Things have gone from bad to worse for algorithmic stablecoin TerraUSD (UST) and backing cryptocurrency Terra (LUNA).

Why it matters: The collapse of UST will strengthen calls for stablecoin regulation, as evidenced by Treasury Secretary Janet Yellen's referencing TerraUSD’s run in testimony before the Senate Banking Committee yesterday.

Driving the news: Terraform Labs founder Do Kwon shared plans to stabilize the price of UST this morning through a proposal to increase minting capacity of the cryptocurrency and eventually collateralize the stablecoin.

• If enacted, community proposal 1164 would seek — by increasing minting capacity from $293m to ~$1200m — to slow down traders who are front-running and shorting LUNA.
• Once price stabilization is achieved, Kwon said, “we will adjust its mechanism to be collateralized” — that is, move from a purely algorithmic mint-and-burn mechanism to one that is backed by other assets.

Yes, but: It’s hard to imagine UST returning to its $1 peg anytime soon, as a run on the stablecoin has also driven down the price of LUNA. UST dropped to as low as $0.30 today.

• Prior to the crash, UST's low point was $0.85, hit in December 2020.

Meanwhile, around 152 million LUNA tokens — or about 30% of the entire supply — are currently staked, according to Terra Analytics.

• That means some LUNA holders might not be able to cash out for up to three weeks.

Of note: Hindsight is 20/20, but some of the collapse might have been avoided had Terra not chosen to burn $4.5 billion worth of LUNA from its community pool last fall.