The non-profit Luna Foundation Guard (LFG) invested over $1 billion in Bitcoin to back the stability of the algorithmic stablecoin Terra USD (UST). This was reported by Morgan Creek Digital co-founder Anthony Pompliano.
Terra has officially bought $1 billion of bitcoin to back their UST stablecoin with the bitcoin standard.
They will continue buying billions more in the coming months.
— Pomp 🌪 (@APompliano) March 26, 2022
Colin Wu reported that the address, allegedly linked to LFG, has received over 24,955 BTC worth more than $1.1 billion. Blockchain explorer data indicates the wallet began actively purchasing the cryptocurrency on March 27.
The Bitcoin address (bc1q9d4ywgfnd8h43da5tpcxcn6ajv590cg6d3tg6axemvljvt2k76zs50tv4q) has deposited nearly 24,955 BTC worth more than $1.1 billion. Market suspects it is the address of Luna Foundation, which has raised $2.2 billion for its bitcoin reserves. https://t.co/ex7yM1CWx0
— Wu Blockchain (@WuBlockchain) March 27, 2022
On March 15, LFG said it would burn 4 million LUNA with the aim of issuing $372 million in UST for the subsequent purchase of ‘external collateral’.
On March 19, Terraform Labs founder Do Kwon said in a Twitter Space that the team is working on implementing a new tokenized form of Bitcoin on the Terra blockchain.
According to him, once the work is completed, UST will become a ‘hybrid’ stablecoin, allowing direct BTC purchases with a 1% premium. He stressed that Terraform Labs chose Bitcoin because ‘its reliability is hard to doubt’.
Earlier, Kwon said that UST, backed by a reserve of $10 billion in BTC, ‘will open a new monetary era’. He noted that the ecosystem already has $3 billion ready to devote to the initiative, though the technical infrastructure for implementing the project is not yet ready.
It’s not 10B today — as UST money supply grows a portion of the seigniorage will go to build BTC reserves bridged to the Terra chain
We have 3B funds ready to seed this reserve, but technical infrastructure (bridges etc) is still not ready yet.
— Do Kwon 🌕 (@stablekwon) March 22, 2022
On March 23, Jump Crypto, which previously led LFG’s $1 billion LUNA token sale, brought to the community a proposal to create a reserve Bitcoin fund to back the UST peg to the US dollar.
A new proposal from @jump_ is now posted on Agora outlining how the @LFG_org may deploy its $BTC reserve on-chain in a reserve model exogenous to the Terra protocol mechanics — defending the $UST peg amid volatile, downward pressure.
Check it out:https://t.co/HfWVVDUg14
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) March 23, 2022
The proposed Jump Crypto model envisions the fund being able to provide the liquidity needed to sustain a stable UST price in BTC on an operational basis:
- When the price of the stablecoin falls below $1, LFG would place the accumulated assets into the BTC/UST pool, which trading platforms can access at a small discount. For example, offering 1 UST in exchange for $0.98 in BTC;
- When the situation stabilises, external traders can purchase UST with BTC.
The reserve pool operates similarly to the network-internal mechanism for issuing UST. However, instead of burning LUNA, the plan involves supplying and holding ‘wrapped’ BTC. The latter can be added to the Terra ecosystem through cross-chain protocols such as Wormhole.
Jump Crypto noted that launching the model requires assembling a reserve fund of $2.5 billion in BTC. The company also stressed that for the mechanism to work, it is ‘critically important’ to have reliable private UST markets.
Such markets could be decentralized platforms. For example, after integrating Luna with the cross-chain protocol THORChain, a UST/BTC liquidity pool appeared on THORSwap.
Decentralized stablecoin (UST) now trades with #Bitcoin natively.
The revolution will not be centralized. @THORChain @terra_money https://t.co/yJLxNfXIme
— Erik Voorhees (@ErikVoorhees) March 25, 2022
Earlier in March, Do Kwon put $11 million into the growth of LUNA. If by 14 March 2023 the asset trades below $88, the head of Terraform Labs will lose his money.
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