The private sale of Terra’s native token LUNA was conducted to create a UST reserve that would step in to prevent incentive erosion in case of a sell-off.
The Luna Foundation Guard was established as a non-profit organization to help build and promote a decentralized economy, just completed its private LUNA sale. The sale, which raised $1 billion, is the largest sale to ever occur in the crypto space.
The purpose of the sale was to create a Bitcoin denominated forex reserve for the biggest stablecoin on the Terra chain, TerraUST.
Terra stated that the decision to develop a forex reserve for UST was taken concerning the criticism faced by algorithmic stablecoins.
Being a non-collateral stablecoin makes such coins susceptible to sudden price drops in a situation where consistent selling of the token outpaces the supply.
Terra stated that this situation is mainly hypothetical to UST, saying:
“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.”
Thus this $1 billion, which will be locked up for a vesting period of 4 years, will act as a release valve for UST redemption to maintain the price of the USD peg.
Terra explained that this would work so that the algorithm backing the stablecoin will maintain the supply of the tokens based on the fluctuation in price, issuing more when the price goes up and reducing when the price goes down.
Established last month, the LFG has been keeping its word of prioritizing DeFi projects, particularly those which focus on the peg stability and sustainability of TerraUSD, the network’s stablecoin, with this sale.
However, it recently also pledged $450 million to the biggest DeFi protocol on the chain Anchor to extend its reserves by 47 weeks.
This commit was done to maintain Anchor’s 19-20% APY, which makes it one of the most alluring projects in the DeFi lending space.
The efforts displayed by Terra are truly paying off as its native token LUNA is on a rally today. Up by 17.27%, LUNA is amongst the top five performers of the day.
This rally also flipped the ongoing downtrend into an uptrend which is visible on the charts as the indicator has moved below the candlesticks.
If the rally sustains, LUNA could soon end up breaching $60.
Holding a Mass Media Degree has enabled me to better understand the nitty-gritty of being a journalist and writing about cryptocurrencies’ news and price movements, effects of market developments, and the butterfly effect of individual assets nurtured me into a better investor as well.