After surpassing the DAI in market cap and becoming the largest algorithmic stablecoin with a market cap of over $10 billion, Terra’s stablecoin UST is ready for more adventure.
Luna Foundation Guard (LFG), a nonprofit organization supporting the growth of the Terra ecosystem in Singapore, has raised $1 billion by selling $LUNA.X, a native token of the Terra blockchain that will serve as UST’s bitcoin-denominated foreign-exchange reserve. By denominating the reserve in Bitcoin, LFG provides the “release valve” for UST redemptions into LUNA and diversifies the ecosystem away from Terra assets.
The positive news flow boosted $LUNA.X to become today’s best-performing major cryptocurrency. The crypto traded at $60, after a 13% jump.
Leading the funding round, which ranks among the largest in crypto history, were Jump Crypto and Three Arrows Capital, with participation from other participants including DeFiance Capital, Republic Capital, GSR Ventures, and Tribe Capital.
As per Luna Foundation Guard, the purpose of the UST Forex Reserve is to strengthen and protect the peg of the UST stablecoin, which is algorithmic, which means it relies on market incentives rather than being backed by fiat currencies.
“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 tweeted.
Terraform Labs created the algorithmic stablecoin TerraUSD or UST, which is directly related to Luna. With native token $LUNA.X, TerraUSD (UST) has a value of $1 USD, and it remains stable. As soon as UST drops below US$1, $LUNA.X supplements the supply of UST to keep its peg to the dollar.
Now that TerraUSD (UST)has received additional funding, if something goes wrong, Bitcoin reserve will step in and help TerraUSD maintain its peg with the dollar. Right now, TerraUSD (UST) is the number four stablecoin, right behind Tether ($USDT.X), USD Coin ($USD.X), and Binance USD ($BUSD.X). Unlike the top three, UST is not governed by central authorities, and there is no fear from the authorities so far — which is its biggest advantage.