Terraform Lab Donates $1.2 Billion Luna to Luna Foundation Guard--- Another Bailout

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Written by

Vergatario

entrepreneurs, business

2 years ago

In community: Cryptocurrency and Blockchain(7b7f)

Topics: Cryptocurrency, Life, Cryptocurrencies, Luna, Terra, ...

Evening

So it seems high demand of Terra's stable coin UST has caused troubles again, especially reflected in recent pool imbalance on Curve Finance. So, yesterday, Terraform Labs (TFL) stepped in to provide the much needed relief. Do Kwon, the founder and CEO of Terraform Lab announced providing 12 million LUNA tokens(worth $1.1 billion) to the Luna Foundation Guard (LFG).

Founded in Jaunuary, Luna Foundation Guard (LFG) purpose was to ensure growth of Terra ecosystem and sustainability to its stablecoin, UST. UST is an algorithmic stablecoin theoretically pegged to US dollar at a 1:1 ratio. As the deviation from peg occurs the arbitrage UST is minted or burned accordingly. e.g. if UST goes below $1, arbitrage will swap 1 UST for $1 of USD; reducing the supply of UST to increase its demand and if UST goes above $1, equal dollar amount of Luna is burned to mint UST thereby increasing the supply of UST to bring its price down.

UST have been high in demand lately, especially because of the Anchor Protocol. Anchor Protocol pays an amazing 20% return for UST savings deposit, which has lead to the protocol's popularity. But this popularity has been a trouble lately, as Anchor has been facing problems paying the returns with its UST reserves depleting. Last month Anchor had already received 450 million UST bailout from Luna Foundation Guard (LFG). In fact currently there has been a proposal to cut down Anchor's UST savings returns to ensure the sustainability.

12 million LUNA token donated to Luna Foundation Guard (LFG) will be burned to mint UST to address its reserve imbalance.

But the question remains, how long and how many bail outs are going to be needed? Those crazy UST saving returns are attractive for sure, bringing capital into the ecosystem, but they sure hell are not sustainable. So, steps must be taken to ensure ecosystem sustainability in the long run; the recent proposal to cut down Anchor's UST saving returns is sure a step in the right direction.

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