The crypto firm Terraform Labs [TFL] has entered into a partnership with Luna Foundation Guard [LFG] to increase their BTC reserve to an impressive 39,898 BTC [current valuation of $17 Billion].
As part of the backing-up of the stablecoin TerraUSD [UST], 4130 BTC were bought on 10 April 2022 in 2 separate transactions of 2,647.99 and 1,482 BTC each.
As of February this year, Luna Foundation Guard [LFG] had raised a capital of $1 Billion to back the stablecoin TerraUSD [UST] project of Terraform Labs through the sale of their token LUNA.
The funding will be used for the building of the BTC-denominated foreign exchange reserve for the UST.LUNA has strikingly increased in price from $0.66 in 2021 to $104 in 2022.
And as of now, LFG has already obtained $3 Billion funds in the path of accumulating BTC worth $10 Billion for backing their UST but all the $3 Billion is not used to buy BTC yet as the infrastructure is not ready; as said by Terra Labs.
“UST with $10 Billion reserves will open a new monetary era of the Bitcoin standard” – tweeted by the Terraform Labs founder Do Kwon, a former Computer Science Graduate from Stanford University.
And his tweet is justified as UST has become the 4th major stablecoin within a few months of coming into circulation; just after USDT [Tether], USDC [USDCoin], and BUSD [BinanceUSD].
Minimal Market Volatility for UST
The smart contract-based algorithm keeps the price of UST stable at $1. Arbitrage and swap are two important factors that help maintain UST prices’ stability. When traders trade using the price difference in exchanges, for example:
When UST value is at $ 0.99 at an exchange, Luna can be traded to mint UST for $0.01 less which is calculated as a profit to the trader. Similarly, when the price of UST goes to $ 1.01 or equivalent to $1.00, a trader can exchange it and get $0.01 worth more of LUNA.
When someone mints a UST, $1 worth of LUNA will be taken out of the market circulation. There is a gas fee for the transaction, and a percentage of this gas fee goes as profit to the stakeholders of LUNA.
A percentage of it is burned and the rest goes to the community treasury where it is utilised for investment in applications to expand the Terra ecosystem and for further developments of the Terra blockchain.
LUNA and UST have Multiple Utilities and projects already
Terra has cross-chain bridges to other blockchains like Ethereum, BSC, Harmony, and Osmosis. Luna and UST can be used for low transaction fee payments among merchants for payments of tangible items and goods because the Terra network fees are much lower than the conventional fiat payment processors.
Some of the other utilities include:
Anchor: DeFi [decentralised finance] where holders of UST can obtain up to 20% APY [annual profit yield]
Chai: The payment rail of the Terra network which allows merchants and users to make payments at lower fees than debit or credit cards and mainstream processors; Chai has its own debit card, the Chai Card.
Mirror protocol: DeFi for creating and trading mirrored assets and fixing mirror prices.
Ozone: Decentralised insurance protocol.
Pylon: Platform for savings and payments.
Valkyrie: Share to earn platform.
Collaboration of Terra [LUNA] and Avalanche [AVAX]
A $100 Million Treasury Swap was announced between TFL and the Avalanche Foundation in a tweet as of April 7, 2022. As planned, Terra is following its operational plan of building the UST reserves in other cryptocoins beyond Bitcoin.
Usual stablecoins like the USDT, USDC, and BUSD, all are pegged to commodities or fiat currencies such as the USD or the major fiat currencies. But the UST is exceptionally created and is pegged to Luna and will have BTC, AVAX, and a few other cryptos as its reserve.
And this exceptional aspect has put UST on the top chart.