For the past month, Luna Foundation Guard (LFG) has made headlines as one of the most major bitcoin (BTC) purchases for a new “reserve,” seemingly appearing out of nowhere to scoop up $1.7 billion in the world’s most valuable cryptocurrency.
The objective of the LFG reserve
Do Kwon, the project’s leader and co-founder of Terraforms Labs described LFG as a “decentralized [foreign exchange] reserve” for UST in a tweet. Kwon is a director and founder member of LFG, according to the organization’s website.
The reserve is set up to support the Terra ecosystem, which is a blockchain-based initiative centered around a dollar-pegged stablecoin known as UST and a cryptocurrency known as LUNA, according to LFG’s website.
Because LFG hasn’t explained how the reserve works on paper, some analysts are making their own assumptions.
“To me, the LFG reserve is a cross between an insurance policy and a backup of last resort,” said Felix Hartmann, CEO of Hartmann Capital in Florida.”It’s a psychological backstop, like the FDIC, to reassure people that this isn’t a house of cards.”
In the United States, bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
“Algorithmic stablecoins”
Stablecoins have evolved into two types as the sector has grown: The most popular, such as tether (USDT) and USD Coin (USDC), claim to be backed by sufficient assets to ensure that each token is worth at least $1.
However, a new generation of “algorithmic stablecoins,” such as UST, exist as “protocols” — essentially lines of code on a blockchain that promises to keep the token fixed at $1. (The stablecoin is technically called terraUSD, but its trading ticker is UST.)
Despite this, many early versions of algorithmic stablecoins have crashed, the most recent of which being Beanstalk.
With a market valuation that has increased by $15 billion in five months, questions have been raised about how long UST’s expansion can be sustained.
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How does it works and when to use it?
On its website, LFG explains some aspects of the “UST reserve protocol,” but it doesn’t go into great detail about how it works or when it might be used.
LFG is a “nonprofit organization dedicated to constructing and offering more economic sovereignty, security, and sustainability of open-source software and services that aid in the construction and support of a truly decentralized economy,” according to the website.
When inquired if there was anything written regarding the LFG reserve that Terraform Labs staff could give, she sent us to a March 23 proposal on Terra’s research platform Jump Trading is a trading corporation that also happens to be Jump Crypto’s parent company.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
Source: https://www.thecoinrepublic.com/2022/04/26/know-all-about-one-of-the-worlds-most-valuable-cryptocurrencies-the-lfg-reserve/