Terra plans to buy and hold up to $10 billion worth of Bitcoin, a significant amount of the leading cryptocurrency that Terraform Labs says would be used to back the TerraUSD (UST) stablecoin.
Rather than holding reserves only in cash and cash equivalents, the company intends to maintain enough BTC to back all UST in circulation.
This is the core point of Terra’s plan to accumulate up to $10 billion in Bitcoin. CNBC covered Terra’s announcement early Tuesday.
Terra’s UST plan would increase Bitcoin demand
On Monday, Terraform Labs founder and CEO Do Kwon revealed the company had purchased $135 million worth of BTC, bringing its Bitcoin buys for 2022 to $1 billion so far.
Commenting on the move to acquire as much Bitcoin as possible, Kwon said:
“UST with BTC reserves worth more than $10B will open a new monetary era by Bitcoin standards. A P2P electronic cash that is easier to spend and more attractive to hold than Bitcoin.”
UST, like other stablecoins, is pegged 1:1 to the US dollar and generally holds a stable value even during periods of significant market volatility. The project’s proposal is to shift from an algorithmic currency backed by cash and other equivalents toward a stablecoin backed by Bitcoin.
One narrative that has helped push Bitcoin higher in recent days is aggressive accumulation by large holders. Bitcoin surged past $48,000 on Monday, marking a more than 20% gain over 30 days and moving the asset into positive territory year-to-date.
Terra’s native token LUNA also rose, climbing from roughly $90 last week to peak above $106. Meanwhile, UST’s market capitalization increased to over $16 billion, making it the 14th-largest crypto project by market cap.
Regulatory concerns?
CNBC’s report on Terra’s big bet on Bitcoin and UST noted that some analysts warned the move “may not be well received” by US regulators. Regulators have previously expressed concerns about stablecoins and their potential risks to the financial system.
Although Treasury Secretary Janet Yellen recently said the US would work to develop a regulatory framework that supports crypto innovation, worries about stablecoins remain.
In 2021, the SEC issued a subpoena to Terraform Labs and CEO Do Kwon amid allegations of breaching US laws. Kwon filed a countersuit against the SEC, and earlier this year a US court ordered Terra to comply with the subpoena.
Could UST draw increased regulatory scrutiny now? Analysts quoted by CNBC say that is possible, with potential developments likely soon even as lawmakers push to accelerate work on a US central bank digital currency.