Some say that Do Kwon is singlehandedly pumping Bitcoin’s price up by buying BTC. Others just believe that earning 19 % interest on UST deposits using the Anchor protocol is just enough to tackle this year’s inflation. In any case, the LUNA token set an all-time high today and it is remarkable what this particular protocol achieved so far.
Why is Terra building a BTC reserve? And what is driving LUNAs price up, despite the market is still going through difficult times?
Terra uses Bitcoin as a backup
Terras protocol allows burning LUNA in return for UST, the native US-Dollar stablecoin on the Terra blockchain. Algorithmic stablecoins are not a new idea. They are backed by the value of an asset and not by an actual US-Dollar deposit that is held by a centralized entity.
But such a system isn’t absolutely fail-safe and that is where the Luna Foundation Guard comes into play. According to a report from Bloomberg, the foundation bought over $1 billion worth of Bitcoin since January. The idea is to build a fund that adds additional value to Terra’s ecosystem and keeps the value of UST always pegged to the US-Dollar.
Hence the rumour’s that Do Kwon, both founder and CEO of Terraform Labs and the Luna Foundation Guard is responsible for the recent hike in Bitcoin’s price. Yet, it remains open if the additional demand has such an effect. It is not impossible but unlikely because the Bitcoin market has become robust and has enough liquidity. That being said, $1 billion over three months is not enough to move the market in any direction but might have been enough to strengthen bullish sentiment with other investors.
LUNA is printing an all-time high
In the meantime, LUNA the native token to the Terra blockchain is printing an all-time high. Of course, it isn’t that far away from the previous high but nevertheless, it is a new record. LUNAs performance was remarkable in the first quarter in 2022.
The market came down due to fact that Fed was changing its policies and the beginning of the war in Ukraine has done damage, too. Offering a digital and decentralized equivalent to cash that bears fruit with 19 % annual interest was exactly what investors were looking for. In uncertain times that might create an opportunity to buy back cheaper at a later point UST was in hindsight the right choice.
The price of LUNA is closely connected to the demand for UST. It remains to be seen if Terra manages to become a pillar of decentralized finance and associated protocols. Should they succeed, this would create a strong signal that the current trend is going to continue.