How Terra Is Using Its Bitcoin Reserves To Keep UST Stable?

How Terra Is Using Its Bitcoin Reserves To Keep UST Stable?

Terra has been buying bitcoin through the Luna Guard Foundation (LFG) to utilize as reserves for its UST stablecoin. This has gone according to plan, with more than $2.9 billion in bitcoin added to the foundation’s reserves from the $10 billion in bitcoin founder Do Kwon stated the organization would be purchasing for its reserves.

However, until today, the nature of how these reserves are being utilized to keep the UST peg was unknown. The Luna Foundation Guard just announced the efforts it was taking with its BTC holdings to keep the dollar peg maintained.

Stablecoins have not escaped the assault as the market has taken a beating. These coins, which are meant to be pegged 1:1 to the US dollar, have been known to decouple on several occasions. This is why these projects take various procedures to keep these pegs in place.

Terra’s UST plan is straightforward: use the largest coin on the market to create the UST. This time, it intends to achieve it by utilizing several loans in both bitcoin and UST.

To begin, the Luna Foundation Guard will lend several over-the-counter trading firms $750 million in bitcoin. Following that, it will lend 750 million UST ($750 million) to accumulate bitcoin when the market returns to normal. The funds from both loans on both side of the market will then be traded by traders. Both of these actions will aid in the protection of the UST peg.

The Luna Foundation Guard explained that “the LFG will proactively defend the stability of the $UST peg & broader Terra economy, especially under volatility and the uncertainty of macro conditions in legacy markets.”

The Luna Guard Foundation’s BTC reserves, like the rest of the market, have been affected by the recent drop in bitcoin’s price. Bitcoin is currently selling at little over $31,000, its lowest daily close since July 2021.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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