Recently, the CEO and founder of TFL (Terraform Labs) – Do Kwon – declared that the platform had given away 12M LUNA (nearly $1.1 billion) to LFG (Luna Foundation Guard). TFL is a developer of the blockchain ecosystem taking account of LUNA (Terra Luna) as well as UST (TerraUSD stablecoin).
LFG was initiated in January to enhance the Terra ecosystem along with improving its stablecoins’ sustainability. Kwon stated that the burning of the funds that have LUNA in a dominant ratio will be carried out for the minting of UST that will, in turn, enhance the reserves of LFG. He added that they will continue to enhance the reserves till the time it turned out to be impossible in every respect for the criticizers to assert that UST has a de-peg risk.
UST is known as stablecoin based on an algorithm with 1:1 as its hypothetical exchange rate in comparison with the USD, and it is partially maintained through the exchange for LUNA coins when the market value differs from the peg thereof. $1’s burning in UST provides the minting of $1 worth in LUNA and it works the same in the opposite direction.
Nonetheless, because of UST’s enormous demand in the case of DeFi (decentralized finance)-based companies such as Curve Finance, unbalanced pools are resulting from it for stablecoins’ swapping.
For instance, as many crypto advocates get their Tether (USDT) and USD Coin swapped for UST, the reserves of the pool will deplete, hence making way for price volatility because the supply is much lower than the demand. A couple of days earlier, TFG had in advance polled over 4.2M LUNA tokens that were remaining in the treasury thereof for the protection of UST’s peg. As per TFG, the latest LUNA will be swapped by LFG to UST for UST’s selling to Curve pool. The profits will be returned to the reserves of LFG to buy BTC (Bitcoin).
Due to the ownership of Anchor Protocol by Terra, a prominent place has been acquired by UST token among the advocates of cryptocurrency. UST guarantees more than 20% yield per annum on the saving deposits of UST. Nevertheless, because of the inequity between the interest-paying lenders and investors, the reserve of Anchor Protocol (for the promised yield’s compensation) is even now declining at present, despite its recent experience of a huge capital infusion.