DeFi token Terra (LUNA) continues to rise. But this past week, so did Bitcoin—and Terra is involved.
It's all about Terra founder Do Kwon’s ambitious plan to turn Bitcoin into Terra’s very own reserve currency. How exactly is he doing this? By smashing the buy button.
The Luna Foundation Guard (LFG), a nonprofit organization focused primarily on all things Terra and led by Kwon, plans to buy up to $10 billion worth of Bitcoin. This will be primarily used as a reserve to help keep UST’s peg. LFG has already bought $1.4 billion worth of Bitcoin since January.
“Besides Satoshi, we will be the largest single holder of Bitcoin in the world,” said Kwon during a recent interview. Quite a quote.
— LFG_Reserve (@LFG_Reserve) April 2, 2022
If you’re just tuning in to all this, Terra is a Cosmos-based network that’s been enjoying a serious run of late.
On the one hand, its native staking and governance token LUNA has been hitting all-time highs week after week. On the other, its UST stablecoin has become the industry’s largest decentralized stablecoin, overtaking heavyweight DAI back in December. Now MakerDAO, the project behind DAI, is mulling big updates to catch up.
UST and DAI are called decentralized stablecoins because they’re backed by other decentralized cryptocurrencies; DAI, for example, is backed by Ethereum and USDC (which itself isn’t truly decentralized, but that’s another story). Both DAI and UST are “algorithmic” stablecoins, meaning there’s a math-based mechanism in place keeping each stablecoin pegged to the dollar.
The simultaneous success of both of Terra’s assets isn’t a surprise either.
That’s because each time users mint new UST, they must burn LUNA (thereby reducing its supply). Thus as demand increases for UST, a ton of LUNA leaves the markets and incites FOMO.
The question now is how long one group's pump can keep Bitcoin on the rise. It has now erased its 2022 losses thanks largely to Terra and Kwon.
Decrypting DeFi is our DeFi newsletter, led by this essay. Subscribers to our emails get to read the essay first, before it goes on the site. Subscribe here, and read last week's essay: MakerDAO's DAI Fell Behind Terra's UST Months Ago. Here's How It's Trying to Catch Up.