On Friday, Do Kwon, founder and CEO of Terraform Labs, which develops the blockchain ecosystem consisting of Terra Luna (LUNA) and the TerraUSD stablecoin (UST), announced that TFL had donated 12 million LUNA, or $1.1 billion on the time of publication to the Luna Basis Guard (LFG). LFG launched in January to develop the Terra ecosystem and enhance the sustainability of its stablecoins. Kwon famous that the funds, denominated in LUNA, will probably be burned to mint UST to develop the LFG‘s reserves:
“We are going to continue to grow reserves till it turns into mathematically unattainable for idiots to assert de-peg danger for UST.”
UST is an algorithmic stablecoin with a theoretical trade charge of 1:1 with the U.S. greenback and is partly maintained by swapping of/for LUNA tokens when its market worth deviates from its peg. The burning of $1 in UST leads to the minting of $1 in LUNA and vice versa.
Nevertheless, as a consequence of excessive demand for UST on decentralized finance (DeFi) platforms like Curve Finance, this results in unbalanced swimming pools for swapping stablecoins. For instance, as increasingly more crypto lovers swap their USD Coin (USDC) and Tether (USDT) for UST, the pool‘s reserves will deplete and trigger worth volatility as provide lags behind demand. Two days prior, TFG had already voted on burning the 4.2 million LUNA left in its treasury to guard UST‘s peg. According to TFG:
“LFG will swap the LUNA to UST (swap=burn)and promote the UST to the Curve pool. The proceeds will return to LFG reserves to buy BTC.”
Due to Terra‘s flagship Anchor Protocol, UST is a extremely popular coin amongst crypto lovers and guarantees as much as 20% annual yield on UST financial savings deposits. Nevertheless, as a consequence of an imbalance of depositors and lenders paying curiosity, the Anchor Protocol‘s reserve (for paying the promised yield) remains to be declining, on the time of publication, though it not too long ago skilled a massive capital infusion.
If there’s any confusion left at this level, we are going to continue to grow reserves till it turns into mathematically unattainable for idiots to assert depeg danger for $UST $UST is mighty https://t.co/6xCDPWJUTX
— Do Kwon (@stablekwon) March 11, 2022