Luna Foundation (Terra) chose Bitcoin as the currency for the Forex Reserve because it is “less connected to the Terra ecosystem,” according to the company.
Luna Foundation Guard, a charity focusing on the open-source stablecoin network powering Terra USD, has raised $1 billion through the sale of LUNA tokens.
Jump Crypto and Three Arrows Capital led the $1 billion round, Terra announced in a tweet on Tuesday, with participation from DeFiance Capital, Republic Capital, GSR, Tribe Capital, and others.
The $1 billion in profits from the sale will “go towards building a Bitcoin-denominated Forex Reserve for UST,” a stablecoin in the Terra ecosystem, according to the website.
“One popular complaint of algorithmic stablecoins is its reflexive nature, as well as the potential risk of a ‘bank run,’ in which demand for the stable outstrips supply, causing compounded price declines in both native tokens,” Terra added.
“Although overwhelming adoption of the UST as a consistently stable asset despite market volatility should already disprove this, a decentralized reserve can provide an extra channel to sustain the peg in contractionary cycles, reducing the system’s reflexivity.”
Terra stated it picked Bitcoin (BTC) as the currency for the Forex Reserve because the crypto asset is “less connected to the Terra ecosystem.”
More information about the UST reserve’s purpose and design will be disclosed in the following weeks, according to the platform.
According to the protocol’s website, it uses “fundamental market forces of supply and demand” to keep the price of coins like UST steady.
“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.”
The Luna Foundation Guard, or LFG, is a Singapore-based organization that was founded in January to help build the Terra ecosystem and ensure the long-term viability of its stablecoins.
Following a decision by the LFG on Feb 18, Terraform Labs founder Do Kwon announced the infusion of 450 million UST — around $450 million — into the Anchor protocol’s reserves.
The price of Terra (LUNA) is $54.03 at the time of posting, up more than 1.7 percent in the last 24 hours.
In December 2021, the network’s overall worth reached an all-time high of more than $20 billion.