Luna Foundation Guard will purchase $100 million in Avalanche after boosting the price of Bitcoin but what’s the reason behind the latest purchase? Let’s read more in our cryptocurrency news today and find out.
The Luna Foundation Guard is a nonprofit which wants to grow the Terra platform and announced it will purchase $100 million in AVAX tokens. This follows LFG’s recent purhcases of $1 billion in BTC and the goal is to create a reserve that helps the stablecoins maintain the pegs to fiat currencies. This all started in February when the foundation was founded by Terra co-creator Do Kwon and Terraform Labs head Nicholas Platias raised $1 billion by selling Luna tokens and the native currency of the ecosystem to Jump Crypto with Three Arrows Capital.
The Terra platform supports decentralzied applications like Solana and Ethereum but is tokenomics structure is unique since LUNA works in tandem with Terra’s algorithmic stablecoins. Whenever someone wants to mint TerraUSD they have to burn the equivalent value of LUNA and vice versa which means that if the price of the stablecoin drops, people can purchase it for below the value and still exchange it for LUNA at a pegged rate.
While UST has been able to maintain the pegs through arbitrage, it is not guaranteed that this will always be the case. Neutrino which is backed by Waves, lost its peg this week with the value dropping to $0.68 at one point. LFG’s safeguard solution to stockpile huge amounts of non-correlated digital assets are paying off and the reserve provides a release valve for the redemptions of UST. The initial foray was into BTC and branched out into other assets which is also a part of the plan. Platias said:
“By diversifying the base of non-correlated assets to major assets like BTC and AVAX, the UST Reserve offers a more robust asset pool to defend against volatility and alleviate pressure on the Terra protocol’s open market arbitrage incentives.”
Market watchers see Luna’s strategy as having an effect and Glassndoe reported that more BTC was accumulated every day than it was created because big players like MicroStrategy, are sucking up most of the available BTC and holding it which puts pressure on the price and the available supply shrinks. It is also successful for terra as LUNA hit a new high of $119.18 this week.
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