Cushion the fall – January 2022, the Luna Foundation Guard (LFG) is born. The Singapore-based organization has the role of contributing to the development of the Terra (LUNA) ecosystem. The foundation has just completed a major operation in this direction and is building a bitcoin reserve, which should bring even more stability to the value of its main stablecoin.
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Bitcoin reserves for a stablecoin: additional security for the UST
The Luna Foundation Guard just the sink $1 million via the over-the-counter sale of LUNA tokens. The fundraiser was led by Jump Crypto and Three Arrows Capital. These funds will be used to build a foreign exchange reserve denominated in Bitcoin (BTC) for the USTwhich is Terra’s major stablecoin with a market capitalization exceeding $12 million.
The reserve is denominated in bitcoin because the cryptocurrency would be according to the foundation, less correlated to the Terra ecosystem. In the future, it will be denominated in other cryptocurrencies which would also have this characteristic.
This reserve will be used according to the Luna Foundation Guard, to guarantee that the price of the UST is always equivalent to that of the dollar in times of sharp falls in the crypto markets.
You should know that as an algorithmic stablecoin, the variation in the price of the UST is rather governed by the classic mechanisms of supply and demand. The protocol put in place must guarantee “that the supply and demand of Terra are always balanced, which leads to a stable price”, according to the explanations mentioned on the Terra site.
This newly formed reserve is therefore a additional safety net in an exceptional situation of collapse of the crypto markets:
“Reserve assets can be used in cases where prolonged market crashes deter buyers from restoring UST parity and deteriorate the Terra Protocol’s open market arbitrage incentives”
Luna Foundation Guard
UST has a new strong argument to seduce cryptophiles with this bitcoin collateral – a guarantee that differs moreover from reserves in fiat currencies or in traditional financial instruments of tether (USDT) or USD Coin (USDC). Luna and its UST continue to grow. The stablecoin should moreover arriving soon on Solana (SOL).
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