The Luna Foundation Guard (LFG) will be burning 4 million Terra (LUNA) tokens to create 372 million Terra USD (UST) tokens. The UST will be used to buy exogenous collateral.
The Luna Foundation Guard (LFG) has revealed a strategy to fire 4 million Terra (LUNA) tokens, valued at $365 million, in order to mint 372 million TerraUSD (UST), which would be used to buy “exogenous collateral.”
LFG, which was founded in January as a non-profit company, recently sold $1 billion in LUNA to buy bitcoin as standby backup for the TerraUSD (UST) stablecoin. The Foundation will retain about $2.2 billion in non-LUNA deposits after the burn is completed. It will also hold eight million Terra tokens for future growth. These reserves serve as reserve backing for Terra’s largest stablecoin, UST.
This support ensures that UST can keep its US dollar peg even when the crypto market is experiencing large selloffs. Prior to the creation of asset reserves, the peg of the UST was maintained primarily by a LUNA burning mechanism, in which $1 worth of LUNA was burnt to create $1 worth of UST.
However, there are fears that if the market continues to drop, the price of Terra’s native coin will continue to decline, causing UST to be permanently de-pegged. Recent agreements between Terra critic and Terraform Labs CEO ‘Do Kwon’ are alleged to be based on this concept. Kwon has taken two bets combining $1 million and $10 million on the value of LUNA in a year’s time (when the bets were made).