Terra said it chose to denominate the Forex Reserve in Bitcoin because it considered the crypto asset “less correlated to the Terra ecosystem.”
The nonprofit organization focused on the open-source stablecoin network behind Terra USD, Luna Foundation Guard, has closed on a $1 billion raise through the sale of LUNA tokens.
In a Tuesday tweet, Terra said Jump Crypto and Three Arrows Capital led the $1 billion round with participation from DeFiance Capital, Republic Capital, GSR, Tribe Capital and others. The platform said proceeds from the sale — $1 billion — would “go towards establishing a Bitcoin-denominated Forex Reserve for UST,” a stablecoin in the Terra ecosystem.
“One common criticism of algorithmic stablecoins is their reflexive nature and the hypothetical risk of a “bank run” scenario where demand to sell the stable outstrips supply in a way that causes compounding price decreases in both native tokens,” said Terra. “Although the widespread adoption of UST as a consistently stable asset through market volatility should already refute this, a decentralized Reserve can provide an additional avenue to maintain the peg in contractionary cycles that reduces the reflexivity of the system.”
Terra said it chose to denominate the Forex Reserve in Bitcoin (BTC) because it considered the crypto asset “less correlated to the Terra ecosystem.” The platform said that more details on the UST reserve’s function and design would be released in the coming weeks.
The protocol’s website said it utilizes “basic market forces of supply and demand” to maintain a stable price for coins including UST:
“Stablecoins are only valuable to users if they maintain their price peg […] 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.”
Based in Singapore, the Luna Foundation Guard, or LFG, was launched in January to grow the Terra ecosystem and improve the sustainability of its stablecoins. On Friday, Terraform Labs founder Do Kwon announced the injection of 450 million UST — roughly $450 million — into the Anchor protocol’s reserves following a vote by the LFG.
At the time of publication, the price of Terra (LUNA) is $54.03, having risen by more than 1.7% in the last 24 hours. The network hit an all-time high of more than $20 billion in total value locked in December 2021.
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