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$LUNA price rockets after $1 Billion raise

$LUNA surged to a high above $94 on Wednesday, up over 80% in a week. This price action comes on the back of news that the Luna Foundation Guard (LFG) has raised $1 billion in a private token sale. The funds raised will be used to create a ‘Forex Reserve’, held in Bitcoin ($BTC), with the aim of adding stability to Terra’s stablecoins.

What is Terra?

Terra describe themselves as “a public blockchain protocol deploying a suite of algorithmic decentralized stablecoins.” The biggest of these stablecoins is $UST, which boasts a market cap approaching $13 billion. $UST stays pegged to the value of one dollar by an “algorithmic market module” involving burning and minting of the $LUNA token, best described by Theodore over on whiteboard crypto.

What is the Luna Foundation Guard (LFG)?

The LFG was set up in January by Terraform labs, the governing organization behind the Terra blockchain. The LFG is a not-for-profit group comprised of six members with a mission statement to support the “sustainability and stability of Terra’s algorithmic stablecoins.”

Where did the money come from?

On inception of the LFG, Terraform labs donated $4 billion worth of $LUNA tokens to the organization. The LFG sold a portion of these tokens last month to raise funds for the Anchor yield reserve, and this week announced the sale of a further $1 billion worth of $LUNA. The tokens were sold to venture capital firms, in a funding round led by Jump Crypto and Three Arrows Capital. The tokens sold are to be vested over a four-year period, to prevent the VC firms dumping their tokens and negatively affecting the price of $LUNA.

How will the money be used?

Breaking the news on Twitter, Terra stated the sale was undertaken to establish a “decentralised $UST Forex reserve denominated in $BTC.” A ‘Forex reserve,’ or foreign-exchange reserve, traditionally refers to a supply of foreign exchange currency held by a central bank. The reserve is held to provide a backup source of funds in case the native currency was to rapidly devalue. By holding a Forex reserve of Bitcoin, the LFG hopes to add extra protection to Terra’s algorithmic stablecoins. The exact mechanism by which the reserve will function is not yet clear, but the LFG plans to outline this in the coming weeks. Do Kwon has hinted that the LFG plans to increase the size of the reserve, possibly using other decentralized assets alongside Bitcoin.

Why is the reserve necessary?

Algorithmic stablecoins are not backed by fiat currency reserves, and thus carry a theoretical risk that they could lose their ‘peg’ in a time of extreme market volatility. In their announcement, Terra acknowledged this risk, yet went on to argue that the widespread adoption of $UST and stability of the peg throughout volatile market conditions to date should calm fears that this could happen to $UST. Establishment of the Forex reserve should further allay these fears. It is likely that the reserve will be used to offer traders an arbitrage opportunity exogenous to the Terra ecosystem ($UST-$BTC) in times where the endogenous mechanism ($UST-$LUNA) is failing to maintain the peg. The reserve has thus been described as a ‘release valve,’ to be used only in times of severe market stress.

Terra’s tagline is “a decentralized economy needs a decentralized currency.” In recent geo-political events we have seen the financial system weaponized first in Canada, and now in the Ukrainian conflict. As such, it is unsurprising that people are looking to store their wealth in a decentralized manner. Terra co-founder Do Kwon tweeted last month; “Every headline these days is an inadvertent endorsement for $UST. No doubt in the advantages of decentralized money remains today.” This seemingly rang true for crypto investors, with Terra’s total value locked (TVL) up another 40% over the last week. Terra TVL now tops $23 billion, comfortably the second largest chain by market cap, and the platform’s growth shows no sign of slowing.


  • James is a British doctor currently residing in Sydney. When he’s not at the hospital or bringing you the latest in crypto news, you’ll find him in the surf or exploring Australia’s great outdoors.

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