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Terra Luna raises 1 billion to build a UST reserve in bitcoin: LUNA gains +14% after the news!

Luna Foundation, a non-profit organization has announced that it has raised $1 billion in a private sale of LUNA tokens. A fund that should serve as a bitcoin-denominated UST reserve. 

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Shortly after the announcement, the price of Terra (LUNA) soared more than 14% in a market that is trying to recover tentatively from the Russian-Ukrainian crisis. This announcement allowed the crypto to avoid a pullback towards $38.

Funding rounds like that of the Luna Foundation are common in the cryptosphere. Recently, Polygon successfully raised $450 million in a Sequoia-led funding round to build web 3 applications.

 

1 Billion To Establish A Bitcoin-Denominated Currency Reserve For UST

 

Three Arrows Capital led the fundraiser alongside Jump Crypto. Other players including GSR, DeFiance Capital, Republic Capital and Tribe Capital also took part in the financing round where nearly a billion dollars were collected.

Funding that should be used to diversify the reserve portfolio of Terra’s stablecoin, namely the UST. TerraUSD is one of the few stabecoins whose value is not referenced to a fiat currency, mainly the dollar but rather to a Luna cryptocurrency. Every time someone hits UST, they have to burn LUNA.

The platform explains the price stabilization mechanism.

“When the demand for Terra is high and the supply is limited, the price of Terra increases. When the demand for Terra is low and the supply is too large, the price of Terra goes down. The protocol ensures that Terra’s supply and demand are always balanced, leading to a stable price. “

However, algorithmic stablecoins run the risk of a bank run. The Luna Foundation provided an update on this issue after the fundraiser. He started:

“A common criticism of algorithmic stablecoins is their reflexive nature and the hypothetical risk of a “bank run” scenario where demand to sell the stable exceeds supply in a way that results in compound price declines in both tokens. natives. »

She added:

Although the widespread adoption of the UST as a constantly stable asset through market volatility should already disprove this, a decentralized reserve can provide an additional avenue to maintain parity in contraction cycles that reduces the reflexivity of the market. system.

As a result, choosing to build a UST reserve denominated in bitcoins would be a way to diversify the ecosystem by relying on a crypto that is decorrelated to Terra.

Terra Luna raises 1 billion to build a UST reserve in bitcoin: LUNA gains +14% after the news!
Evolution of the course of Terra (LUNA). Source – Coinmarketcap

 

A few hours after the news, the price of Terra (LUNA) rose from $49.5 to $56.5, an increase of 14.14%. Unfortunately, the rise in the stock market does not coincide with pressure on the level of demand. According to data provided by Coinmarketcap, 24-hour trading volume on LUNA was down 0.93% to $2.25 billion.

1 Comment
  1. […] The launch of the bitcoin-denominated currency reserve fund has bolstered the supply of the stablecoin. This fund has just overcome the problems of a “  bank run  ” situation where the demand to sell the stable exceeds the supply in a way that results in compound price declines in the two native tokens.  […]

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