Terra stated that it picked Bitcoin as the currency for the Forex Reserve because it is “less connected with the Terra ecosystem.”
Luna Foundation Guard, a nonprofit organization focusing on the open-source stablecoin network that powers Terra USD, has completed a $1 billion fundraising round via the selling of LUNA tokens.
Terra stated in a Tuesday tweet that Jump Crypto and Three Arrows Capital led the $1 billion round, which also included DeFiance Capital, Republic Capital, GSR, and Tribe Capital. The platform stated that the profits from the sale — $1 billion — would be used to “create a Bitcoin-denominated Forex Reserve for [Tether] UST,” a stablecoin within the Terra ecosystem.
1/ The long awaited [REDACTED] 💎3 is here!
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) February 22, 2022
“A typical critique levelled at algorithmic stablecoins is its reflexive nature and the speculative risk of a “bank run,” in which demand for the stable outstrips supply, resulting in compounding price declines in both native tokens,” Terra explained. “While popular adoption of UST as a continuously stable asset in the face of market volatility should suffice to contradict this, a decentralized Reserve can provide an extra mechanism for maintaining the peg during contractionary cycles, therefore reducing the system’s reflexivity.”
Terra stated that it picked Bitcoin (BTC) as the currency for the Forex Reserve because it is “less connected with the Terra ecosystem.” The platform stated that additional information on the UST reserve’s purpose and design would be made available in the following weeks.
According to the protocol’s website, it uses “fundamental market forces of supply and demand” to keep the price of coins such as UST stable:
“Stablecoins are only valuable to users if they maintain their price peg. When the demand for Terra is high and the supply is limited, the price of Terra increases. When the demand for Terra is low and the supply is too large, the price of Terra decreases.”
The Luna Foundation Guard, or LFG, is based in Singapore and was created in January with the goal of growing the Terra ecosystem and ensuring the longevity of its stablecoins. Do Kwon, founder of Terraform Labs, announced Friday the injection of 450 million UST — around $450 million — into the Anchor protocol’s reserves following a vote by the LFG.
Terra (LUNA) is currently trading at $54.03, up more than 1.7 percent in the previous 24 hours. The network’s overall value was frozen at an all-time high of more than $20 billion in December 2021.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.