The people behind Terra aren't just buying up Bitcoin. They're now turning their sights to other crypto assets.
The Luna Foundation Guard (LFG), a nonprofit that wants to grow the Terra platform, announced it will purchase $100 million in Avalanche's native AVAX token. This follows LFG's recent purchases of $1 billion in Bitcoin. LFG's aim is to create a reserve that helps its stablecoins maintain their pegs to fiat currencies.
This all started back in late February, when LFG—founded by Terra co-creator Do Kwon and Terraform Labs head of research Nicholas Platias—raised $1 billion by selling LUNA tokens, the native currency of the Terra ecosystem, to Jump Crypto and Three Arrows Capital. (Jump Crypto President Kanav Kariya is also on the LFG governing council.)
The Terra platform supports decentralized applications just like Ethereum or Solana. But its tokenomic structure is unique; LUNA works in tandem with Terra' algorithmic stablecoins. Whenever someone wants to mint TerraUSD (UST), they must burn the equivalent value of LUNA—and vice versa. This means that if the price of the stablecoin slips, people can buy it for below its value but still exchange it for LUNA at the pegged rate.
While UST has been able to steadily maintain its pegs through arbitrage, it's not guaranteed that this will always be the case. Neutrino, an algorithmic stablecoin backed by WAVES, lost its peg this week, with the value falling to $0.68 at one point, per CoinMarketCap.
LFG's safeguard solution is to stockpile massive amounts of non-correlated digital assets. The reserve provides a "release valve for the redemptions of UST." Although its initial foray was into Bitcoin, branching out into other assets was always part of the plan.
“By diversifying the base of non-correlated assets to major assets like BTC and AVAX, the UST Reserve offers a more robust asset pool to defend against volatility and alleviate pressure on the Terra protocol’s open market arbitrage incentives,” Platias said in a press release.
Market watchers already see Luna's strategy as having an effect. Glassnode reported this week that more Bitcoin was being accumulated each day than was being created—in part because big buyers like LFG and MicroStrategy subsidiary MacroStrategy were sucking up much of the available BTC and holding it. That puts upward pressure on price as available supply shrinks.
It's also been successful for Terra. The price of LUNA hit an all-time high of $119.18 this week.