The founder of Terraform Labs and Ethereum competitor Terra (LUNA), Do Kwon, has outlined plans to accumulate $10 billion worth of Bitcoin to add to the project’s stablecoin reserves. The reserves are set to support its UST stablecoin.
According to Binance Research, Terra is a Proof of Stake (PoS) blockchain. They also say that LUNA is “used in the issuance of stablecoins (TerraSDRs), as a price stability mechanism, as well as for staking and network governance.”
Terra was developed by South Korean blockchain company Terraform Labs, which itself was founded in January 2018 by Danial Shin and Do Kwon. Terra’s mainnet was launched in April 2019 and its native token initially saw relatively muted price performance.
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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.
In a tweet, Kwon suggested that UST backed by $10 billion in the flagship cryptocurrency would “open a new monetary era of the Bitcoin standard.”
According to Cointelegraph, Kwon has suggested the BTC reserves will be used to backstop short-term UST redemptions and for a decentralized forex reserve. Do Kwon has notably recently suggested that the Terra Protocol will be one of the largest BTC holders as it builds up its reserve.
As CryptoGlobe reported, earlier this year the Luna Foundation Guard (LFG) announced it raised $1 billion through a private token sale to build a bitcoin reserve for the stablecoin. The funding round was led by Jump Crypto and Three Arrows Capital, and the reserve is set to increase the stability of UST.
The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.
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