A few days ago, Terra founder Do Kwon revealed plans to acquire a mammoth $10 Billion Bitcoin for the project’s stablecoin reserves. Apart from the sheer size of the purchase, the announcement carried more weight than what meets the eye.
BTC Vs Less Risky Assets?
To understand the importance of the statement, let’s first look at how stablecoins are modeled.
Stablecoins are tokens designed to maintain a fixed price or value, usually pegged to U.S. dollars. They’re used as collateral for trading or lending cryptos, or as a proxy for cash in digital asset markets. Each stablecoin is typically worth $1.
To ensure settlements and payments, stablecoins are backed by reserves. A combination of cash and debt instrument can be used as reserves to back a stablecoin supply. Take Tether’s USDT for example. The world’s largest stablecoin, with a market cap of $81.1 Billion, uses a combination of cash, treasury bills, bank deposits, and loans to back USDT reserves.
As one would have guessed, there is a particular pattern to the holdings. The instruments used for the reserves are safer, more secure, and less volatile than other assets such as stocks and crypto.
So why has Do Kwon chosen a volatile asset such as Bitcoin to add to its stablecoin (UST) reserve? Well, clearly because he’s confident about Bitcoin’s ability to keep growing in value to such an extent that it changes the financial landscape dominated by traditional assets. The founder is rightly said that the BTC reserve would “open a new monetary era of the Bitcoin standard.” He also added, “P2P electronic cash that is easier to spend and more attractive to hold”. For the moment, Terra maintains a fraction of its native token, LUNA, as part of UST’s reserve.
Terra’s Do Kwon Makes Calm Bet
The self-proclaimed “master of stablecoin” Do Kwon is an active figure in the community, regularly posting updates about the Terra ecosystem. Recently, the founder literally put his money where his mouth was after betting $1 Million for LUNA’s future success. The bet was made with pseudonymous Sensei Algod.
As per the bet, Sensei Algod wins if the price of LUNA is lower in one year’s time, while Kwon will be the winner if it is higher than $88 (LUNA’s price at the time of the wager).
At press time, LUNA traded at $88.12, up by 0.12% over the last 24 hours. Its price was up by as much as 115% since the last week of February.