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The Luna Foundation Guard (LFG) has gathered $2.2 billion to create a Bitcoin ($BTC) reserve for the Terra ($LUNA) protocol's UST stablecoin, according to the Terra ($LUNA) founder. Do Kwon's comments came after the LFG raised $1 billion in a private placement.
Terra is a Proof of Stake (PoS) blockchain that uses LUNA to maintain the algorithmic stablecoin's dollar peg. Despite the fact that UST is not backed by any assets in reserve, its value is determined by the minting and burning of LUNA, as users can always exchange $1 worth of LUNA for 1 UST and vice versa.
UST can be swapped for LUNA and sold for $1 if the price falls below $1, making it appealing to arbitrage traders. If the price rises above $1, LUNA token holders can profit by selling their tokens for 1 UST. To make these transactions possible, LUNA is minted and burnt.
Jump Crypto and Three Arrows Capital spearheaded the $1 billion funding round, and the reserve is expected to boost UST’s stability. Because the flagship cryptocurrency’s value is less tied to Terra’s environment, reserves in it are projected to reduce the likelihood of a UST death spiral in stress conditions.
According to TheBlock, the additional money were raised by selling UST against Tether’s USDT stablecoin, with $800 million remaining needed to be raised.
Do Kwon has previously stated that the Terra Protocol would be one of the major holders of the flagship cryptocurrency as the project builds its BTC-denominated reserves in order to offer an extra degree of protection to its decentralized stablecoin. Terraform Labs wants to amass $10 billion in Bitcoin to contribute to the project’s stablecoin reserves, according to CryptoGlobe.
To get there, the stablecoin may set away a portion of the revenue generated from the issuance of UST in order to amass additional BTC. Do Kwon also mentioned that the LFG will build a blockchain bridge to bring billions of dollars in tokenized BTC to the Terra network.
Terra has recently purchased $125 million in BTC, according to blockchain data, with a Gnosis safe address associated with it moving $125 million in USDT to renowned cryptocurrency market Binance.
