Terraform Labs Donate $1.1 Billion For LUNA Foundation Guard’s Reserves

Due to the high demand for Terra, a pool imbalance has developed on Curve Finance, thereby necessitating action.

Terraform Labs (TFL) founder and CEO, Do Kwon, who creates the Terra Luna (LUNA) and TerraUSD stablecoin (UST) blockchain ecosystems, said on Friday that TFL had donated 12 million LUNA ($1.1 billion at the time of publication) to the Luna Foundation Guard (LFG). LFG was founded in January to expand the Terra ecosystem and ensure the long-term viability of its stablecoins. The monies, which are denominated in LUNA, will be burned to mint UST to increase the LFG’s reserves, according to Kwon:

“We will keep growing reserves until it becomes mathematically impossible for idiots to claim de-peg risk for UST.”

UST is an algorithmic stablecoin with a notional 1:1 exchange rate with the US dollar, which is maintained in part by swapping LUNA tokens for/against it when its market value deviates from its peg. When you burn a dollar in UST, you get a dollar in LUNA, and vice versa.

However, because of the increasing demand for UST on decentralized finance (DeFi) platforms such as Curve Finance, unbalanced pools for stablecoin exchanging exist. As more crypto enthusiasts exchange their USD Coin and Tether (USDT) for UST, the pool’s reserves will diminish, resulting in price instability as supply falls behind demand. TFG had previously voted two days before burning the 4.2 million LUNA that remained in its treasury to protect UST’s peg. TFG claims that:

“LFG will swap the [new] LUNA to UST (swap=burn) and sell the UST to the Curve pool. The proceeds will go back to LFG reserves to purchase BTC.”

UST is an extremely popular coin among crypto aficionados, because of Terra’s flagship Anchor Protocol, which offers up to a 20% yearly interest on UST savings deposits. However, despite a recent significant capital infusion, the Anchor Protocol’s reserve (for paying the stated yield) is still on the fall at the time of publishing because of an imbalance of depositors and lenders paying interest.