Due to the high demand for UST, a pool imbalance has developed on Curve Finance, necessitating action.
Do Kwon, the founder and CEO of Terraform Labs (TFL), which creates the Terra Luna (LUNA) and TerraUSD stablecoin (UST) blockchain ecosystems, said on Friday that TFL had donated 12 million LUNA ($1.1 billion at the time of publication) to the Luna Foundation Guard (LFG). LFG was founded in January with the goal of expanding the Terra ecosystem and ensuring the long-term viability of its stablecoins. “We will maintain building reserves until it becomes mathematically impossible for idiots to claim de-peg risk for UST,” Kwon said, adding that the cash will be destroyed to mint UST to grow the LFG’s reserves.
UST is an algorithmic stablecoin with a notional 1:1 exchange rate with the US dollar, which is maintained in part by swapping LUNA tokens for/against it when its market value deviates from its peg. When you burn a dollar in UST, you get a dollar in LUNA, and vice versa.
However, because of the enormous demand for UST on decentralised finance (DeFi) services like Curve Finance, unbalanced pools for stablecoin trading exist. As more crypto enthusiasts exchange their USD Coin and Tether (USDT) for UST, the pool’s reserves will diminish, resulting in price instability as supply falls behind demand. TFG had previously voted two days prior to burn the 4.2 million LUNA remained in its treasury to protect UST’s peg. “, according to TFG “FG will sell the UST to the Curve pool and swap the [new] LUNA to UST (swap=burn). The funds will be used to replenish LFG’s BTC reserves.”
UST is an extremely popular coin among crypto aficionados, because to Terra’s flagship Anchor Protocol, which offers up to a 20% yearly interest on UST savings deposits. However, despite a recent significant capital infusion, the Anchor Protocol’s reserve (for paying the stated yield) is still on the fall at the time of publishing because to an imbalance of depositors and lenders paying interest.
— Do Kwon 🌕 (@stablekwon) March 11, 2022
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.