As the Curve wars heat up Terra is pulling out the big guns
Terra, who firmly grabbed the attention of the cryptocurrency and DeFi world by committing to buy $10 billion in bitcoin to build a reserve for its native UST stablecoin is now diversifying that strategy. In an announcement on April 7, the Luna Foundation Guard said they will acquire Avalanche tokens worth US$100 million from the Avalanche Foundation to boost the stablecoin reserve.
- Luna Foundation Guard, a Singapore-based nonprofit organization built to support Terra, will acquire Avalanche tokens worth US$100 million from the Avalanche Foundation.
- TVL in Terra has increased to over $32 billion putting Terra in second place overall
- Avalanche users can now trade UST for Avalanche tokens directly on the Avalanche blockchain
- At writing, no significant price movements for either AVAX or LUNA
The native token of the Avalanche blockchain has a total market cap of $22.1 billion at writing. This purchase will make AVAX the second asset in Terra’s UST stablecoin reserve after bitcoin. Meanwhile, the native Terra LUNA token price has more than doubled over the last 2 months. Shooting up from $46 to around $100 at writing.
Climbing the TVL ranks
More impressive is that, as if from nowhere, Terra has become the second-largest network by total value locked. Ethereum, whose dominance is well-documented, still holds the lion’s share of value, but Terra now holds $32 billion of the total $252 billion locked in DeFi smart contracts. Overtaking BNB Chain and growing from $20 billion at the start of January to more than $32 billion at writing.
Terra’s UST stablecoin is already backed by a bitcoin reserve that could potentially reach $10 billion as the price of BTC continues to climb. After pouring over $1 billion into it since the end of January 2022, the team added another $230 million worth of bitcoin on Wednesday, March 6. Moreover, Terra has been ramping up its bitcoin purchases to help improve UST’s ability to remain pegged to the dollar.
The algorithmic stablecoin, despite not being backed by any recognized fiat currency like dollars or euros, has managed to maintain its peg by issuing and destroying LUNA tokens, Terra’s native cryptocurrency.
The strategic partnership with Luna Foundation Guard will allow Avalanche users to trade UST for Avalanche tokens directly on the Avalanche blockchain. More notable is that the Avalanche reserve, unlike the bitcoin reserve which is on the Terra blockchain, will be on Avalanche. Moving forward, several applications on the Terra blockchain will launch a version on Avalanche, according to the announcement.
Both Avalanche and Terra are Layer-1 blockchains, similar to Ethereum, where users can deploy smart contracts and build different dapps ranging from non-fungible tokens to decentralized finance applications. Terra’s clear ability to scale their stablecoins is one of the reasons that drew Avalanche to its platform while Terra looked at Avalanche as one of the fastest-growing dapp ecosystems in the space.
Terra firing shots
The stability and overall adoption of the USDT stablecoin is the root cause of Terra’s rise to prominence in 2022. Mainly, a native stablecoin lets investors move in and out of positions to store value on that network, as opposed to moving it elsewhere. Into USDT or USDC, for example.
Further moves will see Terra endeavor to slay Maker DAO and its DAI stablecoin by obstructing DAI’s liquidity on Curve Finance. They do this by launching a new pool on Curve, the most utilized stablecoin liquidity source, which omits the DAI stablecoin. Without liquidity, DAI could potentially lose its peg to the US dollar and drop to zero, which would crash Maker DAO’s MKR token in the process.
DAI has historically been much more significant than UST, but in December 2021, UST flipped DAI. UST is Terra’s stablecoin, pegged to the US dollar, which grew in popularity in 2021 to a market cap of $16 billion. DAI is Maker DAO’s US Dollar-pegged stablecoin which has a $9 billion market cap.
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds positions in various cryptocurrencies, including BTC, ETH, and RADAR.