The Luna Foundation Guard (LFG) has raised $2.2 billion for its bitcoin reserve and hopes to hit $3 billion in the short term, with a longer-term goal of $10 billion, Terraform Labs CEO Do Kwon said in a series of tweets on Tuesday.
LFG, a Singapore-based non-profit working on the Terra blockchain, will use the bitcoin as a reserve asset for Terra (UST), the largest algorithmic stablecoin on the blockchain.
In response to queries as to how the foundation will source the $3 billion, Kwon said LFG has already raised $1 billion via over-the-counter sales of LUNA – Terra’s native token – for bitcoin and collected another $1.2 billion by selling UST for tether. Kwon added that the foundation will need another another $800 million to meet the $3 billion target.
This purchase will make up one leg of Terra’s long-term plans of amassing $10 billion of bitcoin reserve for UST. Kwon explained that to get to that mark, the stablecoin may set aside a portion of the seigniorage — the protocol’s revenue generated from issuing UST — to accumulate bitcoin.
Kwon also commented that the foundation will create a “bridge” to introduce billions of dollars worth of tokenized bitcoin onto Terra and use as reserves in the stablecoin protocol. The new mechanism may require a change in stablecoin’s protocol – the details of which remain scant at the moment.
“It’s not 10B today – as UST money supply grows a portion of the seigniorage will go to build BTC reserves bridged to the Terra chain. We have 3B funds ready to seed this reserve, but technical infrastructure (bridges etc) is still not ready yet,” Kwon tweeted yesterday.
Even though LFG or Kwon have not made an official announcement behind establishing a large bitcoin reserve, it’s likely this is meant to strengthen UST’s peg to the dollar.
UST currently maintains its peg via an algorithm that burns or creates LUNA – the native cryptocurrency on the Terra blockchain. Unlike with centralized stablecoins, with UST no real dollars are held by the team for a 1:1 redemption.
According to one research paper, algorithmic stablecoins such as terra are “fragile” because of their uncollateralized nature. Last week, Kwon stated in a Twitter Spaces discussion that bitcoin can help UST maintain its dollar peg even when there are massive selloffs in the market.
By maintaining a large bitcoin reserve, LFG will make it possible users to redeem UST for bitcoin in an effort to instill confidence among UST holders.