This weekend, the Luna Foundation Guard has purchased nearly 4000 BTC, bringing its total holdings to 39.897,98 Bitcoin.
On its way to acquiring the 10.000 Bitcoin that will make up the UST reserve, the Terra Foundation Guard (LFG) has purchased over the weekend Bitcoin worth $176 million, at an average price of around $42.600. With this new purchase, the LFG pool now stands at almost 40.000 BTC.
This new purchase joins the movements that the foundation has been making in recent weeks. In this sense, Terra Foundation purchased 125 million Bitcoin a day between March 22 and March 26, followed by another $160 million purchase on March 26 and a final purchase of 5.040 BTC during the past week.
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LFG announced in February that it had raised $1.000 billion for a Bitcoin purchasing reserve. However, last month, the reserve increased to $3.000 billion and Terraform Labs founder Do Kwon noted that Their plans were to increase it to 10.000 billion.
However, despite LFG's large purchase, Bitcoin price has continued to fall over the weekend, at a rate of 2% per day.
What is UST?
UST is the stablecoin of the Terra ecosystem and one of its greatest value propositions. Unlike other stablecoins like USDT, It is a decentralized alternative where its 1-to-1 link to the US dollar is secured by algorithms.
In this sense, to maintain the parity between UST and the US dollar, Terra burns $1 of LUNA per UST that is mintedHowever, the stability of this system is still up for debate. Even Terraform Labs has noted that “doubts about the sustainability of algorithmic stablecoins still persist.”
In fact, some experts, such as Galois Capital, have pointed out that a LUNA crash could be catastrophic for this system and that its consequences would be shared by the entire cryptocurrency industry.
Why is Terra buying so much Bitcoin?
LFG is a Singapore-based non-profit organization working to cultivate demand for Terra stablecoins, strengthening the stability of UST and fostering the Terra ecosystem.
As Terraform Labs CEO Do Kwon points out, the goal of these Bitcoin reserves is Strengthen and support the UST stablecoin.
The creation of this Bitcoin reserve does not make UST backed by BTC, as it is still backed by the dollar, but it does make it adds indirect support. In this way, Terra aims to increase demand for UST, taking advantage of Bitcoin's popularity and reputation.
At the heart of this value proposition is the idea of Terra's creators that Bitcoin has failed in its original goal of becoming a peer-to-peer payment system, but it has become an excellent booking tool.
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However, many experts and much of the Bitcoin community have criticized this idea, pointing out that it is debatable. To this end, they argue that money follows a linear adoption phase in which it progresses following different steps.
During its early days, Bitcoin was a collectible, whereas now it is perceived as a store of investment and is used, above all, for exchange. However, recent developments, such as El Salvador's recognition as legal tender and increasing use for peer-to-peer payments in Africa, are accelerating its progress and proving that Bitcoin can become a real alternative to money.
What is the Bitcoin reserve pool on Terra for?
The idea of the Bitcoin reserve pool is to create a direct backup for UST, but indirectly it seeks to support LUNA, especially for bearish markets in which stablecoins can lose their parity level.
In such a scenario, UST holders could exchange their devalued stablecoins for their Bitcoin equivalent, which would act as a “reserve of value” amidst these crises. In this case, LFG would be responsible for supplying Bitcoin at a discount, while recovering the UST and ensuring demand for the algorithmic currency.
At the end of the crisis, when UST regains its parity with the dollar (or exceeds it), LFG hopes to replenish its Bitcoin reserves by selling the UST it has been accumulating during the crisis period.
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