In late March, Do Kwon, co-founder of the blockchain project Terra, announced his intention to create a reserve of Bitcoin to provide liquidity for the UST stablecoin. The company has spent $1.5 billion in three weeks, and its address balance has grown to 42 400 BTC. This brings it close to Tesla, whose cryptocurrency assets are valued at 43 200 BTC.
UST is an algorithmic stablecoin, and its issuance is mathematically related to the money supply of the domestic LUNA coin. LUNA validators receive an additional reward if demand for UST increases. If demand falls, a portion of the LUNA is burned. Simply put, the developer can't print more USTs if they want to.
This dramatically differentiates algorithmic stablecoins from centralized ones, where a coin's liquidity depends on the volume and quality of reserves. For example, Tether holds about half of its reserves in publicly undisclosed securities instead of the promised currency savings in U.S. dollars. This means that the company often lends stablecoins in exchange for debt. This has led to scandals before, as in January 2018, Tether printed $850 million worth of tokens to extend credit to Bitfinex.
Despite the fact that UST is a mathematically balanced stablecoin, Terra decided to solidify its position with additional reserves from Bitcoin. Initially, the company plans to spend $3 billion from its own fund, and in the long term to bring the reserve to the equivalent of $10 billion. Such a purchase would make Terra the largest public holder of Bitcoin, leaving far behind MicroStrategy with its stock of 125 000 BTC ($5.2 billion).
UST has less than $0.5 billion of capitalization left to overtake BUSD to become the third-largest stablecoin. Meanwhile, in DeFi, blockchain Terra already ranks second with $19 billion in blockchain funds, while LUNA is the only top 10 coin to have renewed its historical high in 2022.