Terra Driving Bitcoin Towards $50,000
LUNA (Terra) is the only coin from the Top 10 that managed to set an all-time high in March. Meanwhile, at the end of last week, Terra co-founder Do Kwon revealed plans to acquire $10 billion worth of Bitcoin to bolster UST stablecoin reserves. Bitcoin rose 7% on this news.
UST is an algorithmic stablecoin on the Terra network and is pegged to the value of the US dollar (1:1). Unlike Tether or USDC, the company doesn't keep reserves in currency or other assets to provide liquidity. Instead, the UST money supply is linked to the LUNA coin. When there's a shortage of UST, LUNA validators earn additional rewards. If there's a surplus, an amount of LUNA must be burnt to bring the stablecoin's price back in line.
The system is well-balanced and has already proven the viability of third-party projects using UST during a crisis. However, the company decided to strengthen the stablecoin's position by adding $10 billion worth of Bitcoin to its reserves. This amount is designated as the end goal; the $3 billion held in various funds has been allocated to facilitate the first stage of the plan.
If Terra acquires $3 billion worth of BTC, the company would become the coin's second-largest known holder in the world. At current prices, the company's reserve would total 68,000 BTC. Only MicroStrategy has more with its reserve of 125,000 BTC. Bitcoin Magazine reported that Terra has already started to boost its cryptocurrency reserves, with the acquisition of two tranches worth a combined $250 million carried out so far.
Once the targeted amount reserves are in place, Bitcoin, like LUNA, will become a balancing coin, ensuring the liquidity and stability of UST. Do Kwon promised to reveal more details about the mechanics of the interaction between the stablecoin and Bitcoin in the near future.
Terra's main objective is to create a reliable bridge between fiat currencies and cryptocurrencies. UST is already the top algorithmic stablecoin (decentralised tokens that do not depend on a centralised point of issuance) but has a lower market capitalisation compared to centralised offerings like USDT, USDC and BUSD. The creation of the reserve will allow Terra to gain even more trust and become one of the Top 3 stablecoins in the near future.
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