Terra Founder Addresses Concerns on Any Loss of Bitcoin Peg to UST Stablecoin

Terra’s parent entity Luna Foundation Guard (LFG) has been on a massive Bitcoin acquisition spree to peg BTC to its stablecoin UST. Terraform Labs founder Do Kwon recently said that he’s even willing to become the second-largest Bitcoin holder after Satoshi Nakamoto.

However, many people are raising concerns over future liquidity amid this heavy accumulation by a single entity. Addressing these concerns, Do Kwon said that Bitcoin is “liquid” enough to handle any potential de-pegging of its UST stablecoin. During an interview with Bloomberg Quicktale on Monday, April 4, Kwon said:

“People need to have a little bit more faith in crypto. If you look at Bitcoin, it turns over more than US$20 billion per day and I think with time, it’s going to be even more liquid. Even if a stablecoin were to de- peg over time and those reserves would be used to defend that peg. I think (the Bitcoin market) would more than easily be able to absorb the Bitcoin that enters the market”.

Terra is planning to have $10 billion worth of Bitcoin to serve as a reserve for its decentralized UST stablecoin. The Luna Foundation Guard already completed a purchase of $1.5 billion worth of Bitcoin last month.

TerraUSD (UST) Taking Different Approach

Terra’s native stablecoin UST is currently the third-largest by market cap. But unlike the top two stablecoins – USDT and USDC – the TerraUSD (UST) takes a different approach.

USDT and USDC are centralized stablecoin in a manner that they are directly pegged to a fiat currency. On the hand, Terra’s UST stablecoin maintains its peg by burning the LUNA tokens. A Bitcoin reserve will further help UST’s ability to maintain its dollar peg. Kwon explained:

“The important thing to remember about Terra is that is a decentralised stablecoin in the sense that it has no issuer. If you were holding some sort of centralised collateral…bonds, Tether stablecoin, or (Circle’s USDC), in that case, whoever is holding the largest amount of these reserves would be subject to censorship, and would defeat the entire purpose of having decentralised stablecoin in the first place”.

LUNA has been one of the top-performing cryptocurrencies in the market. The LUNA price has appreciated more than 100% over the last month ever since the LFG started with its Bitcoin purchases. As of press time, LUNA is trading close to its all-time high of $116 as the seventh-largest cryptocurrency with a market cap of $41 billion.

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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.