The blockchain Terra (LUNA) will build a $10 billion Bitcoin (BTC) reserve fund. According to Do Kwon, Terra’s founder and current CEO, this will, among other things, help secure the back end of UST, its ever-growing algorithmic stablecoin. In addition, it will allow the ecosystem to acquire a considerable decentralised pool of funds.
Terra has its back to Bitcoin
Do Kwon, the founder and CEO of blockchain Terra (LUNA), announced on Twitter that Terra’s stablecoin, UST, will now be backed by $10 billion in Bitcoin (BTC).
According to him, the choice to have a reserve in Bitcoin is linked to two factors. On the one hand, the need to provide additional security to the UST, which is its algorithmic stablecoin backed by the dollar, but also to allow Terra to have a decentralised pool of funds.
$UST with $10B+ in $BTC reserves will open a new monetary era of the Bitcoin standard.
P2P electronic cash that is easier to spend and more attractive to hold btc
– Do Kwon (@stablekwon) March 14, 2022
At this stage, few details have been revealed. It is not yet known how this Bitcoin reserve will be stored, but Do Kwon did announce that this new move heralds a “new era of the Bitcoin standard”, before briefly mentioning electronic peer-to-peer payments.
In addition, he also said that Luna’s reserves would remain intact and would not be impacted by this decision. Indeed, part of the USTs are basically insured thanks to the LUNA tokens in reserve, which are used to maintain the 1:1 ratio of the UST to the dollar.
To a user who asked if Terra already owns Bitcoin, and if so how much, Do Kwon replied that Terra already owns over $3 billion of the cryptocurrency.
UST a victim of its own success
Note that this is the second consolidation of Terra’s reserve system in the last 30 days, as Terraform Labs, Terra’s parent company, had to inject $1.1 billion in the form of LUNA tokens into its reserves in the face of the growing success of UST. Demand was so high at the time that liquidity pools suffered imbalances on the Curve Finance protocol.
Much of the success of UST is due to the Anchor protocol, which currently provides a 19.5% return on UST, the highest rate currently available for a stablecoin staking strategy.
However, in order to be able to supply a stablecoin, one must be able to possess its equivalent in reserve. Thus, Anchor’s reserve needs to be replenished from time to time, as shown in this chart.
Reserve funds to ensure Anchor protocol
UST currently sits at 14th place in the cryptocurrency rankings with over $15 billion in market capitalization, closely following Dogecoin (DOGE) which is now only a few hundred million dollars ahead.
