The Luna Foundation Guard (LFG) has announced a plan to burn 4 million Terra (LUNA) coins — currently worth $365 million — to mint about 372 million TerraUSD (UST), which will be used to purchase “exogenous collateral.”
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Established as a non-profit in January, LFG recently sold $1 billion worth of LUNA to acquire bitcoin as reserve backing for the TerraUSD (UST) stablecoin.
According to LFG, once the burn is complete, the Foundation will hold about $2.2 billion in non-LUNA reserves while still holding 8 million Terra coins for future growth.
These reserves provide reserve backing for UST, which is Terra’s biggest stablecoin. This backing is to ensure that UST can maintain its US dollar peg even in times of massive selloffs in the crypto market.
Before the establishment of the asset reserves, UST’s peg was maintained solely by a LUNA burning mechanism where $1 worth of LUNA would be burned to mint $1 worth of UST.
Betting on Terra’s future
There are fears, however, that a prolonged bear market could see the price of Terra’s native coin entering a continual downturn, which could lead to UST becoming permanently de-pegged. This possibility is reportedly central to recent bets between Terra critics and Do Kwon, CEO of Terraform Labs.
Kwon has accepted two separate bets worth $1 million and $10 million over what the price of LUNA will be one year from yesterday (when the bets were made). GCR, a pseudonymous trader who made the larger bet against Kwon, tweeted, “Expect price to pump short term, but in 1 year, supremely confident the current narrative is lost.”
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