Terra’s UST Reserves Dip To One-Month Low, Here’s Why

Terra’s stablecoin reserves fell to a one-month low this week, reflecting the recent slump in the crypto market. The reserves which are maintained by the Luna Foundation Guard (LFG) have a high concentration of Bitcoin.
Terra's UST Reserves Dip to One-Month Low, Here's Why

According to data from the LFG, the reserve’s total value is now $2.4 billion. It had dropped to a one-month low of $2.1 billion on Tuesday, owing to a sharp drop in BTC.

While the reserve has since recovered, it remains very vulnerable to market volatility due to the fact that over 70% of it comprises Bitcoin.

Terra developer donates more LUNA to boost reserves

Terra blockchain developer Terraform Labs, donated 10 million LUNA tokens to the Luna Foundation Guard on Thursday(LFG). Based on Today’s exchange rate the donation is worth around $880 million.

The LFG is a Terra community dedicated to preserving the UST stablecoin’s reserves. Following a drop in the reserve’s value, it’s likely that today’s donation will be used for the same purpose.

The LFG has been consistently burning LUNA to mint UST, which it then holds as a reserve to keep the stablecoin’s 1:1 dollar peg. To bolster its reserves, the Singapore-based organization has also been accumulating BTC and other stablecoins.

LUNA is the second most held token on the UST reserve, behind BTC. The Terra community presently owns 42,410 BTC tokens worth $1.75 billion, accounting for over 70% of the reserve’s value.

LUNA price under pressure

While LUNA appeared to react favorably to the news, increasing 3% to near $88, the Terra blockchain’s native token has dropped significantly in recent weeks. The token is currently trading at 35% below its all-time high hit earlier this month.

Concerns about Terra’s use of BTC in its reserves have contributed to the token’s depreciation. The move makes the platform greatly vulnerable to market volatilities. Critics have also alleged that the platform’s usage of LUNA in its reserves makes it unsustainable

LUNA had likely reached a long-term top and might decline by as much as 50% from its all-time high, according to crypto expert @SmartContracter.