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Terraform Labs donates $1.1B for Luna Foundation Guardโ€™s reserves

March 11, 2022No Comments


On Friday, Do Kwon, founder and CEO of Terraform Labs (TFL), which develops the blockchain ecosystem consisting of Terra Luna (MOON) and the TerraUSD (UST) stablecoin, Announced that TFL had donated LUNA 12 million ($1.1 billion at press time) to the Luna Foundation Guard (LFG). LFG was launched in January to grow the Terra ecosystem and improve the sustainability of its stablecoins. Kwon noted that the funds, denominated in LUNA, will be burned to mint UST to increase LFG reserves:

โ€œWe will continue to increase reserves until it is mathematically impossible for idiots to claim the risk of untying UST.โ€

UST is an algorithmic stablecoin with a theoretical 1:1 exchange rate to the US dollar, and is held in part by exchanging LUNA tokens when its market value deviates from its parity. Burning $1 in UST results in minting $1 in LUNA and vice versa.

However, due to a high demand for UST in decentralized finance, or DeFi, platforms like Curve Finance, this results in unbalanced pools for trading stablecoins. For example, as more and more crypto enthusiasts exchange their USD Coin and Tether (USDT) for UST, the pool's reserves will be depleted, causing price volatility as supply lags behind. the demand. Two days earlier, TFG had already voted to burn the remaining 4.2 million LUNA in its treasury to protect UST's peg. According to GFR:

"LFG will exchange the [new] LUNA to UST (trade = burn) and sell the UST to the Curve group. The proceeds will go back into LFG reserves to buy BTC."

Thanks to Terra's flagship Anchor Protocol, UST is a very popular coin among crypto enthusiasts, promising up to 20% annual return on UST savings deposits. However, due to an imbalance between depositors and interest-paying lenders, the Anchor Protocol reserve (to pay the promised yield) is still pending. decrease at the time of publication, although he recently experienced a massive infusion of capital.