Terraform Labs (TFL) has donated 12 million LUNA, worth about $1.1 billion, to the Luna Foundation Guard (LFG). Do Kwon, the founder, and CEO of TFL, highlighted that the funds will be burned to mint UST to grow the LFG’s reserves. He said they will keep growing the reserves until it becomes mathematically impossible for anyone to claim de-peg risk for UST.
UST is a stable coin that is pegged to the US dollar. The burning of $1 in UST produces $1 in LUNA and vice versa. But the high demand for UST on DeFi platforms like Curve Finance, it leads to unbalanced pools for swapping stable coins. As more crypto enthusiasts swap USD Coin (USDC) and Tether (USDT) for UST, the pool’s reserves will decline and cause price volatility. TFG had two days ago voted on burning the 4.2 million LUNA left in its treasury in an effort to protect UST’s peg.
TFG highlighted that LFG will change the LUNA to UST, and sell the UST to the Curve pool. Its proceeds will go back to LFG reserves to buy bitcoin. UST’s popularity is attributed to the Anchor Protocol. The stable coin promises up to 20% annual yield on its savings deposits. Because of the imbalance of depositors and lenders paying interest, the Anchor Protocol’s reserve is still declining.