Terra Community Burns 4 Mln LUNA Tokens To Build Stablecoin Reserves

The Luna Foundation Guard (LFG), a blockchain community centered around the Terra network, said it had burnt 4 million LUNA tokens to mint about 372 million of the stablecoin TerraUSD (UST).  The UST proceeds will go towards acquiring more collateral to bolster the foundation’s non-LUNA reserves.

The move comes as growing volatility in the market pushed more traders into UST. Rising UST demand threatens to unsettle the token’s 1:1 peg against the U.S. dollar, which has seen the community burn LUNA to mint UST and meet growing demand. $1 worth of LUNA can be burnt to mint 1 UST.

The Terra community has been building reserves to bolster UST’s credibility. Last month, the LFG said it had raised $1 billion in Bitcoin as a reserve for UST.

With today’s burn, the LFG said its total non-LUNA reserves will sit at $2.2 billion. It also holds 8 million LUNA tokens. The reserves act as a stopgap against volatility, allowing the LFG to maintain the UST peg despite large amounts of buying or selling pressure.

LFG Council has voted to burn another 4M luna to mint roughly 372M ust, which will be used to acquire exogenous collateral. Once this burn is completed, LFG’s non-luna reserves will roughly sit at a value of $2.2B, as well as 8M Luna remaining for future growth.

LFG$Luna $ust

— LFG | Luna Foundation Guard (@LFG_org) March 15, 2022

LUNA price benefits as a result

The token’s price has skyrocketed in recent months given its use in minting UST. The steady burn rate of LUNA has also curbed supply,  further supporting its price. Data from Terra Analytics shows about 27 million tokens have been burnt over the past month, bringing total circulating supply down to 371 million.

LUNA’s performance over the past month has vastly outpaced the broader crypto market. It is currently up 75% in the past 30 days, and is trading at about $92, just below a record high. By comparison, total crypto market value has  sunk by 15% to $1.71 trillion in the past month.

UST demand has also been bolstered by the growing popularity of the Anchor Protocol (ANC), a DeFi money market program built on the Terra network. The protocol gives UST depositors a nearly 20% yield, which is well above anything offered by other major stablecoins.

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