A total of $ 200 million in newly acquired AVAX tokens will be added to the reserve Terra has built to enhance UST’s ability to maintain a 1: 1 peg against the US dollar.
So far, the algorithm’s stablecoin, UST, has been able to maintain its pegs without fiat currency or traditional asset backing by casting and burning Luna tokens. But in recent weeks, Terra has been in the spotlight after co-founder Do Kwon promised to buy $ 10 billion in Bitcoin for the UST reserve.
The Luna Foundation Group and Terraform Labs said they chose to buy AVAX over other cryptocurrencies due to the rapid growth of the Avalanche blockchain and dedicated fan base.
Meanwhile, the CEO of Ava Labs Emin Gün Sirer, the developer of the Avalanche blockchain and currently holding $ 100 million in Terra’s LUNA tokens and $ 100 million in Terra’s UST stablecoin, has the ability to scale Terra’s stablecoin. Said it was important. Why Avalanche was drawn to the Terra platform.
“Flowering collaboration” between avalanche and tera ecosystem
A total of $ 200 million in token swaps between Terra and Avalanche represents more than just a diversification of Terra’s UST reserves.
Terra tweeted that the exchange of tokens revealed a “flowering collaboration” between the two Layer 1 blockchains and was designed to “strategicly coordinate” ecosystem incentives.
Terra, a group of developers, said Terraform Labs is “working to build and support a new $ UST native protocol within the Avalanche ecosystem to maximize the cross-chain footprint.”
“This partnership brings clear benefits to the entire Avalanche ecosystem by connecting # LUNAtics & Terra builders to the vibrant Avalanche ecosystem and providing an immersive cross-chain experience,” said Terra.
“Avalanche subnets are a powerful way to build next-generation scalable Web3 applications in niche use cases,” Terra said before announcing that the two blockchains would work together in a new gaming subnet. Said to.
Sirer, CEO of Ava Labs and founder of Avalanche, said he hopes that as a result of the collaboration, more native Terra applications will be extended to the Avalanche blockchain.
“This is just the beginning of these two communities,” said Jon Wu, president of Ava Labs. “From this new connection, we can see that more assets, applications, and new subnet collaborations will thrive.”
Collaboration to accelerate DeFi growth, strengthening LUNA and AVAX bull cases
Cross-chain collaboration between the Terra and Avalanche ecosystems has the potential to accelerate the already rapid growth of decentralized finance (DeFi) applications on their respective platforms by further improving scalability / usability.
As existing DeFi applications such as the already popular Terra-based savings / loan anchor protocol grow and new and attractive protocols emerge, further inflows into space can occur, both AVAX and LUNA. It will be the strength of.
LUNA’s bullish case is further enhanced by the recent announcement of the diversified UST Reserve. UST is already one of the top stablecoins in terms of market capitalization (lagging behind USDT, USDC and BUSD), but its adoption is backed by 1: 1 with USD-denominated assets. Hindered by concerns that it isn’t, but instead LUNA.
The mint / burn mechanism between LUNA and UST is designed to create a strong incentive for market participants to maintain pegs, but as LUNA’s value declines, UST can lose pegs. Some are concerned that there is.
Terra’s decision to diversify the UST reserve from just LUNA raises the confidence that UST will be able to maintain the pegs, assuming that BTC and AVAX will not collapse in the event of a LUNA crash.
LUNA is currently up more than 130% from the 2022 low of $ 43.00 and is now approaching a record high of just over $ 100 per token. The main impetus for strong performance these days is the move to start buying Bitcoin for the UST reserve.
