A recent decline in the crypto market was reflected in Terra’s stablecoin reserves, which sank to a one-month low this week. The reserves, which are maintained by the Luna Foundation Guard (LFG), have a high concentration of Bitcoin.
The overall value of the reserve now stands at $2.4 billion, according to data from the data from the LFG. It had on Tuesday sunk to a one-month low of $2.1 billion, likely tracking a sharp decline in BTC.
While the reserve has since recovered, it still remains highly susceptible to market volatility, given that over 70% of it is comprised of BTC.
Terra developer donates more LUNA to boost reserves
Terra blockchain developer Terraform labs on Thursday donated 10 million LUNA tokens to the Luna Foundation Guard (LFG). Based on today’s exchange rate, the donation is valued at about $880 million.
The LFG is a Terra community dedicated to maintaining reserves for the stablecoin UST. It is likely that today’s donation will be contributed towards the same purpose, following a decline in the reserve’s value.
The LFG has been consistently burning LUNA to mint UST, which it then keeps as a reserve to maintain the stablecoin’s 1:1 dollar peg. The Singapore-based organization has also been accumulating BTC and other stablecoins to bolster its reserves.
LUNA is the second-most held token on the UST reserve, behind BTC. The Terra community currently holds about 42,410 BTC tokens, worth $1.75 billion- over 70% of the reserve’s value.
LUNA price under pressure
While LUNA appeared to have reacted positively to the news, rising 3% to near $88, the native token on the Terra blockchain has fallen substantially in recent weeks. The token is trading 35% below a record high hit earlier this month.
A bulk of the token’s decline has been driven by concerns over Terra’s use of BTC in its reserves. The move makes the platform extremely vulnerable to market volatility. Critics have also alleged that the platform’s use of LUNA in its reserves also makes it unsustainable.
Crypto analyst @SmartContracter recently said that LUNA had likely hit a long-term top, and could fall by as much as 50% from its all-time high.
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