Orbit Labs has published the technical implementation proposal for a native USTC staking system on Terra Classic just 2 hours ago.
The proposal follows the successful passage of Governance Proposal #12219, which signaled community support for a $USTC staking system under a no-minting framework. The new technical document explains how USTC staking could work at Layer 1, how rewards would be calculated, how validators would participate, and what conditions must be completed before activation. [1]
The proposal gives USTC holders a clearer picture of the system. It also places the most important economic question directly in front of the community:
Where will the USTC used for staking rewards come from?
A Separate Staking System for USTC
Orbit Labs proposes a new Cosmos SDK module called x/ustcstaking.
A module is a dedicated part of the Terra Classic blockchain that manages a specific function. In this case, the module would manage USTC staking activity, including:
Delegating USTC to validators
Undelegating USTC
Redelegating USTC between validators
Calculating staking rewards
Claiming staking rewards
Paying validator commission
The USTC staking module would run separately from the existing $LUNC staking system. It would read validator information from the existing x/staking module while keeping its own records for USTC delegations, rewards, redelegations, and unbonding activity. [1]
LUNC would remain the staking asset used for consensus security, validator selection, voting power, and governance voting.
USTC delegation would give holders access to staking rewards and supply-locking utility. It would give no additional consensus power to validators.
USTC Principal and Validator Risk
USTC stake would have no slashing risk under the proposed design.
Slashing is a penalty used in consensus staking systems when validators commit serious faults, such as extended downtime or double-signing. LUNC delegators can be affected by these penalties because LUNC staking directly supports network security.
USTC staking has no consensus role, so USTC principal would remain safe during validator faults. Validator status would still affect reward accrual and delegation availability. [1]
The proposed lifecycle policy includes:
A bonded validator can receive new USTC delegations and generate rewards
A jailed validator stops generating USTC rewards until unjailed
A tombstoned validator stops generating rewards and existing USTC delegations are force-unbonded
A voluntarily unbonding validator stops receiving new USTC delegations
USTC principal remains withdrawable through the normal unbonding process
Paused rewards would stay inside the reward pool.
Where Do USTC Staking Rewards Come From?
USTC staking rewards would come from a pre-funded reward pool held inside the x/ustcstaking module account.
The proposal does not use block inflation or transaction fees as the initial reward source. The module would distribute USTC that has already been deposited into the reward pool. [1]
The proposed starting parameters are:
Initial reward pool: 30,000,000 USTC
Minimum reward runway: 2 years
Starting annual reward budget: 15,000,000 USTC per year
The reward pool could receive additional USTC through a permissionless funding message called MsgFundUSTCRewardPool.
Permissionless funding means any address could contribute USTC to the pool. Possible contributors include:
A treasury
Community members
External sponsors
Future protocol revenue
Future MM2 revenue
Other revenue sources approved by the community
Top-ups would be restricted to USTC.
The Proposal Uses APR, Not APY
The reward estimates in the proposal are APR figures.
APR measures the annual reward rate before compounding. APY includes the effect of repeatedly reinvesting rewards.
The proposed reward budget creates the following estimated starting APR curve:
Total Active USTC Stake Estimated Effective APR 150 million USTC About 10% 300 million USTC About 5% 600 million USTC About 2.5%
The APR changes because all active stakers share the same reward budget.
A smaller amount of staked USTC gives each staker a larger share of the pool. A larger amount of staked USTC spreads the reward budget across more participants. [1]
The proposal targets voluntary locking of around 5% to 10% of the circulating USTC supply. With approximately 6 billion USTC in circulation, this target represents around 300 million to 600 million USTC locked in staking. [1]
How Each Reward Payment Is Calculated
Each reward epoch would calculate three different limits:
Base budget
Maximum APR cap
Pool-safe release rate
An epoch is a scheduled reward calculation period. The proposal uses a daily epoch in its worked example.
The module would release the smallest value produced by the three calculations. [1]
The base budget controls the planned reward spending rate.
The maximum APR cap prevents extremely high reward rates when very little USTC is staked.
The pool-safe release rate reduces reward emissions as the reward pool becomes smaller.
This system gives the reward pool a gradual decay curve. As the pool balance falls, the amount released per epoch also falls. The pool approaches zero gradually, and the APR becomes lower over time.
If the reward pool reaches a governance-defined low balance, the module would emit a USTCRewardPoolLow event and reduce rewards to a dust-safe minimum until more USTC is deposited. User principal would remain available for withdrawal regardless of the reward pool balance. [1]
Is the USTC Staking System Sustainable?
The proposed system has a controlled starting runway.
The initial 30 million USTC reward pool can support the planned 15 million USTC annual budget for approximately two years under the starting assumptions.
