The Luna Foundation Guard (LFG) has bought another $1.5 billion in bitcoin to boost reserves of Terra’s UST stablecoin, with help from hedge fund Three Arrows Capital and crypto broker Genesis Trading.
The purchase brings the Foundation’s total reserves to 80,394 BTC, making it one of the largest holders of the asset in the world, worth around $3.5 billion.
Terraform Labs, the company behind the Terra blockchain, set up the LFG in late Jan “to focus on the stability and adoption” of UST. Do Kwon, co-founder and CEO of Terraform Labs, plans to buy up to $10 billion in bitcoin by the end of Sept to back the UST stablecoin. LFG also holds $100 million in Avalanche (AVAX) in reserve.
Su Zhu’s 3AC helps with Luna trades
With its latest purchase, LFG traded $1 billion worth of UST for bitcoin in an over-the-counter (OTC) swap with crypto broker Genesis Trading. It also bought $500 million of bitcoin from Three Arrows Capital (3AC), the Singapore-based multi-billion-dollar hedge fund fronted by Su Zhu.
“For the first time, you’re starting to see a pegged currency that is attempting to observe the bitcoin standard,” Kwon was quoted as saying. “It’s making a strong directional bet that keeping a lot of those foreign reserves in the form of a digital native currency is going to be a winning recipe.”
Some considered Three Arrows Capital selling half a billion dollars in BTC, as reflective of the hedge fund’s bearish outlook. Kwon dismissed the concerns.
“They didn’t sell $500 million bitcoin to us,” he tweeted. “We worked with 3AC to TWAP [time-weighted average price] buy in markets because they’re better at pressing the green button than we are,” he added, in reference to a strategy that is used to reduce the impact of a large order on the market.
The TWAP strategy will typically split up a large order into several smaller orders bought over a period of time. This is not Three Arrows Capital’s first deal with LFG. In Feb, it helped sell $1 billion in LUNA to build the Foundation’s bitcoin reserve.
UST as dominant ‘decentralized money’ stablecoin
Do Kwon, Terra’s CEO, has previously stated he wants UST to become the stablecoin of choice in crypto – the dominant “decentralized money” stablecoin.
In April, he revealed a new stablecoin alliance with Frax Finance, Redacted Cartel, and Olympus DAO, a move targeted at winning the so-called “Curve Wars” while potentially dealing a deadly blow to the DAI stablecoin.
“By my hand, DAI will die,” he declared. But he may still have to deal with a lot of skepticism around the Terra economic model, which has been criticized in some quarters as a Ponzi scheme.
UST maintains its dollar peg by burning or issuing LUNA tokens – a situation that creates an opportunity for arbitrage. As UST demand rises, and more LUNA is burned, the price of the token tends to increase.
At the time of writing, LUNA is down 5% at $81 over the previous 24 hours, according to CoinGecko.