Bitcoin remains the number one cryptocurrency globally, with a market dominance of over 40%.
Do Kwon, the founder of Terraform Labs, which powers the Terra blockchain, is confident that Bitcoin has enough liquidity to handle any potential de-pegging of its stablecoin.
Terra recently bought over $1 billion worth of bitcoins and intends to spend another $10 billion in the future. The project is using pegging its UST stablecoin to Bitcoin.
In an interview with Bloomberg, Kwon said;
“People need to have a little bit more faith in crypto. If you look at Bitcoin, it turns over more than $20 billion per day, and I think with time, it’s going to be even more liquid.”
Terra and its native LUNA coin have experienced rapid growth over the past few months. LUNA is now one of the top 10 cryptocurrencies by market cap, and Terra’s UST is also a leading stablecoin in the market.
Terra confirmed that it plans to buy $10 billion in Bitcoin to serve as a reserve to back its decentralized stablecoin. Kwon added that;
“Even if a stablecoin were to de-peg over time and those reserves would be used to defend that peg. I think [the Bitcoin market] would more than easily be able to absorb the Bitcoin that enters the market.”
Terra’s UST stablecoin is not backed by any fiat currency, unlike the other popular stablecoins like Tether (USDT), BUSD, and USDC.
UST has maintained its peg to the US Dollar by issuing and burning LUNA tokens. According to the team, $1 worth of Luna is burned on the Terra blockchain for every new UST created.
The Bitcoin reserve is designed to help boost UST’s ability to keep its dollar peg. Kwon concluded that;
“The important thing to remember about Terra is that is a decentralized stablecoin in the sense that it has no issuer. If you were holding some sort of centralized collateral…bonds, Tether stablecoin, or [Circle’s USDC], in that case, whoever is holding the largest amount of these reserves would be subject to censorship and would defeat the entire purpose of having decentralized stablecoin in the first place.”
Bitcoin is trading above $46k at the moment, while LUNA is trading around $116 per coin.