

If USTC price doubles (e.g. $0.005 → $0.01):

USTC reward value doubles

Total APR increases to approximately 4.1%–4.2%

Interpretation

Improved USTC valuation strengthens LUNC reward value

Increased attractiveness for validators and delegators

Potential positive feedback loop across the ecosystem

9. Key Outcomes

Under this model:

~33% of circulating supply can be removed from liquid markets

10% APR is sustainable with a 200M USTC reward pool

Daily emissions remain controlled at ~548K USTC

Locked supply equals ~6-7 days of current trading volume

Potential indirect improvement in LUNC staking incentives

Final Interpretation

This model demonstrates that a USTC staking system can:

materially reduce effective circulating supply

introduce meaningful utility for holders

improve market structure through supply tightening

create positive secondary effects within the Terra Classic ecosystem

While not a price model, the framework adds a clear shift from passive supply to an active, yield-driven system which is a necessary step toward long-term ecosystem recovery and sustainability.

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Summary of the upcoming signal proposal

The purpose of the upcoming signal proposal is to ask the community a simple question:
Does the community want development work to begin on a USTC recovery framework focused on depeg-affected holders, through the creation of a native USTC staking system?

If this signal proposal passes, it would then be followed by a series of technical and governance proposals to implement the system in a structured and controlled way.

Proposed implementation path after signal approval

1. Technical proposal for core system creation
This proposal would cover the creation of the main staking infrastructure, including:

a new USTC oracle pool
a distribution module for USTC rewards
parameter change capability for future reward adjustments
a parameter for instant / quick unstake functionality, but disabled initially
an USTC emission parameter, set to zero at launch

The idea is to build the full framework from the start, while keeping some functions disabled until the community decides otherwise through separate proposals.

2. Community Pool spend proposal
After the technical framework is implemented, a Community Pool spend proposal would be submitted so the approved USTC allocation can be transferred into the newly created USTC oracle pool.

3. Reward activation proposal
A following proposal would then be submitted to change the reward parameter from 0% to 10% APR, officially activating staking rewards.

4. Review period before emissions are considered

Both the one-time bootstrap mint and the ongoing daily emissions will only be considered after the completion of a 3-month review period.

After launch, the system would be observed for around 3 months to evaluate key metrics, especially:

total USTC staked
staking participation levels
reward behaviour
overall ecosystem response

Only after this review period would the community assess whether it is necessary to activate the USTC emissions parameter or whether the initial structure is already performing well enough without it.

Why this staged approach matters

This approach allows the community to move forward step by step, with clear control at every stage:

first approve the direction
then build the infrastructure
then fund it
then activate rewards
and only later review whether further emissions are needed

This keeps the process transparent, measurable, and fully governed by the community.

nuenghandsome · March 20, 2026, 9:58am

I support USTC staking
I support USTC utility
I DO NOT support USTC minting.

Here’s my main concern for USTC minting: Regulatory issue.

As per my thread on X.

The world is watching Stablecoins. Agencies like the SEC and the EU (MiCA) are banning “unbacked” printing.

If $USTC starts minting from thin air again:

Delisting Risk: Major exchanges (Binance, OKX) may delist us to avoid legal trouble.
Ponzi Label: The media will call us a “Ponzi” again, killing any chance of new investors.

I know that we have changed the classification of the USTC last year on some platforms and prevented the delist. Thank you for your work. However, that doesn’t mean ALL entities are awared about this new classification.

Community will need more proof than just a word “Tks.Believe me”.

Can you provide more proofs?

Also, my next point.

This proposal did not include TFL’s potential burning of 3B USTC into the equation.

All of calculations are based on 6 Billion USTC. I know that the 3B USTC that belongs to TFL (And stored on Binance) is not a gaurunteed burn. However, if that actually happen some time this year, it will dramatically change this proposal because:

Total supply will change from 6B to circa 3B after the burn.
20% of the 3B burned will get into CP and OP. That should be around 600M USTC combined. Enough to pay out rewards without the need of minting for years. And this need new calculations too because of total supply changed.

I’m not attacking it, just want to contribute constructive conversation, and get the chain to where she belongs, top 10 blockchain!

I’m looking forward to the amendment of this proposal.

Best regards,

Nueng Handsome

ClassicDAO · March 20, 2026, 10:13am

Addressing Concerns on the USTC Recovery Framework Proposal

The USTC staking proposal (Agora posted March 16, 2026) seeks to restore utility to the depeg-affected stablecoin by introducing native Layer-1 staking. It targets locking 20–33% of circulating supply (approximately 1.1–2.0 billion USTC out of 5.58 billion circulating / 6.08 billion total) to reduce sell pressure, increase on-chain activity, and enhance LUNC staking rewards.

A March 19, 2026 X several posts raise concerns that the proposal would emit (mint) 200 million USTC annually, equivalent to roughly 14.7 years of current burns (cited at 13.6 million USTC per year) and relies on inflation rather than real yield.

The following points address these concerns directly using the proposal text and on-chain data as of March 19, 2026;

No mandated 200 million USTC annual emissions
The proposal contains no specific emission targets or mandatory minting schedule. It explicitly states: “This proposal does not mandate inflation and instead presents it only as a possible long-term funding option that would require separate governance approval.” The 200 million figure is an external assumption (likely 10% APR on 2 billion staked USTC) and is not stated in the proposal.

Bootstrap phase funded entirely by existing community pool. Zero new minting required at launch. The Terra Classic community pool currently holds approximately 61.4 million USTC (verified via StakeBin). The proposal designates this as the “initial reward distribution source,” enabling the staking system to launch “without immediate protocol inflation.” Note: Last proposal to utilize the funds in that pool was on 2023 via proposal #8813.

