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Terra’s stablecoins, primarily UST, will now be backstopped by Bitcoin.
A billion dollars worth of BTC will be set aside by the Luna Foundation Guard (LFG) to act as a backstop for UST and other Terra stablecoins in case they lose their pegs, as first reported by The Block .
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LFG sold $1B in LUNA tokens, the governance token of the Terra blockchain, to Jump Crypto , Three Arrows Capital , DeFiance Capital and other investors.
LFG was announced in January, and is a non-profit foundation dedicated to advancing “greater economic sovereignty, security, and sustainability of open-source software and applications that help build and promote a truly decentralized economy.” It provides grants in the areas of open source development, community growth and research and development.
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“The $UST Forex Reserve is an LFG initiative to provide a further layer of support for the $UST peg using assets that are considered less correlated to the Terra ecosystem, like Bitcoin,” the official Terra Twitter account announced today .
“One common criticism of algorithmic stablecoins is their reflexive nature and the hypothetical risk of a ‘bank run’ scenario where demand to sell the stable outstrips supply in a way that causes compounding price decreases in both native tokens,” the Terra account tweeted later in the same thread.
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