Terra (UST) Powered by LUNA expressed:  A new proposal to burn the remainder of the SDT Stability Reserve (711,003,512 SDT) is now posted on Agora.

The SDT Stability Reserve was initially created in the genesis block of Columbus-1 mainnet to bootstrap the creation of Terra stablecoins while neither Terra nor LUNA assets had sufficient liquidity.

As you may recall, minting Terra stablecoins uses a “virtual amm” pool against LUNA, where the size of the pool (and consequently the exchange costs) are proportional to the off-chain liquidity of LUNA.

Therefore, the SDT reserve provided a valuable means for KRT and UST to be created in the early days of the network without egregious slippage, allowing early use cases like Chai and swap pools across Terra and Ethereum to be born.

With LUNA one of the largest and most liquid assets in crypto, Terra needs the SDT reserve no longer – hence, TFL moves that the balance of the entire SDT reserve be burnt.

The proposal, if executed, will permanently burn the remainder of the SDT Stability Reserve by sending the current 11,003,512 SDT in the TFL wallet to a burn address.

The illiquid portions of the remaining 700 million SDT to be vested over the next 7 years will be burned as they unlock — sent to the same burn address.

Notably, burning the locked 700 million SDT at once would require software changes only possible with a major network upgrade, meaning that we could technically burn the remaining SDT as part of an upcoming software upgrade to the Terra protocol.

Such an action would be at the discretion of a community vote from a separate proposal. For now, this proposal will execute the items in the Agora proposal should it pass.

Community Response:  But did you not create the SDT *special drawing Terra as a balancer mechanism with LUNA in a ratio of 1.00 to 1.00? Now I understand this is to bootstrap the other stable coins – however special drawing rights are considered more stable over time in comparison?

So by burning the entire SDT reserves – this eliminates a case use of arbitrage available utilizing this balancer mechanic – while eliminating the only Terra stable coin pegged to a basket – sadface.

Is SDT in the form of Luna? so the burn would be of LUNA in the reserve? I also don’t understand SDT. Sounds like a great idea though. Would this have the same effect as burning UST to mint more LUNA?? or would this decrease LUNA supply?