2. Legacy & Transition from USTC

2.1. Context & Rationale:

Following the collapse of the previous stablecoin model (USTC), it became evident that a completely new approach was needed. USTD is born from the lessons learned from USTC’s failures and is designed to overcome its shortcomings. It is an entirely new stablecoin, incorporating enhanced collateralization, with automated yield distribution, and integrated with Terra Classic’s trusted governance structure, which in the near future is a worthy replacement for a gap left by the USTC.

2.2. Why Re‑Pegging USTC is not feasible today?

The answer comes down to two roadblocks that are too high to clear right now: (1) legacy debt and (2) regulation.

Below we break them down in plain language so that every LUNC holder and potential investor can see the numbers and the legal facts for themselves.

2.2.1. The Legacy‑Debt Hole:

Key Facts:

• ≈ 11.3 billion UST were still outstanding when the peg broke in May 2022. Every one of those tokens became an IOU the chain still “owes” at $1 each.

• ≈ 6.09 billion USTC are still live today (May 2025). Even after burns and redemptions, most of the debt is still there.

• Market price ≈ US $0.01186 (1.2 ¢). The market only values the IOUs at ~1 % of face value.

• Cash needed for a full $1 repeg ≈ US $6 billion. That is the size of the debt hole.

Why simple fixes don’t work:

• Burn‑only tax – Redirecting part of every LUNC transaction to buy‑and‑burn USTC sounds good, but at today’s chain volume it would take more than 25 years to clear the hole.

• Big‑investor bailout – No venture fund, exchange, or foundation has offered billions, especially with ongoing lawsuits against the original project team.

• Hybrid “mint + fee” ideas – Turning the mint‑burn engine back on could spark another death spiral and still needs large reserves to succeed.

Bottom line: The treasury doesn’t have $6.09 billion and no outside party has stepped up with the cash. Without new money, a $1 repeg is mathematically impossible.

2.2.2. Regulatory Walls:

MiCA (EU):

• Stablecoins must be 1:1 backed by safe reserves held at licensed custodians. USTC has no such reserves ⇒ would fail authorisation and face EU‑wide delisting.

GENIUS & STABLE Act (USA):

• Algorithmic stablecoins are banned until proven fully collateralised. Same problem: no collateral, no listing.

• Issuers of stablecoins must hold bank‑quality deposits or Treasuries for every token. USTC would not qualify; exchanges would have to drop it to stay compliant.

The Terra Classic community has therefore re‑labelled USTC as a “speculative asset,” not a stablecoin, to keep it tradable. Re‑pegging would immediately re‑classify it as a non‑compliant stablecoin and trigger delistings from major venues like Binance.

2.2.3. Take‑away for Investors:

• Money gap: A $7.9 billion shortfall cannot be patched with fees, taxes, or wishful thinking.

• Legal gap: Even a perfect technical repeg would break new global rules and kill exchange support.

2.3. Transition:

Completely New Protocol:

• USTD is built from the ground up with modern risk management, security, and yield distribution mechanisms, distinctly separate from USTC’s design.

Transition Strategy:

• USTD is positioned to replace the gap left by USTC by offering superior benefits—automatic yield airdrops, full collateral backing, and integration within the Terra Classic ecosystem—thus addressing the shortcomings of the previous model.

Enhanced Transparency and Trust:

• By learning from past mistakes, USTD ensures that all processes are fully transparent and audited, rebuilding trust among the community and investors.