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The nonprofit behind Terra, the blockchain protocol underpinned by a suite of decentralized stablecoins, Luna Foundation Guard (LFG), is not just buying up Bitcoin for its stablecoin reserve. It has announced the addition of $100 million in Avalanche’s native token (AVAX) to the TerraUSD or UST reserve.
Terra partners with Avalanche
As per the recent announcement by TerraUSD, it has partnered with Avalanche for the cooperation of the two ecosystems in the development of a new game subnet.
1/ Thrilled to reveal the blossoming collaboration between @avalancheavax and Terra will also be further solidified with a $100 million Treasury Swap between TFL and the Avalanche Foundation of $LUNA <> $AVAX to strategically align ecosystem incentives!https://t.co/z9A86CWZDs
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) April 7, 2022
The move follows the LFG’s recent Bitcoin purchase worth $1 billion by selling LUNA tokens to Three Arrows Capital and Jump Crypto. LFG — founded by Terra co-creator Do Kwon and Terraform Labs head of research Nicholas Platias — aims to create a reserve that helps its stablecoins maintain their pegs to fiat currencies. The partnership makes AVAX the first major cryptocurrency beside Bitcoin to be added to the UST reserve.
“By diversifying the base of non-correlated assets to major assets like BTC and AVAX, the UST Reserve offers a more robust asset pool to defend against volatility and alleviate pressure on the Terra protocol’s open market arbitrage incentives,” Platias said in a press release.
Unique algorithm
The tokenomic structure of Terra is unique, which works in tandem with Terra’s algorithmic stablecoins. Interestingly, when a person mints TerraUSD (UST), they burn an equivalent value of LUNA and vice versa, which implies that if the value of the stablecoin slips, people can purchase it for a lower value but still exchange it for LUNA at the pegged rate.
While UST never failed to maintain its pegs through arbitrage, it is not guaranteed that it never will. Recently, Waves Chain, which saw its TVL rising to new highs, witnessed its algorithmic stablecoin, Neutrino losing its peg.
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