Luna Foundation Guard raises $1B to form UST reserve denominated in Bitcoin

The $1 billion fundraising round for the nonprofit organization that focuses on Terra USD’s open-source stablecoin network, Luna Foundation Guard, was made possible by the sale of LUNA tokens.

Terra tweeted on Tuesday that Jump Crypto and Three Arrows Capital were the lead investors in the $1 billion round. DeFiance Capital and Republic Capital, GSR and Tribe Capital also participated. According to Terra, $1 billion of the proceeds from the sale would be used to “establish a Bitcoin-denominated Forex reserve for UST,” a stablecoin within the Terra ecosystem.

1/ The long-awaited [REDACTED]3 is here! Luna Foundation Guard (LFG), has completed a private token sale of $1 billion to create a $UST Forex Reserve that is decentralized in $BTC.
— Terra (UST), Powered by LUNA. February 22, 2022

Terra stated that “another common criticism of algorithmic stabilitycoins is the reflexive nature of their stablecoins and the hypothetical risk for a bank run’ scenario in which demand to sell the stable exceeds supply. This could cause compounding price drops in both native tokens.” Although the widespread adoption and stability of UST through market volatility should have disproved this, a decentralized Reserve could provide an alternative avenue for maintaining the peg in contractionary cycle that decreases the reflexivity of UST.

Terra stated that it decided to name the Forex Reserve in Bitcoin, BTC (BTC), because the crypto asset was “less closely related to Terra’s ecosystem.” According to Terra, more information on the UST Reserve’s function and design will be available in the coming weeks.

According to the protocol’s website, it uses “basic market forces” of supply and demand to maintain a stable price on coins.

Stablecoins can only be used if their price peg […] is maintained. When Terra has a high demand and there is limited supply, Terra’s price will rise. The price of Terra drops if there is less demand and more supply.

Related: Cointelegraph Consulting – A look at Terra’s ecosystem

Luna Foundation Guard (or LFG) is a Singapore-based organization that was established in January to help grow Terra’s stablecoins and increase its sustainability. Do Kwon, founder of Terraform Labs, announced that 450 million UST (roughly $450 million) was being injected into the Anchor protocol’s reserve funds following a vote from the LFG.

The price of Terra (LUNA), which has risen more than 1.7% over the past 24 hours, is $54.03 at the time of publication. In December 2021, the network reached a record high of over $20 billion in total value.