Luna Foundation Guard, a nonprofit focusing on the open-source stablecoin network powering Terra USD, has raised $1 billion through the sale of LUNA tokens.
Jump Crypto and Three Arrows Capital led the $1 billion round, Terra announced in a tweet on Tuesday, with support from DeFiance Capital, Republic Capital, GSR, Tribe Capital, among others.
1/ The long awaited [REDACTED] 💎3 is here!
📣 The Luna Foundation Guard (LFG) has closed a $1 billion private token sale to establish a decentralized $UST Forex Reserve denominated in $BTC! 📣
🧵👇
— Terra 🌍 Powered by LUNA 🌕 (@terra_money) February 22, 2022
Terra to use funds in building Bitcoin-denominated Forex Reserve for UST
The $1 billion in profits from the sale will be used in building a Bitcoin-denominated Forex Reserve for UST, a stablecoin in the Terra ecosystem, according to the website.
Terra said that “one common criticism of algorithmic stablecoins is their reflexive nature and the hypothetical risk of a “bank run” scenario where demand to sell the stable outstrips supply in a way that causes compounding price decreases in both native tokens.”
Terra stated it picked Bitcoin (BTC) as the currency for the Forex Reserve because it is “less correlated to the Terra ecosystem.” More information about the UST reserve’s purpose and design will be disclosed in the following weeks.
“Although the widespread adoption of UST as a consistently stable asset through market volatility should already refute this, a decentralized Reserve can provide an additional avenue to maintain the peg in contractionary cycles that reduces the reflexivity of the system,” it adds.
Basic Supply-demand concept
According to the protocol’s website, it uses fundamental market mechanisms of supply and demand to keep the price of coins, including UST, steady.
“Stablecoins are only valuable to users if they maintain their price peg […] When the demand for Terra is high, and the supply is limited the price increases. When the demand for Terra is low, and the supply is too large, the price of Terra decreases.”
At the time of publication, the price of LUNA is $56.20, having risen by over 13% in the last 24 hours. Just yesterday, the price was below $50, as TheCoinRise reported. The network hit an all-time high of more than $20 billion in total value locked in December 2021.
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