Luna Foundation Guard Buys $1.5 Billion of Bitcoin ($BTC) to Bolster $UST Reserve
The Luna Foundation Guard, a non-profit mandated to build reserves for Terra’s algorithmic stablecoin UST, has bought $1.5 billion worth of the flagship cryptocurrency Bitcoin ($BTC) to add to its reserve, which is now above $3.21 billion.
As CNBC reports, the transaction brings the Luna Foundation Guard closer to its goal of accumulating $10 billion in BTC to back the UST stablecoin. To get to that point, the stablecoin may set aside a portion of the revenue generated from issuing UST to accumulate more BTC. Do Kwon also suggested the LFG will create a blockchain bridge to introduce billions of dollars worth of tokenized BTC onto the Terra network.
Do Kwon, a cofounder and the CEO of Terraform Labs, the company responsible for the development of Terra, has said he expects to reach the $10 billion goal by the end of the third quarter.
The protocol’s current reserve above $3 billion makes it one of the largest bitcoin holders in the world. Backing the stablecoin are also $200 million worth of Avalanche ($AVAX), which were acquired last month by both the Luna Foundation Guard and Terraform Labs.
Its latest BTC acquisition, according to CNBC, saw it close a $1 billion over-the-counter swap with crypto prime broker Genesis for $1 billion in UST. The firm also bought $500 million from cryptocurrency hedge fund Three Arrows Capital.
Do Kwon was quoted saying that we’re “starting to see a pegged currency that is attempting to observe the bitcoin standard,” and that its bet is on “keeping a lot of those foreign reserves in the form of a digital native currency is going to be a winning recipe.”
Do Kwon added that the jury’s still out on the effectiveness of such reserve, before concluding:
I think it is symbolic in the sense now that we live in a time where there’s excess money printing across the board and when monetary policies highly politicized that there are citizens that are self-organizing to try to bring systems back to a sounder paradigm of Money.
The last tie the LFG bought $1 billion worth of the flagship cryptocurrency, bitcoin was trading at around $48,000 and the price of Terra’s native LUNA token was hitting a new all-time high.
Terra is a Proof of Stake (PoS) blockchain in which LUNA is used to keep the algorithmic stablecoin’s peg to the U.S. dollar. While UST isn’t backed by any assets in reserve, its value is fixed through the minting and burning of LUNA as users can always swap $1 worth of LUNA for 1 UST and vice-versa.
If the price of UST drops below $1, it can be swapped for LUNA and sold for $1, making it attractive for arbitrage traders. If it goes over the $1 mark, LUNA token holders can trade tokens for 1 UST for a profit. LUNA is minted and burned to enable these transactions.
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Featured image via Pixabay.
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