Terraform Labs, the company behind the creation of Terra, has announced a new donation to support the ecosystem of the terra (LUNA) token. Do Kwon, CEO of Terraform Labs, announced that the company has donated 12 million LUNA (approximately $1.2 billion) to the Luna Foundation Guard (LFG) with the goal of continuing to grow its decentralized forex reserve to intervene during stressful market conditions if necessary.
Terraform Labs Fills LFG Vaults
Terraform Labs, creator of the terra token, is putting funds toward supporting the growth of its flagship stablecoin, UST. The company announced a new donation of 12 million LUNA to the Luna Foundation Guard, another decentralized organization, that will be directed to grow the stabilization fund to maintain the UST dollar peg.
Do Kwon, CEO of Terraform Labs, explained on Twitter that these funds will be used to be burn and mint $UST, which then will be used to grow the reserves of the Luna Foundation Guard. The Luna Foundation Guard has been acting directly to bring more UST to secondary markets, which have become unbalanced due to the high demand the stablecoin is experiencing now.
In fact, just this month, the foundation has already acted twice to replenish the supply of UST in the pools of Curve, a decentralized exchange with low slippage for stablecoin trades.
The UST Depeg Dilemma
The purpose of all of these actions is to increase user trust when it comes to the stability of UST and its peg to the U.S. dollar. While other stablecoins manage to maintain this peg using various systems, UST relies on the relation it has with its sister token of the Terra ecosystem, LUNA, and the arbitrage opportunities that the treasury offers to traders.
However, some analysts have stated that these mechanisms embedded into the protocol can fail, producing an imbalance that could cause UST to lose its intended peg. Kwon was emphatic about the objective of the donation made, stating:
If there is any confusion left at this point, we will keep growing reserves until it becomes mathematically impossible for idiots to claim depeg risk for UST.
Kwon has also been adamant about the importance of these reserves being stored in the form of BTC, an asset that is external to Terra, but that according to him, “thrives in chaos.”
What do you think about the 12 million LUNA donation from Terraform Labs to the Luna Foundation Guard? Tell us in the comments section below.
Image Credits: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.