Luna Foundation Raise $1 Billion To Form Bitcoin Reserve For UST
The Luna Foundation Guard has sold $1 billion worth LUNA tokens in private sale to build a Bitcoin reserve to maintain the stability of the TerraUSD stablecoin (UST).
Terra took it to Twitter to announce the sale through its. According to the tweet, the fundraiser involved the sale of $1 billion of LUNA tokens, Terra’s native cryptocurrency and reserve asset.
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! ?
Various venture capital groups participated in the sale, including Jump Crypto, Three Arrows Capital, DeFiance Capital, Republic Capital, GSR, Tribe Capital, and others.
The money raised through the private sale is aimed to establish a TerraUSD (UST) forex reserve denominated in Bitcoin (BTC), with the goal to maintain a 1:1 peg between the stablecoin and the U.S. dollar.
Do Kwon, the founder and CEO of Terra Labs, tweeted:
TerraUSD is a decentralized stablecoin, meaning that it’s not issued by a central entity, nor are its reserves controlled by a central entity, unlike centralized stablecoins such as Tether (USDT) and USDCoin (USDC).
Terra’s website explains how it works:
“When the demand for Terra is high and the supply is limited, the price of Terra increases. When the demand for Terra is low and the supply is too large, the price of Terra decreases. The protocol ensures the supply and demand of Terra is always balanced, leading to a stable price.”
Users can mint new Terra-based stablecoins — of which UST is the largest — by burning LUNA tokens, and similarly, they can burn UST to mint LUNA. They are incentivized by the protocol to burn and mint in a way that ensures $1 worth of LUNA can always be traded for 1 UST, and vice versa.
The reserve is there to avoid one of the biggest threats in algorithmic stablecoins—any unforeseen black swan event that destabilizes the coin’s price peg and causes prices to plummet.
The Bitcoin in Terra’s reserve would allow holders of UST to close any arbitrage that otherwise would have been settled with LUNA and bring the price back to its originally intended peg with the US dollar.
Although the reserve consists only of Bitcoin at the moment, the team has not discounted the possibility of including other assets.
According to Terra, more details of the decentralized reserve system will be published in the following weeks.
