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Terra Luna’s founder, Do Kwon, has said that the protocol will be the largest Bitcoin holder. This statement stems from an earlier announcement by the Luna Foundation Guard (LFG) about creating a Bitcoin reserve.
LUNA’s $1B Bitcoin reserve
The LFG announced securing $1 billion in a private token sale earlier in the year. The funds will be used to create a Bitcoin reserve for The UST stablecoin. The funding round saw participation from Three Arrows Capital and Jump Crypto. The reserve will boost the stability of UST.
The LUNA token is used to peg the value of the stablecoin to that of the US dollar. UST is not backed by any fiat assets in reserve. The value is realized through minting and burning LUNA tokens. If UST’s price dips below $1, it is swapped for LUNA tokens and sold for $1. If UST’s price goes above $1, LUNA holders can trade their tokens for 1 UST and realize profits.
This mechanism could fail to work during market bears. This is the reason behind the creation of the Bitcoin reserve. Bitcoin’s value does not have a high correlation with Terra’s ecosystem; therefore, Bitcoin reserves can be used to lower the risks of a “death spiral.”
The LFG has also announced plans to expand its reserve using non-correlated assets. This will further tighten the stability of the UST stablecoin.
Terra to be the largest Bitcoin holder
In a recent tweet, Do Kwon stated that Terra would become one of the largest Bitcoin holders. He even tagged the CEO of MicroStrategy, Michael Saylor, hinting that Terra could surpass his Bitcoin holdings. Currently, MicroStrategy has 125,051 BTC holdings, estimated to be worth more than $5.4 billion.
By having a large Bitcoin reserve, the risk of the UST stablecoin losing its value is minimized, and it guarantees the long-term sustainability of the protocol. LUNA’s price made a major uptrend after the Bitcoin reserve was announced. Despite the recent market recession, LUNA is just 11% below its all-time high of $103. At the time of writing, LUNA was trading at $90, having gained by73% over the past month.
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