Bitcoin remains the world’s leading cryptocurrency, commanding more than 40% market dominance.
Do Kwon, founder of Terraform Labs, the team behind the Terra blockchain, says he believes Bitcoin has enough liquidity to handle any potential de-pegging of Terra’s stablecoin.
Terra recently purchased over $1 billion in Bitcoin and plans to spend an additional $10 billion in the future. The project uses Bitcoin reserves to support its UST stablecoin peg.
In an interview with Bloomberg, Kwon said:
“People should have more confidence in crypto. If you look at Bitcoin, it trades more than $20 billion a day, and I think it will become even more liquid over time.”
Terra and its native LUNA token have experienced rapid growth in recent months. LUNA is now among the top 10 cryptocurrencies by market capitalization, and Terra’s UST is also a leading stablecoin in the market.
Terra confirmed plans to acquire $10 billion in Bitcoin to serve as a reserve backing its decentralized stablecoin. Kwon added:
“Even if a stablecoin were to de-peg over time and those reserves were used to defend the peg, I think the Bitcoin market would more than easily absorb the Bitcoin that comes onto the market.”
Unlike other popular stablecoins such as Tether (USDT), BUSD and USDC, Terra’s UST is not backed by fiat currency.
UST maintains its peg to the US dollar through the issuance and burning of LUNA tokens. According to the team, $1 worth of LUNA is burned on the Terra blockchain for every new UST minted.
The Bitcoin reserve is intended to strengthen UST’s ability to retain its dollar peg. Kwon summarized:
“The important thing to remember about Terra is that it is a decentralized stablecoin in the sense that it has no issuer. If you were to hold some form of centralized collateral—bonds, the Tether stablecoin or Circle’s USDC—then whoever holds the largest portion of those reserves would be subject to censorship and that would undermine the whole point of having a decentralized stablecoin in the first place.”
Bitcoin is currently trading above $46,000, while LUNA is trading around $116 per token.