Thanks to a huge fundraising, the foundation behind the Terra (LUNA) ecosystem is building trust in its stablecoin, UST. Let’s take a look at how this new bitcoin (BTC) store will work.
Luna Foundation Guard secures UST with fundraiser
The Luna Foundation Guard (LFG), created to represent the Terra (LUNA) ecosystem, has raised $1 billion in funding. It did so by selling its LUNA token over the counter (OTC). This huge injection of liquidity will allow the foundation to build up a reserve of bitcoins (BTC) in order to make its algorithmic stablecoin, the UST, even more reliable.
1/ The long awaited [REDACTED] 3 is here!
The Luna Foundation Guard (LFG) has closed a $1 billion private token sale to establish a decentralized $UST Forex Reserve denominated in $BTC!
– Terra (UST) Powered by LUNA (@terra_money) February 22, 2022
The sale was led by Three Arrows Capital and Jump Crypto, and involved investment funds Republic Capital, GSR, Tribe Capital, DeFiance Capital and anonymous investors.
Luna Foundation Guard Raises $1B Bitcoin Reserve for UST
Luna Foundation Guard (LFG) has raised $1 billion through the sale of LUNA, the native token of the Terra. pic.twitter.com/EMWdTBM8oq
– Leng.crypto (@ChhounLeng) February 23, 2022
BTC’s interest in UST
The choice of BTC by Luna Foundation Guard (LFG) during this fundraising is not insignificant. Indeed, the entity explains that it wishes to decouple from its ecosystem in order to further secure its flagship stablecoin:
“Reserve holdings can be used in cases where prolonged market selling deters buyers from re-establishing UST peg parity and worsens incentives for arbitrage in the open Terra Protocol market. “
To better understand this, let’s simply explain how the UST works. Its equivalence to the dollar is based on arbitrage, i.e. if someone finds that his price is lower than a dollar, he will send USTs to the protocol and receive LUNAs of equal value as a reward. In this process, LUNAs are generated and USTs are burned until the equilibrium of 1 UST = 1 USD is reached.
The reverse process is also possible. If the UST gains in value against the dollar, LUNAs are burnt to generate UST, thus creating an inflation mechanism, making the UST lose value in order to bring it back to equilibrium against its underlying.
In the case of a prolonged strong bear market, the selling pressure of crypto-currencies could cause Terra’s UST to see its price rise. For example, one could sell ETH to buy UST, but this behaviour has the indirect consequence of decoupling UST from the dollar. In an extreme case, the arbitrageurs may not be efficient enough to bring back the balance. This is where this emergency fund comes in, which will support them by buying up surplus USTs in order to burn them.
The Luna ecosystem has exploded in the last year, becoming even stronger. This operation provides an additional layer of security for the decentralised stablecoin, which has risen to 4th place in its category in a short period of time.
