Terra is one of the fastest-growing blockchains currently. Seemingly coming out of nowhere, the network had quickly become a strong rival for the leading smart contract platform in the space. Its staking features are used by millions, leading to billions of dollars in total value locked (TVL). Now, following its success so far, the founder of Terra network, Do Kwon, has announced that they will be purchasing bitcoin to serve as their reserves.
Why Is Terra Buying Bitcoin?
Bitcoin is often referred to as ‘digital gold.’ This is because the digital asset is seen as a better store of value compared to its physical counterpart, gold. Over the years, bitcoin has grown into the mainstream as one of the most efficient stores of value, seeing more people choose to store their wealth in the cryptocurrency rather than going with the centuries-old gold.
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It is along this line that Terra has chosen to have its reserves in bitcoin. In a tweet, Kwon announced that the network was buying bitcoin for its reserves. These reserves back up its stablecoin UST which is used for widespread staking on the network. The founder revealed that Terra was planning to buy more than $10 billion worth of bitcoin to serve as its reserves for this token.
He referred to this move as something that will usher in a new monetary era of the Bitcoin standard.
$UST with $10B+ in $BTC reserves will open a new monetary era of the Bitcoin standard.
P2P electronic cash that is easier to spend and more attractive to hold #btc
— Do Kwon ? (@stablekwon) March 14, 2022
Apparently, this isn’t just an idea that is being worked on. According to Kwon, Terra is already buying Bitcoin, which he confirmed to CoinTelegraph, saying, “I don’t understand the distinction. We’re already buying Bitcoin.” UST which has already grown to a market cap of more than $15 billion needs a steady reserve to balance its value. That is where the bitcoin reserves come into place.
Kwon explained to his followers that the funds in the bitcoin reserves will be used as a way to backstop short-term UST redemptions, in addition to being used as a decentralized forex reserve.
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Terra has grown rapidly in its time. The network had quickly overtaken large contenders like BSC and Avalanche in terms of total value locked (TVL) on the network. Data from Defillama shows that Terra’s TVL sits at $24.89 billion, while BSC and Avalanche have total TVLs of $12.01 billion and $10.92 billion respectively. Making Terra the second-largest DeFi platform by TVL, coming behind Ethereum.
UST trading slightly above dollar | Source: USTUSD on TradingView.com
Featured image from NuWire Investor, chart from TradingView.com
Source: https://bitcoinist.com/terra-luna-will-buy-10-billion-worth-of-bitcoin-heres-why/