Terra (LUNA-USD) users are waking up to a very pleasant surprise this morning as the LUNA crypto reaches a new all-time high. The network has been leading altcoin gains for a while now. Although it had been a victim of decentralized finance (DeFi) drama earlier this year, the methodology by which it’s seeking to prevent future volatility is currently helping Terra post sizable gains.
The Terra system is one of the more unique names in blockchain. That’s because its supply is directly linked to native stablecoin TerraUSD (UST-USD). Thanks to this linkage, UST needs no underlying reserve of funds. When its prices move above its peg, users can burn LUNA to mint more UST and bring down values. The same goes for burning UST when prices are below $1; the price goes up through supply and demand and LUNA is minted as a reward to burners.
The system — which developers call “seigniorage” — has proven effective thus far at retaining UST prices. However, a recent event has shown it isn’t enough on its own.
Wonderland (TIME-USD) is a DeFi platform closely linked to Terra. It partners with another project, Abracadabra, which offers a host of services for UST yield farmers. As a result of the partnership, much of the Wonderland ecosystem relies on UST.
When news broke that an executive on Wonderland’s team had been previously involved in a massive exchange scam, it spelled trouble for Terra. Users rapidly withdrew their funds from Wonderland, causing a ripple effect across Abracadabra, UST and LUNA. Ultimately, LUNA crypto prices suffered and UST was knocked from its $1 peg in a way investors did not expect.
Terra (LUNA) Crypto Reaches New All-Time High During BTC Purchase
The Wonderland drama was a reality check for Terra (LUNA) crypto users and developers alike. Obviously, there was a need for something to help support UST prices. Now the Luna Foundation, which sees to many of the network’s changes, is finding solace in Bitcoin (BTC-USD).
Earlier this month, the foundation announced its intention to buy $10 billion in Bitcoin. This stash of crypto will act as an underlying reserve to UST, preventing even the most unanticipated events from shaking prices.
Since its announcement, the foundation has been busy buying up BTC to reach its $10 billion goal. As of right now, the network is in possession of over $1.3 billion. It recently added to this holding with another purchase worth $135 million.
This rapid accumulation of reserves for the UST token has positive implications across the whole Terra network. For one, the reserves will help cement UST’s price peg and prevent further volatility. Additionally, by foregoing traditional fiat reserves, the network will benefit from the long-term growth of Bitcoin.
As a result, the Terra (LUNA) crypto is seeing some massive price movement today. In fact, the crypto posted an all-time high of more than $107 this morning. The coin is resting currently at $107 and, as it holds its ground, more investors are flooding in. The transaction volume of LUNA is up by nearly 140%, with $4.4 billion in the crypto swapping hands for the last 24 hours.
On the date of publication, Brenden Rearick did not hold (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.