Terra blockchain has chosen to diversify its stablecoin strategy. Aside from acquiring $10 billion worth of Bitcoin, the public blockchain has just announced that it has purchased $100 million worth of AVAX, Avalanche’s native token.
Terra’s New Stablecoin Strategy
Terra’s non-profit supporting foundation, Luna Foundation guard has proposed to acquire $100 million worth of avalanche tokens to boost the stablecoin, UST reserve. The purchase will make the token the second asset in the UST reserve after Bitcoin.
1/ Thrilled to reveal the blossoming collaboration between @avalancheavax and Terra will also be further solidified with a $100 million Treasury Swap between TFL and the Avalanche Foundation of $LUNA <> $AVAX to strategically align ecosystem incentives!https://t.co/z9A86CWZDs
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) April 7, 2022
The UST stablecoin is already backed by a Bitcoin reserve that is soon to reach $10 billion in value, according to the Terra Foundation. Recently the firm added $230 million worth of Bitcoin to its already existing reserve of $1 billion. Terra has been topping its Bitcoin reserve only to achieve maximum dollar-pegged stability for the UST. The stable coin has managed to maintain its dollar peg by issuing and destroying Luna tokens, Terra’s native cryptocurrency.
Avalanche and Terra are layer 1 blockchains, just like Ethereum which allows users to write smart contract codes and build several projects from DeFi applications to non-fungible tokens.
The Luna Foundation Guard has chosen to purchase Avalanche amongst other cryptocurrencies because of its rapid growth and vast fan base according to Do Kwon, CEO of Terraform labs powering Terra blockchain, in an interview with a financial news media company.
“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”
Do Kwon, CEO of Terraform Labs.
He also added that while Bitcoin remains the main backing for the UST stablecoin but the deal with Avalanche has brought more user familiarity for Terra and UST.
Avalanche’s native token, as of April 8, has a total market capitalization of $22.1 billion according to data from Coingecko. It is the 10th biggest cryptocurrency by market capitalization while Terra’s native token, LUNA stands at number 7.
According to a press release, the Avalanche reserve will also be live on the Avalanche blockchain, unlike the Bitcoin reserve which is on the Terra blockchain. The partnership will allow users to trade UST directly for Avalanche on their blockchain.
The CEO of Ava labs, Emin Gün Sire, said about Terra blockchain that their ability to scale the stablecoin is what drew Avalanche to them.