Luna Foundation Guard Raises $1B To Form UST Reserve Denominated In Bitcoin

Luna Foundation Guard, the nonprofit organization focused on the open-source stablecoin network that underpins Terra USD, has raised $1 billion through the sale of LUNA tokens.

Jump Crypto and Three Arrows Capital led the $1 billion round, Terra said in a tweet on Tuesday, with participation from DeFiance Capital, Republic Capital, GSR, Tribe Capital, and others.

The proceeds from the sale, valued at $1 billion, will “go towards establishing a Bitcoin-denominated Forex Reserve for UST,” a stablecoin in the Terra ecosystem, according to the platform.

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

“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,” said Terra. 

“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.”

Terra said it chose to denominate the Forex Reserve in Bitcoin (BTC) because it considered the crypto asset “less correlated to the Terra ecosystem.”

The platform said that more details on the UST reserve’s function and design would be released in the coming weeks.

The protocol’s website said it utilizes “basic market forces of supply and demand” to maintain a stable price for coins including UST:

“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 of Terra increases. When the demand for Terra is low and the supply is too large, the price of Terra decreases.”

The Luna Foundation Guard, or LFG, was founded in January in Singapore to help grow the Terra ecosystem and improve the sustainability of its stablecoins.

Following a vote by the LFG, Terraform Labs founder Do Kwon announced the injection of 450 million UST — roughly $450 million — into the Anchor protocol’s reserves on Friday..

At the time of publication, the price of Terra (LUNA) was $54.03, up more than 1.7 percent in the previous 24 hours. In December 2021, the network’s total value reached an all-time high of more than $20 billion.