The Luna Foundation Guard (LFG) has announcement a plan to burn 4 million Terra coins (LUNA) – currently worth $365 million – to mint around 372 million TerraUSD (UST), which will be used to purchase “exogenous collateral”.
Established as a non-profit organization in January, LFG recently sold $1 billion of LUNA to acquire bitcoins as a reserve for the stablecoin TerraUSD (UST).
According to LFG, once the burn is complete, the Foundation will hold approximately $2.2 billion in non-LUNA reserves while retaining 8 million Terra Coins for future growth.
These reserves provide reserve support for UST, which is Terra’s largest stablecoin. This support is intended to ensure that the UST can maintain its peg to the US Dollar even during times of heavy selling in the crypto market.
Prior to the establishment of asset reserves, the UST peg was maintained solely by a LUNA burn mechanism where $1 of LUNA was burned to mint $1 of UST.
Bet on the future of Terra
There are concerns, however, that a prolonged bear market could see the price of the native Terra coin enter a continued downturn, which could lead to a permanent unanchor from the UST. This possibility is said to be at the heart of recent bets between Terra reviewers and Do Kwon, CEO of Terraform Labs.
Kwon accepted two separate bets worth $1 million and $10 million on what LUNA’s price will be a year from yesterday (when the bets were made). GCR, a pseudonymous trader who made the biggest bet against Kwon, tweeted: “Expect price to rise in short term but in 1 year extremely confident current narrative is lost.”