The founder of Terraform Labs and Ethereum competitor Terra (LUNA), Do Kwon, has outlined plans to accumulate $10 billion worth of Bitcoin to add to the project’s stablecoin reserves. The reserves are set to support its UST stablecoin.
Terra is a blockchain platform that accommodates algorithmic stablecoins, the largest one being TerraUSD (UST). It uses a Proof-of-Stake (PoS) consensus algorithm, and its native token, LUNA, uses a “combination of open market arbitrage incentives and decentralized Oracle voting” to maintain the stablecoin’s peg.
The value of UST is pegged to the value of the U.S. dollar, while the USD value of LUNA is convertible with UST at a 1:1 ratio. If UST’s price drops below $1, arbitrageurs can swap 1 UST for $1 of USD and make a profit. When it goes over $1, they can trade 1 UST for $1 of LUNA to make a profit.
According to Kwon, UST backed by $10 billion in BTC would “open a new monetary era of the Bitcoin standard.” The BTC reserves are set to be used to backstop short-term UST redemptions and for a decentralized forex reserve.
Earlier this year the Luna Foundation Guard (LFG) announced it raised $1 billion through a private token sale to build a bitcoin reserve for the stablecoin. The funding round was led by Jump Crypto and Three Arrows Capital, and the reserve is set to increase the stability of UST.