The Block: Terraform Labs ‘gifts’ $880 million in LUNA to Luna Foundation Guard

Terraform Labs has gifted 10 million LUNA ($880 million) to the Luna Foundation Guard to help boost the stability of the stablecoin UST.

The funding will likely go toward the foundation’s goal of acquiring additional collateral — so far in the form of bitcoin (BTC) and avalanche (AVAX) — to underpin UST. It may also be partially burned to help maintain UST's peg to the US dollar.

Terraform Labs is the development firm behind the Terra blockchain and the UST stablecoin. It founded the Luna Foundation Guard, a Singapore-based non-profit, in January and tasked it with maintaining the stability of Terra’s algorithmic stablecoins and to buy all reserve assets for UST on behalf of the Terra stakeholders.

Currently LUNA, a free floating cryptocurrency that’s the native token of the Terra blockchain, is used to keep UST’s peg to the dollar. A burning mechanism is used to stop UST’s price going above a dollar. On the flip side, if it drops below the dollar, traders can arbitrage the difference. Critics have said — and betted — that this is an unsustainable strategy, since it relies on the declining reserves of LUNA to keep its peg.

For this reason, the foundation is attempting to pivot toward a model where UST’s reserves are made up of high ranking cryptocurrencies, like bitcoin. In recent months, the foundation has built up a large treasury of cryptocurrencies as collateral for UST. The foundation has purchased 42,406 BTC , worth $1.7 billion. It also announced plans to acquire $100 million in AVAX — the native token of the Avalanche blockchain.

Do Kwon, CEO of Terraform Labs and also the foundation’s director, stated last month the foundation was looking to buy bitcoin in the near term to the tune of $3 billion and had the funds ready. Over the long run, Kwon said the foundation eyes a reserve target of $10 billion in bitcoin — both from manual market buy-ins and Terra’s seigniorage process, where a portion of the protocol fees continuously accumulates bitcoin.

Today’s transaction saw the 10 million LUNA ($880 million) changing hands from Terraform’s wallet address (on the Terra blockchain) to a crypto address owned by the foundation at 6:10 am UTC. The foundation then transferred out a large majority of the funds, some 7.8 million LUNA ($660 million), to another wallet.

This is not the first time Terraform Labs has given a large sum of LUNA to the foundation. In March 2022, Terraform Labs sent 12 million LUNA tokens ($1.1 billion) to the foundation. At the time, Terraform CEO Do Kwon, said that some of those 12 million LUNA tokens were burned to mint UST and the remainder was added to the foundation’s stablecoin reserves.

In today’s case, Terraform Labs or its CEO, has yet to make a comment on why it donated such a large sum to the foundation. We have reached out to the Luna Foundation Guard and will update this article should we hear back.

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