Terraform Labs Gifts Luna Foundation Guard $880M LUNA Tokens as Reserve

In what is becoming a huge recurrence, Do Kwon’s led Terraform Labs has gifted the sum of $880 million (at a price of $88 per coin) in the form of 10 million LUNA tokens to the Luna Foundation Guard (LFG) as contributions to the latter’s UST stablecoin reserves. The donation comes on the heels of an attempt to shore up the reserve bank for the stablecoin as the LFG seeks a more sustainable crypto asset that will help prevent excessive volatility of the UST tokens.

According to on-chain data, the Luna Foundation Guard has just about 50,000 LUNA coins prior to the receipt of the gift from Terraform Labs, and a huge chunk of the funds according to Terra Finder has been moved to another wallet with only 2.25 million tokens left in the original wallet.

Diversifying the UST Stablecoin Reserve

Terraform Labs is the blockchain startup that is tasked with the development of the Terra protocol as well as its associated tokens including the LUNA coin and the UST stablecoin respectively. LFG helps in building up the reserve for the UST stablecoin. 

Originally, LUNA tokens were used as the conduit to back the UST stablecoin to the US Dollar. However, the dangers of a “debt spiral” in which many UST holders will want to redeem their tokens at the same time hence leading to the devaluation of the LUNA coin have necessitated the development of a very different approach hinged on Bitcoin.

“If you look at Bitcoin, it turns over more than $20 billion per day,” Kwon told Bloomberg earlier this month. “I think with time, it’s going to be even more liquid.”

By tapping on the deep liquidity of the Bitcoin asset, the dangers of the debt spiral become non-existent, and as such the LFG has switched its focus on buying BTC at a very sporadic rate. At present, the Luna Foundation Guard has about 42,406 BTC as a reserve for the UST tokens taking the overall LFG reserve to $2.43 billion.

The goal is to take just the BTC holdings to over $10 billion in the long term while it plans to continually diversify its broad asset reserve to include Avalanche (AVAX) of which a $100 million buyup is planned for the near future, The Block reports.