Luna Foundation Guard Raises $1 billion Of Reserves For UST Stablecoin

February 22, 2022 6:10 pm Comments

The Luna Foundation Guard just finished raising $1 billion of capital through a sale of the native token of Terra, LUNA.

The sale is recorded to be one of the biggest in crypto history and was led by multiple investors such as Jump Crypto, Three Arrows Capital, and Tribe Capital.

The purpose of the sale was to raise funds in order to provide reserves that would be able to support Terra’s stable coin which is called TerraUSD (UST).

UST is currently considered one of the most popular stable coins and is often referred to the third most popular choice after Tether and Circle’s USDC.

TheBlockCrypto reports:

Proceeds from the $1 billion sale will go towards establishing a bitcoin-denominated forex reserve for UST, Terra’s biggest stablecoin.

UST is a so-called algorithmic stablecoin that has become popular within DeFi ecosystems.

Pegged to the price of the US dollar, it currently boasts a market capitalization of more than $12 billion, a number that has more than tripled since November last year, according to The Block Research.

LFG said that the reserve created through the $1 billion capital injection will effectively act as a “release valve” for UST redemptions; it is designed to ensure that the price of the stablecoin remains pegged to that of the dollar during sharp selloffs in crypto markets.

The thing that makes UST different from other stable coins like USDC and Tether is that UST is considered an algorithmic stable coin that does not use collateral to maintain price.

Instead, there is a protocol that is in place that ensures that the price is always stable by making the supply and demand balanced through market incentives.

With that being said, the reserves are there as a backup if there happens to be a rapid sell-off that disrupts the protocol from working correctly.

So far, the reserve has been decided to be nominated in Bitcoin as it is not correlated with the Terra ecosystem or the price of LUNA.

CoinTelegraph reports:

Terra said it chose to denominate the Forex Reserve in Bitcoin (BTC) because it considered the crypto asset “less correlated to the Terra ecosystem.” The platform said that more details on the UST reserve’s function and design would be released in the coming weeks.

Based in Singapore, the Luna Foundation Guard, or LFG, was launched in January to grow the Terra ecosystem and improve the sustainability of its stable coins.

On Friday, Terraform Labs founder Do Kwon announced the injection of 450 million UST — roughly $450 million — into the Anchor protocol’s reserves following a vote by the LFG.

At the time of publication, the price of Terra (LUNA) is $54.03, having risen by more than 1.7% in the last 24 hours. The network hit an all-time high of more than $20 billion in total value locked in December 2021.

So far, the Terra ecosystem is one of the only that has two coins that is ranked within the top 20 coins by market capitalization with LUNA and UST ranked 10th and 15th respectively.

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