Terraform Labs, the developer of blockchain ecosystems TerraUSD stablecoin (UST) and Terra Luna (LUNA), have donated $1.1 billion worth of LUNA to the Luna foundation guard. Founder and Chief Executive Officer of Terraform, Do Kwon, made the announcement, stating that the donation will enable LFG to grow.
LFG was launched in January to provide the platform needed to grow the Terra ecosystem and improve the sustainability of its stablecoins. Kwon stated that the funds are denominated in LUNA and will be burned to mint UST for the growth of the LGF reserves.
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“We will keep growing reserves until it becomes mathematically impossible for idiots to claim de-peg risk for UST,” Kwon said.
The Growing Use Of UST Drives Need For Change
UST is a stablecoin that is pegged to the U.S. dollar. The stablecoin is maintained by swapping of LUNA tokens when market value moves aware from its peg. If $1 in UST is burned, it will result in the minting of $1 LUNA. The same thing is applicable if the tokens are reversed.
But the increased demand for UST on decentralized finance (DeFi) platforms has led to unbalanced pools for swapping stablecoins. Many crypto users prefer collecting UST in exchange for their Tether (USDT) and USD Coin (USDC). They prefer holding UST to other forms of stablecoins. This will lead to a quick depletion of the pool’s reserves, resulting in price volatility as demand is far higher than supply.
TFG has already decided to burn the 4.2 million LUNA remaining in its treasury to offer stronger protection to UTC’s peg. The idea is to swap the LUNA to UST and sell the UST to the curve pool, with the proceeds going back to the LFG reserves.
The popularity of the UST coin has grown over the years among crypto enthusiasts, thanks to Terra’s flagship Anchor Protocol. The token offers a 20% annual yield on UST savings deposits. However, the Anchor Protocol’s reserve is declining due to a disparity of depositors and lenders paying interest. Terraform Labs is trying to correct this issue to prevent massive volatility of the UST token.
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