Terra announces $1B LUNA sale led by Three Arrows

The amount of money flowing into crypto is constantly increasing, with funding rounds of more than $100 million becoming relatively common. This trend has gone to another level with a recent over-the-counter token sale, media reported.

Round carried out with support of NPO Luna Foundation

Terra and the Luna Foundation Guard (LFG), a nonprofit organization supporting the Terra network, today announced a sale of the Terra token (LUNA/USD) equivalent to $1 billion. It is led by Three Arrows and Jump Crypto, which fixed the Solana (SOL/USD) cross-chain bridge Wormhole after the widely publicized $320 million hack.

Funds raised in Bitcoin?

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It’s not clear whether the funds were raised directly in Bitcoin (BTC/USD). Depending on the time of the raise, its value could be less than that indicated above with view of the market downturn.

The funds will be used to create a UST Forex Reserve. TerraUSD (UST) is pegged to the LUNA token, not the USD. You must burn LUNA to mint UST. The price is kept stable by a holistic tokenomic structure.

If the price of UST drops below $1, the user can buy that UST at a discount and trade it for $1 of LUNA. This form of arbitrage means the UST gets burned and the stablecoin’s price is normalized.

The risks

Stablecoins without fiat backing have lost their peg before when traders’ short-term needs and algorithms mismatched, which may have been what happened with Iron Finance in 2021.

LFG wrote in a press release:

One of the common criticisms of algorithmic stablecoins is their reflexive nature during extreme volatility, where the arbitrage incentives to bring the peg back to parity can potentially deteriorate. The UST Forex Reserve provides an additional avenue to maintain the stability of the peg in contractionary cycles that reduces the reflexivity of the system.

About Terra (LUNA)

Terra is a blockchain protocol that uses fiat-pegged stablecoins to power price-stable global payments systems. According to its white paper, Terra combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin (BTC) and offers fast and affordable settlements.

At the time of writing, Terra was trading for around $59 and had gained 12.67% in 24 hours.