Terra founder reveals what will happen to UST if Bitcoin price crashes

Do Kwon, CEO of Terraform Labs, acknowledged that a Bitcoin crash would have a negative impact on the stability of the UST stablecoin. However, he believes that Bitcoin will rise.

Terraform Labs, the entity behind Terra (LUNA), is planning to buy a total $3 billion in Bitcoin as a reserve currency for the UST stablecoin.

Kwon made these comments during a Mar. interview on Unchained podcast. 29. Laura Shin, host, asked Kwon about the immediate implications of holding too much BTC for the stability and growth of UST.

Kwon stated that “the worst case” would be if he were to buy Bitcoin and a crash occurs six months later. This would be correlated with a huge fall in demand for UST, which would be, as he modestly said, “negative”.

“I am betting on the long-term scenario of Bitcoin rising and the reserves being strong enough for UST demand drops.”

Kwon has been purchasing Bitcoin (BTC), to keep in Terra’s treasury, as 40% of the collateral for UST stablecoin. Terra has so far acquired 30727.9 BTC and most recently bought 2,943 BTC in Mar. 29. Terra is now the third-largest single-wallet BTC owner.

In a Mar., Crypto YouTuber danku_r made arguments to his 54,000 followers. 30 tweets that Terra’s treasury should be adding BTC to reduce the impact of a sudden retraction of UST demand. He stated that Terra’s action would prevent a “death spiral caused by market uncertainty” and help the treasury to “swallow UST’s supply contraction.”

Kwon has stated that one of his goals for the Treasury, also known as the Luna Foundation Guard, (LFG), is to make Terra “the biggest single-wallet holder” of BTC. According to Bitcon wallet tracker Bitcoin Treasuries, Kwon must have more than 125.051 BTC.

@stablekwon claims that @terra_money is a Layer 2 option for BTC. “Bitcoin only has to be good at one thing, being an assets.” Episode link: https://t.co/T2nVfg7VyC pic.twitter.com/Thi9nVKUHv
— Laura Shin (@laurashin) March 31, 2022

Kwon later declared that Terra was a Layer-2 solution to Bitcoin network problems. Kwon argued that Terra is a bridge that Bitcoin can use “across many applications, from DAOs and NFTs to DEFI.”

“And in terms expressivity, transaction capabilities, and throughput, all of those things can happen at Terra.”

Related: “Hold my beers” — Terra has already made $165M by buying Bitcoin, as Tesla’s BTC stash is nearing.

Kwon’s comments attracted the attention of the crypto community. Antiprosynthesis, an Ethereum (ETH) developer, tweeted that he wanted to know if Layer-2 solutions should be available for all entities using BTC to support a stablecoin. He stated, “Even though I don’t believe Bitcoin’s standards are falling to such an extent,”

Layer-2 solutions allow a Layer-1 Blockchain to scale its operations by moving large transactions to another network. This reduces congestion.

According to Cointelegraph Price Index, BTC traded at $44,463, a drop of 5.61% in the last 24 hours.

https://cointelegraph.com/news/terra-founder-reveals-what-will-happen-to-ust-if-bitcoin-price-crashes