Terra's LUNA rallies as $1 billion bitcoin reserve may lead to reduced volatility in protocol's native stablecoin UST. reports godbole17
Buoyed by positive news flow, LUNA, the native token of the smart contract blockchain Terra, has become the best performing major cryptocurrency in the last 24 hours.
LUNA's leadership perhaps stems from Singapore-based non-profit organization Luna Foundation Guard's decision to create a bitcoin-denominated reserve as an additional layer of security for UST – Terra's decentralized stablecoin, whose value is pegged 1:1 to the U.S. dollar.on Tuesday that it had raised $1 billion through private token sales to build the bitcoin reserve and the buyers will lock up the coins for a four-year vesting period.
According to the data tracking website CoinGecko, UST's market capitalization has surged from roughly $300 million to over $12 billion in one year, establishing the dollar-pegged digital asset as the fourth-biggest stablecoin worldwide. Meanwhile, LUNA has chalked up a near six-fold rally in the past 12 months.Unlike tether and other centralized stablecoins, UST isn't backed by dollars and its peg is maintained by allowing users to alter UST and LUNA supplies.
On the other hand, if UST trades at $1.02, LUNA holders can swap $1 worth of LUNA for 1 UST through the swap function and sell the UST in the market at $1.02, pocketing the difference. In the process, the protocol burns LUNA and mints UST, increasing the stablecoin's supply and putting downward pressure on the peg.
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