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 investing funds to support the growth of its flagship stablecoin, UST. The company announcement a new donation of 12 million LUNA to the Luna Foundation Guard, another decentralized organization, which will be responsible for developing the stabilization fund to maintain the US 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, this month alone, the foundation has already acted twice to replenish the supply of UST in the pools of Curve, a decentralized low-slip exchange for trading stablecoins.
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 said that these mechanisms built into the protocol can fail, producing an imbalance that could cause the UST to lose its intended peg. Kwon was categorical on the purpose of the donation made, specifying:
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 also stressed the importance of storing these reserves in the form of BTC, an asset external to Terra, but which according to for him, “thriving in chaos”.