Inflation, if used, is optional, USTC-only, and governance-controlled Any inflation would apply solely to USTC (not LUNC) and serve as a final funding option after community pool and protocol revenues. Current USTC supply (6.08 billion total) is roughly one-third of its pre-depeg historical peak of 18 billion, providing explicit economic flexibility noted in the proposal.

Staking delivers immediate supply reduction far exceeding current burn rates Successful implementation would lock 1.1–2.0 billion USTC on-chain. For context, recent USTC burns average 20,000–37,000 tokens daily (approximately 7–13.6 million per year). The net effect begins with substantial lock-up, not net supply growth.

Funding prioritizes real protocol revenue over inflation, Ranked funding sources in the proposal: Community pool (61.4 million USTC)

Voluntary ecosystem contributions

Protocol revenues (Market Module 2 arbitrage fees, DEX swap fees, gas allocations, burn-tax redirections) Inflation is listed last and requires a separate vote. The proposal repeatedly references future revenue from MM2 as the preferred sustainable source.

This approach aligns with established proof-of-stake mechanics. Many leading networks (e.g., Cosmos SDK chains) initially use controlled inflation to bootstrap staking before transitioning to fee-based rewards. The proposal includes the same safeguards: gradual implementation, governance oversight, technical audits, and explicit risk disclosures on inflation management and liquidity.

The proposal does not reintroduce the 2022 hyper-inflation dynamics. It provides a structured framework for utility and supply reduction while keeping all inflation parameters under community control. Community members are encouraged to review this proposal before making assumptions. Governance decisions should be based on the documented text and verifiable on-chain metrics. This proposal provides those verificable facts.

Lamau · March 20, 2026, 10:43am

I basically agree with Vegas (thanks for your great work) appreciating point 4 but let’s be even more cautious and at the moment I wouldn’t mention point 3 in the proposal. Let’s see if the initial structure works well without minting

Vegas · March 20, 2026, 11:06am

Hi Nueng, thanks for the constructive feedback , really appreciated.

On the regulatory point, USTC is not classified as a stablecoin, so it does not fall under those frameworks (SEC/MiCA). Because of that, the delisting risk for CEXs on this basis is essentially non-existent. That said, I agree we should continue improving clarity around this.

Regarding the “Ponzi” narrative, I see it differently - this proposal actually helps close the depeg chapter by introducing real utility and a path forward for holders.

On the TFL 3B burn, as you mentioned, it’s only potential, so we can’t base the model on it. If it happens, it actually makes the system stronger (less supply, more efficiency).

Finally, on minting, just to clarify:

It starts at 0
Runs for ~3 months with no emissions
Then reviewed based on real data

So any future minting would be controlled, optional, and governance-driven, not automatic.

Thanks again

SPACED · March 20, 2026, 11:59am

My idea, USTC Vault Staking Plan - Threshold-Activated (No Minting)

Create a USTC Vault module on-chain
Transfer an initial (50)M USTC from the Community Pool to the Vault (via governance proposal)
Anyone can donate/throw USTC to the Vault at any time (voluntary top-ups)
Route 100% of USTC gas fees to the Vault (on-chain if possible)
DEXs play a key role by donating USTC to the Vault if possible → Any DEX that strongly supports the idea will attract more users. DEXs can collect USTC from swap fees or convert from any other source to contribute
Staking & rewards auto-activate only when the Vault reaches:
- Vault Balance ≥ 75M USTC → 3.5% APR
- Vault Balance ≥ 100M USTC → 5.0% APR
- Any future targets or APR adjustments can be set or changed via governance proposal.
- Unbonding period: 21 days (matches LUNC)

pabloabritos · March 20, 2026, 4:15pm

Minting dilutes value, that´s a mathematical truth, not subjective opinion.
Btc does not mint, so it grows in value as it produces blocks and add value to the economy.
The all other projects that mint, are all falling against Btc, just look at the charts…

The only way of minting without diluting is minting out of profits gained before. If you produce wealth, you can then mint with no dilution.

If you mint first and try to produce profit later, you´re doomed at start. You already lost value and you don´t know how things are gonna play for you. But your asset already lost value 100% sure.

Minting and lock it, and then slowly throw it to circulation as rewads, makes the agony longer, but it still dilutes value of asset 100% sure. Slowly but certainly.

First you buy USTC with Lunc, then you can give it away as rewards. But you need to buy it not to mint it.

Vegas · March 20, 2026, 5:33pm

I understand your point, but there are a few important clarifications here.

First, BTC absolutely mints - it issues new coins every block as mining rewards. The difference is that it’s a controlled emission schedule, not “no minting”.

Second, minting by itself is not inherently bad - what matters is:

how much is minted
how it’s distributed
what happens to circulating supply

In this model:

Minting is set to 0 at launch
We run the system for ~3 months with no emissions
Any future emissions are optional, controlled, and governance-driven

So there is no immediate dilution.

Also, this isn’t just “mint and dump”:

~33% of supply can be removed from liquid circulation via staking
Rewards are distributed gradually (~547k/day at full scale)
A large portion is expected to be restaked, not sold

So you’re not just increasing supply - you’re changing supply behaviour (liquid → locked).

Finally, your point about “buying instead of minting” is valid in theory, but in practice:

The system already uses Community Pool funds (existing supply)
And future direction can include fees / real yield, reducing or eliminating the need for emissions

So this is not a blind inflation model - it’s a controlled, step-by-step system with safeguards and review.

Lamau · March 21, 2026, 9:29am

Very good point of view! Thank you

Vegas · March 21, 2026, 11:30am

thank you ,yep, we need to go by steps as the community is not ready for radical changes,and who knows maybe we dont even need minting and MM2 can support the all system.