Terra developer Terraform Labs and the Luna Foundation Guard (LFG) have bought a total of $200 million worth of Avalanche ($AVAX) to boost the reserves of UST stablecoin by Terra.
As per the Terraform Labs’ official announcement, it exchanged $100 million worth of its own token LUNA for AVAX to “strategically align ecosystem incentives.” Meanwhile, LFG utilized its native UST to purchase $100 million of AVAX from the Avalanche Foundation.
The purchases mark AVAX as the second token supporting UST alongside the leading cryptocurrency by market value, Bitcoin. According to the reports from CryptoGlobe, the LFG has purchased 35,767.98 bitcoin worth more than $1.5 billion thus far.
Earlier, Terra founder Do Kwon has hinted that the Terra Protocol will be among the biggest holders of the leading cryptocurrency. The project uses its BTC-dominated reserves to develop another layer of security for its decentralized stablecoin. Terraform Labs targets to acquire $10 billion worth of Bitcoin to further build on the project’s stablecoin reserves.
Terra is a blockchain that uses a Proof-of-Stake (PoS) system in which LUNA is utilized to plug the algorithmic stablecoin’s attachment to the US dollar. Although UST is not supported by any assets in reserve, its value is rooted through the forging and burning of LUNA as consumers can always exchange $1 worth of LUNA for 1 UST and the other way around.
If the UST price falls under $1, it can be exchanged for LUNA and sold for $1, which makes it inviting for arbitrage sellers and buyers. If it moves past $1, LUNA holders can buy and sell tokens for 1 UST for revenue. LUNA and forged and burned to allow these transactions.
Bloomberg said the LFG picked Avalanche instead of other cryptassets due to its quick growth and broad range fan base.
“Avalanche is still a growing ecosystem … a lot of it is fueled by loyalty to the AVAX token, and users feel a lot of affinity with an asset that aligns itself with AVAX. Whereas for the average Ethereum user, aligning yourself with Ether doesn’t really mean that much.”