Long-term sustainability depends on recurring USTC funding.
A reward pool funded only once will gradually shrink. Reward emissions will become smaller, and effective APR will fall. Continued rewards require new USTC to enter the pool from protocol revenue, MM2 revenue, treasury funding, sponsors, community contributions, or another approved source. [1]
The technical design protects the pool from sudden depletion. Economic sustainability still depends on real funding.
This distinction matters for USTC holders. A well-designed emission formula can manage a limited reward pool responsibly. A durable staking system requires income that can continue replenishing the pool.
Minting Is the Main Economic Red Flag
Governance Proposal #12219 was presented as a USTC staking system under a no-minting framework. [2]
The technical proposal lists the initial reward pool source as TBD. It mentions a community pool spend, treasury, or external sponsor as possible sources. [1]
The community should require a clear funding plan before activation.
The key question is:
“Will the reward pool use existing USTC only?”
Using existing USTC can encourage voluntary supply locking.
Minting new USTC to fund staking rewards would increase supply and weaken the supply-locking goal. It would also conflict with the no-minting direction signaled by Proposal #12219.
A clear no-minting commitment should remain part of the community review process.
Validator Commission
Validators would be able to set a separate USTC commission rate called ustc_commission.
This commission would be independent from each validator’s existing LUNC staking commission.
When USTC rewards are distributed, the validator would receive its commission in USTC. The remaining reward would be distributed to USTC delegators according to their share of the validator’s total USTC delegation. [1]
The proposal also includes governance-controlled parameters for commission caps and update frequency.
Emergency Pause and User Withdrawals
The module would include an emergency pause function controlled through governance.
During an emergency pause, the system would block:
New delegations
Redelegations
Validator commission edits
The system would continue allowing:
Undelegations
Reward withdrawals
Completion of existing unbonding entries
The proposal states that withdrawal paths must remain open during an emergency pause. [1]
Activation Process
The x/ustcstaking module would ship through a Terra Classic software upgrade with staking disabled by default.
A separate governance proposal would be required to enable the system after several conditions are completed:
The initial reward pool is funded
Parameters are reviewed and set
Testnet validation is completed
Validator and community review is completed
This activation structure gives the community another opportunity to review the reward source, parameters, test results, and operational readiness. [1]
Budget and Timeline
Orbit Labs requests a total implementation budget of $34,000.
The budget is divided into two phases:
Phase 1: Implementation and Testnet Validation
Budget: $25,000
This phase includes module development, reward distribution, validator lifecycle hooks, emergency pause functions, governance parameters, testnet deployment, scenario testing, a reward calculator, and preliminary documentation.
Phase 2: Mainnet Execution and Post-Upgrade Support
Budget: $9,000
This phase includes preparation of the mainnet upgrade proposal, validator coordination, upgrade execution, immediate monitoring, and final documentation. 1
The proposed development timeline is 12 weeks:
Weeks 1 to 2: Finalize design, parameters, validator behavior, and reward calculations
Weeks 3 to 6: Build delegation, unbonding, redelegation, and reward accrual
Weeks 7 to 8: Add validator lifecycle hooks, commission, emergency pause, and governance controls
Weeks 9 to 10: Deploy to testnet, run scenarios, and fix bugs
Week 11: Publish documentation and begin validator and community review
Week 12: Submit the governance proposal and prepare for a mainnet upgrade
Wallet user interface integration, an external security audit, marketing materials, and extended post-launch support are outside the proposed budget. [1]
What the Community Should Review Next
The USTC staking proposal creates a practical Layer 1 utility for USTC holders.
The architecture keeps USTC staking separate from consensus, protects USTC principal from validator slashing, and provides a clear framework for reward distribution.
The next stage requires close review of the economic design.
The community should focus on:
The initial reward pool source
A clear no-minting commitment
Long-term recurring revenue
Testnet reward accuracy
Validator lifecycle behavior
Emergency withdrawal safety
The absence of an external security audit in the current budget
USTC staking can become useful infrastructure for Terra Classic.
Its long-term value will depend on the quality of implementation, the discipline of the reward model, and the ability to fund rewards through existing USTC and real ecosystem revenue.
Sources
[1] Orbit Labs, Terra Classic USTC Staking System Technical Implementation Proposal. (Terra Classic)
https://discourse.luncgoblins.com/t/terra-classic-ustc-staking-system-technical-implementation-proposal/492
[2] Terra Classic Governance Proposal #12219 voting result and no-minting framework title. (Validator Info)
https://validator.info/terra-classic/governance/12219
[3] Official Tweet from Orbit Labs
https://x.com/orbit__labs/status/2062537234860192202