The founder of Terra ($LUNA) has recently revealed that the Luna Foundation Guard (LFG) has raised $2.2 billion to create a Bitcoin ($BTC) reserve for the protocol’s UST stablecoin. Do Kwon’s words come shortly after the LFG raised $1 billion through a private sale.
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.
The $1 billion funding round was led by Jump Crypto and Three Arrows Capital, and the reserve is set to increase the stability of UST. As the value of the flagship cryptocurrency is less correlated to Terra’s ecosystem, reserves in it are expected to mitigate the risk of a potential death spiral for UST in stress scenarios.
The additional funds were reportedly raised via the sale of UST against Tether’s USDT stablecoin, as TheBlock reported, with $800 million still needing to be raised.
Do Kwon has in the past suggested the Terra Protocol will be one of the largest holders of the flagship cryptocurrency as the project creates its BTC-denominated reserves to build an additional layer of security for its decentralized stablecoin. As CryptoGlobe reported, Terraform Labs has plans to accumulate $10 billion worth of Bitcoin to add to the project’s stablecoin reserves.
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 introduced billions of dollars worth of tokenized BTC onto the Terra network.
Notably, data from the blockchain suggests Terra has recently bought $125 million worth of BTC, with a Gnosis safe address associated with it transferring $125 million of USDT to leading cryptocurrency exchange Binance.
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