The Terra (LUNA-USD) network has been one of very few projects able to shake off the tumultuous crypto correction that’s plagued the beginning of 2022. Indeed, the LUNA crypto is the only currency of the top 10 largest projects to be trading in the green. And while it is ultimately down on the last week, its losses pale in comparison to the 20% losses of its peers. How is the project managing to keep its head above water, then? Well, it looks like a sizable fundraise is helping the coin keep its head above water.
Terra is a layer-1 blockchain network, like that of Ethereum (ETH-USD) and Solana (SOL-USD). However, unlike the latter two, Terra is a protocol that revolves primarily around its native stablecoin, TerraUSD (UST-USD). UST, a $1 USD-pegged stablecoin, is the vehicle through which most of the Terra network’s DeFi apps operate. It’s UST that investors are buying up by the armful, as the coin underlies the increasingly popular Anchor Protocol. With its consistent 20% annual percent yield on UST staking, it is one of the best and most popular ways for investors to hedge their bets against USD inflation.
LUNA directly influences the UST coin as well; the two cryptos are linked through total supply. This allows investors to manipulate the total supplies of the currencies in order to maintain UST’s dollar peg. Investors can burn LUNA to increase UST supply, or burn UST to mint new LUNA. The process allows holders to earn passive income simply for keeping UST at $1, and it often influences LUNA prices for the better as well.
LUNA Crypto Prices Rise During Crypto Crash, Thanks to $1 Billion Investment
The LUNA crypto is, contrary to other cryptocurrencies today, posting a gain of about 2%. Not to mention, trading volume is also rapidly rising for the coin as well; with $2.4 billion in LUNA trading hands, volume is increasing 30% over yesterday. What is causing Terra’s against-the-grain price movement today? The answer can be found in a series of tweets the projects posted today.
On social media, Terra developers revealed a pleasant bit of news to investors: it has closed a private token sale worth a whopping $1 billion. The Luna Foundation Guard (LFG), which oversees the infrastructure of the Terra network, is the body in charge of the recent sale. The sale was led primarily by Jump Crypto and Three Arrows Capital.
The company says this token sale will finance the establishment of a foreign exchange reserve to underlie the UST coin. In its announcement of the sale, Terra developers note criticism of algorithmic stablecoins like UST; these coins don’t have an underlying reserve of assets to keep their pegged price. As such, too high of selling demand can lead to unintended price decreases for these coins.
To combat this possibility, Terra will be purchasing a significant stake in Bitcoin (BTC-USD) with the funds. This Bitcoin reserve will underlie UST prices in the same way USD underlies other stablecoins. The news is huge, as it gives UST some extra padding to reduce the possibility of de-pegging in a worst-case scenario. Developers say more details into this foreign exchange reserve will surface in the coming weeks.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
