Terra Expands Stablecoin Reserve Beyond Bitcoin With Avalanche
(Bloomberg) -- Public blockchain Terra, which captured the attention of the cryptocurrency world by pledging to buy $10 billion in Bitcoin to build a reserve for its UST stablecoin, is diversifying that strategy.
Luna Foundation Guard, a Singapore-based nonprofit organization built to support Terra, will acquire Avalanche tokens worth $100 million from the Avalanche Foundation to boost the stablecoin reserve. The native token of the Avalanche blockchain has a total market capitalization of $22.1 billion as of Thursday, according to data aggregator CoinGecko. The over-the-counter purchase will make the token the second asset in the UST reserve after Bitcoin.
Terra’s UST stablecoin is already backed by a Bitcoin reserve that could eventually reach $10 billion. The firm added another $230 million in Bitcoin on Wednesday, after pouring more than $1 billion into it since the end of January. Terra has been ramping up its Bitcoin purchase to help improve UST’s ability to remain pegged to the dollar. The algorithm stablecoin, despite not being backed by fiat currency, has managed to maintain its dollar peg by issuing and destroying Luna tokens, Terra’s native cryptocurrency.
Luna Foundation Guard chose Avalanche among other cryptocurrencies for its UST reserve because of its rapid growth and vast fan base, Do Kwon, founder of Terraform Labs which powers the Terra blockchain, said in an interview with Bloomberg News.
Avalanche is the 10th biggest cryptocurrency by market capitalization while Luna stands in seventh place, according to data from CoinGecko. Both Avalanche and Terra are layer 1 blockchains, similar to Ethereum, where users can write codes and build different projects from non-fungible tokens to decentralized finance applications.
“Avalanche is still a growing ecosystem...a lot of it is fueled by loyalty to the AVAX token and users feel a lot of affinity with an asset that aligns itself with AVAX,” Kwon said. “Whereas for the average Ethereum user, aligning yourself with Ether doesn’t really mean that much.”
While Bitcoin will remain the “main backing” of UST stablecoin, the deal with Avalanche “buys a lot of user familiarity” for UST and Terra from Avalanche, Kwon said.
Avalanche last month launched a $290 million push to attract top projects, in collaboration with major firms including Golden Tree Asset management, Jump Crypto and Valkyrie.
The strategic partnership with Luna Foundation Guard will allow Avalanche users to trade UST for Avalanche tokens directly on the latter’s blockchain. The Avalanche reserve, unlike the Bitcoin reserve which is on the Terra blockchain, will also live on Avalanche. And moving forward, several applications on the Terra blockchain will launch a version on Avalanche, according to a press release.
Terra’s ability to scale their stablecoins is one of the reasons that drew Avalanche to its platform, said Emin Gün Sirer, CEO of The Ava Labs, Avalanche’s developer.
“I wish that more and more coins would look for ways to grow the crypto space as opposed to compete for the same set of people,” he said.
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