Terraform Labs, the company behind the terra token, is investing in the growth of its flagship stablecoin, UST. The corporation announced a new commitment of 12 million LUNA to the Luna Foundation Guard, a decentralized organization, which will be used to expand the stabilization fund in order to keep the UST currency peg.
On Twitter, Do Kwon, CEO of Terraform Labs, indicated that the cash will be used to burn and mint $UST, which will subsequently be used to expand the Luna Foundation Guard’s reserves. The Luna Foundation Guard has taken direct action to introduce more UST to secondary markets, which have become unbalanced as a result of the stablecoin’s high demand.
Indeed, the foundation has already taken action twice this month to replenish the supply of UST in Curve’s pools, a decentralized exchange with low slippage for stablecoin deals.
All of these efforts are intended to strengthen user confidence in the stability of the UST and its peg to the US dollar. While other stablecoins use various ways to maintain this peg, UST relies on its relationship with LUNA, the Terra ecosystem’s sister token, and the arbitrage opportunities that the treasury provides to traders.
However, some researchers believe that the protocol’s built-in procedures may fail, resulting in an imbalance that might cause UST to lose its intended peg.