Terra’s parent company Luna Foundation Guard(LFG) has been on a major Bitcoin buying spree in order to peg BTC to their stablecoin UST.
Terraform Labs founder Do Kwon recently stated that he is willing to become the second-largest Bitcoin holder after Satoshi Nakamoto.
However, many individuals are worried about future liquidity as a result of this massive accumulation by a single entity. Do Kwon responded to these worries by saying that Bitcoin is “liquid” enough to manage any future de-pegging of its UST stablecoin. Kwon said in an interview with Bloomberg Quicktale that:
“People need to have a little bit more faith in crypto. If you look at Bitcoin, it turns over more than US$20 billion per day and I think with time, it’s going to be even more liquid. Even if a stablecoin were to de- peg over time and those reserves would be used to defend that peg. I think (the Bitcoin market) would more than easily be able to absorb the Bitcoin that enters the market”.
Terra intends to have $10 billion worth of Bitcoin to serve as a reserve for its decentralized UST stablecoin. The Luna Foundation Guard completed a $1.5 billion Bitcoin purchase.
TerraUSD (UST) Adopting a Different Approach.
Terra’s native stablecoin UST is currently the third-largest by market capitalization. The TerraUSD (UST) uses a different approach unlike the top two stablecoins, USDT and USDC.
USDT and USDC are centralized stablecoins in a way that they are directly pegged to a fiat currency. Terra’s UST stablecoin, on the other hand, maintains its peg by burning the LUNA tokens. A Bitcoin reserve will further help UST’s ability to maintain its dollar peg. Kwon explained:
“The important thing to remember about Terra is that is a decentralised stablecoin in the sense that it has no issuer. If you were holding some sort of centralised collateral…bonds, Tether stablecoin, or (Circle’s USDC), in that case, whoever is holding the largest amount of these reserves would be subject to censorship, and would defeat the entire purpose of having decentralised stablecoin in the first place”.
LUNA has been one of the market’s top-performing cryptocurrencies. The LUNA price has appreciated by more than 100% in the last month since the LFG started with its Bitcoin purchases. LUNA is the seventh-largest cryptocurrency with a market worth of $41 billion and as of the time of writing this article, it is trading near its all-time high of $116.
