LUNA Set to Buy $10 Billion Bitcoin

In recent weeks, an interesting relationship has begun to blossom between several cryptocurrencies. Terraform Labs, the group behind the stablecoin TerraUSD (UST -0.25%) and cryptocurrency Tera (luna -0.92%), has been at the forefront of innovation for some time. Recent developments indicate that they are not planning to slow down.

Terraform Labs announced in March that it will begin purchasing Bitcoin (BTC -1.20%) As a backup asset to support the ground tanks. In the event that treasuries deviate below $1, Bitcoin just like LUNA can now be used to stabilize the price. Terraform Labs founder Do Kwon wrote on Twitter that the ultimate goal is to hold $10 billion worth of Bitcoin. They currently have about $1.6 billion and will buy sporadically. The group now owns more than . Bitcoin Tesla Do.

Image source: Getty Images.

How does it all work

UST and LUNA’s Terraform ecosystem is unlike any other blockchain. Floor cabinets maintain their $1 value using an algorithm. Instead of holding a reserve of US dollars to maintain stability, such as Tether or USDC, the algorithm either adds or destroys LUNA.

When the price of floor lockers starts to rise, LUNA holders can sell their coins for a profit. Their LUNA coins are transferred to the floor vaults and paid out using the new floor vaults. After that, the newly issued floor cabinets lower the price to the dollar again.

If the floor tanks drop below $1, the floor tank holders can transfer their holdings to LUNA. With lower circulating floor tanks, the price rises again to $1. The algorithm always tries to ensure that the floor cabinets are worth $1.

This can be a little complicated. However, understanding the dynamic between the terrestrial reservoirs and the LUNA is most important. If no one wants to replace the LUNA or the floor tanks when the prices are out of balance, the stability of the floor tanks is in danger. Without floor vaults being $1, LUNA coins become less attractive to hold as well. The recent announcement of the addition of Bitcoin offers another layer of protection to ensure that the earth’s treasuries are worth $1. Now Bitcoin can be used to maintain this balance just like LUNA.

The perfect match

For many years Bitcoin has been portrayed as a speculative asset. However, today Bitcoin is being bought as a reserve asset to back another cryptocurrency. These purchases mark a milestone for how far Bitcoin has progressed in the past decade. The cryptocurrency king is not going anywhere anytime soon.

Moreover, it all happened in a very timely manner. In the past few months, the LUNA has set many new all-time highs. These launch heights likely reflect the growing popularity of the LUNA as a DeFi developer’s favourite. It now holds the second largest Total Lock Value (TVL) among all DeFi blockchains. Just a year ago, LUNA captured just 3% of the DeFi market. Now LUNA accounts for approximately 14%. As LUNA evolved, so did the terrestrial reservoirs. It recently became the third largest stablecoin by market capitalization, after Tether and USDC.

Here for the long term

It is common for memecoins and other cryptocurrencies to rise and fall in value as they gain and lose popularity. But Terra’s ecosystem growth is staggering and not just a fad. The Terra blockchain hosts a variety of DeFi applications (dApps) that serve many different facilities. Chai is a popular e-commerce payment platform due to its very low fees. There are dApps for lending and borrowing like Anchor that offer nearly 20% interest rates on holdings. Even better, the ecosystem will now integrate the world’s largest and most valuable cryptocurrency, Bitcoin. Further growth may be explosive.

There is unique potential for all three of these cryptocurrencies. The Bitcoin consolidation is an ingenious way to solidify the LUNA/UST ecosystem for years to come. Investors should expect continued expansion of new use cases for LUNA in DeFi. Floor cabinet holders will be rewarded as a direct result of their relationship with LUNA. Even better, Bitcoin has proven that it may have what it takes to be the reserve currency for other cryptocurrencies.

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