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Foundation Raises $1B To Protect USDT Against Market Instability

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The Luna Foundation Guard (LPG) successfully sold $1b worth of tokens to finance a new project that protects USDT against market instabilities. Even though the USDT’s algorithmic basis makes it immune to market instabilities, the foundation is making this move in case the above method becomes insufficient at one point or another.

Building A Decentralized Forex Reserve

The LPG was launched last month with the primary aim of developing the Terra community. Part of the foundation’s development efforts is the development of a decentralized forex reserve which ensures that USDT is always pegged on a 1:1 ratio with the USD. Thus, the foundation (in partnership with other VC firms) raised $1B from the sales of private tokens.

A breakdown of the sales (as revealed on Terra’s Twitter page) showed that jump crypto & three arrows capital made the highest amount of token purchase. Other notable participants in the token sales included Tribe capital, Republic capital, GBR, and Defiance capital. Terraform labs launched the foundation by donating $4.5b worth of LUNA tokens.

This reserve will be stored in BTC, and the foundation will only use it in extreme situations when the token’s current stability mechanisms fail. A failure of such magnitude can occur if a bank runs on Terra’s native tokens. Terraform labs boss, do Kwon, claimed that part of the LPG’s long-term plans is to keep stacking up this decentralized reserve.

USDT’s Market Cap Keeps Growing

The LPG announcement lends credence to the growing USDT market cap. Over the past 30 days, USDT’s market value has surged by over $1b, making it maintain its position as the most valuable decentralized stablecoin. Coingecko data reveals that USDT’s overall evaluation currently stands at $12.35B.

Do Kwon reiterated the importance of USDT as a financial instrument, especially in the light of recent circumstances in Canada, saying, “almost every headline is an indirect approval for USDT. There is no doubt that decentralized money, especially USDT, is the best option for financial transactions in today’s world.”

Despite the developments in the USDT ecosystem, one of MakerDAO’s co-founders claimed in a recent interview that USDT would lose all its value in a bear market and likened it to a Ponzi scheme. Makerdao is the issuer of the second most valuable stablecoin, the DAI stablecoin. It is currently valued at $9.7b, about $2.2b short of USDT’s overall evaluation.

Tether Cuts Reserves Allocation To Commercial Paper By Over 20%  

As part of a court settlement dated February 2021, Tether is mandated to disclose its reserve every quarter, which an approved external auditing firm must confirm. In the quarter ending by December 2021, MHA Cayman (the external auditing firm) confirmed that Tether owns sufficient financial securities to support its $79b worth of USDT in circulation.

A breakdown of this amount shows that $24.5b is held in commercial paper and deposit certificates, $3.5b in market funds, and the remaining in treasury bills. The external audit firm confirmed that Terra’s commercial paper carries a very low-risk level.

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