Luna Foundation Guard to form Bitcoin backed UST reserve with $1B raise

Luna Foundation Guard (LFG), a non-profit organization that supports the Terra ecosystem, announced Tuesday that it has raised $1 billion through a private sale of LUNA tokens. The funds raised will be used to establish a Bitcoin-denominated Forex Reserve for Terra’s UST stablecoin.

1/ The long awaited [REDACTED] 3 is here!

The Luna Foundation Guard (LFG) has closed a $1 billion private token sale to establish a decentralized $UST Forex Reserve denominated in $BTC!

— Terra (UST) Powered by LUNA (@terra_money) February 22, 2022

Jump Crypto and Three Arrows Capital lead the round with Republic Capital, GSR, Tribe Capital, DeFiance Capital, and several other investors participating. According to the foundation, the latest raise makes it one of the cryptocurrency industry’s largest sales to date.

With the latest reserve plan, the foundation seeks to provide support to UST stablecoin and prepare for sudden changes in the market. It chose Bitcoin due to its low correlation with Tera’s ecosystem.

“One common criticism of algorithmic stablecoins is their reflexive nature and the hypothetical risk of a “bank run” scenario where demand to sell the stable outstrips supply in a way that causes compounding price decreases in both native tokens,” the Luna Foundation Guard tweeted, explaining the motive behind the raise. It added:

“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.”

UST is currently an unsecured stablecoin with no fiat or cryptocurrency set as collateral, pegged at a ratio of 1:1 to the US dollar. It utilizes an algorithm to keep the price constant and adjust the supply by issuing and burning LUNA tokens. According to CoinGecko data, UST is the fourth largest stablecoin by market capitalization.

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