Terra Foundation adds $230 million bitcoin to its reserves to back its stablecoin

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Terraform Labs founder and CEO Do Kwon said the company had added 5,000 bitcoin in a tweet on Wednesday.
Its bitcoin reserve is now worth $1.6 billion with a goal of reaching $10 billion to back its terraUSD stablecoin.
Terra's luna token hit a record high of around $119 last week, but has since eased back to $110.

Terraform Labs founder and chief executive Do Kwon said on Wednesday he had purchased $230 million worth of bitcoin through the Luna Foundation Guard, with the aim of adding it to the company's bitcoin reserves.

"Today I watered my plant, wrote some emails, bought 230M in bitcoin, vacuumed the house, had some mcdonalds, now off to walk the dog," Do Kwon said on Twitter.

—Do Kwon 🌕 (@stablekwon) April 6, 2022

The purchase was made to add to Terraform Labs' reserves through its non-profit organization Luna Foundation Group as part of the backing for its terraUSD stablecoin. Last month, Kwon said terraUSD would be backed by at least $10 billion worth of bitcoin, among other assets.

Stablecoins are digital currencies pegged to assets such as the US dollar, which have experienced a rise in popularity over the past year, as they represent a more stable investment than other more volatile cryptocurrencies.

TerraUSD is the fourth largest stablecoin by market value behind tether, USDC and Binance USD, according to CoinMarket Cap. Unlike most dollar-backed stablecoins, terraUSD is not backed by the US currency.

"Terra's family of stablecoins is maintained through a system of arbitrage incentives, open market operations, and dynamic protocol levers that maintain robust peg stability and scalability of its supply without the centralized control or capital-inefficient designs of incumbents," according to the Luna Foundation Guard website.

TerraUSD is an algorithmic stablecoin, which it uses a swap mechanism that keeps its value pegged at $1. The algorithm destroys, or burns, luna tokens in order to create new terraUSD tokens. So any luna holder can swap $1 worth of luna to $1 terraUSD. This makes luna tokens more scarce and terraUSD less scarce, so that the value of terraUSD always end up back at $1. If terraUSD falls below $1, the opposite happens, meaning more luna tokens and less terraUSD supply, which then brings the value back up to $1.

Wednesday's purchase brings the value of Terraform Labs' bitcoin holdings to $1.6 billion, part of the way towards its target of $10 billion.

Terraform's luna token hit an all-time high of almost $119 last week, according to CoinMarketCap data, while it has since retreated from these highs the coin is still up 4.34% over the past seven days, trading at $109.67.

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