Saturday 28 May 2022
Home / Altcoin / Terra founder reveals what will happen to UST if Bitcoin price crashes

Terra founder reveals what will happen to UST if Bitcoin price crashes

Terraform Labs CEO Do Kwon has conceded that a crash in the price of Bitcoin (BTC) would be “negative” for the stability of the TerraUSD (UST) stablecoin but that he expects Bitcoin to go up.

Terraform Labs is the entity behind the Terra blockchain platform, which plans on buying a total of $3 billion BTC as a reserve for UST.

Kwon made the comments in an interview on the Unchained podcast on Tuesday. Host Laura Shin asked Kwon what the short-term implications of holding so much BTC would be for the stability of UST.

Kwon said, “The worst case would be if we were buying Bitcoin and a crash happens six months later, and it’s correlated with a massive fall in demand for UST,” which would be, as he modestly put it, “negative.” However, that scenario isn‘t keeping him up at night:

“I’m sort of betting that the long-term scenario of Bitcoin going up, and the reserves being strong enough to withstand UST demand drops is the more likely scenario.”

Kwon has been buying Bitcoin to hold in Terra’s treasury as 40% of the collateral for UST. So far, Terra has acquired 30,727.9 BTC and most recently purchased 2,943 BTC on Tuesday. This makes Terra the third-largest single-wallet BTC holder.

Crypto YouTuber Danku_r argued to his 54,000 followers in a Wednesday tweet that the addition of BTC to Terra’s treasury would help mitigate the impact of a sudden retraction in UST demand. He said that Terra’s move would help avert a “death spiral due to market uncertainty” by helping the treasury “swallow the supply contraction of UST.”

One of Kwon’s stated goals for the treasury, known as the Luna Foundation Guard, is to make Terra “the largest single-wallet holder of BTC.” In order to dethrone the current leader, Michael Saylor’s MicroStrategy, Kwon will need to amass more than 125,051 BTC, according to Bitcoin wallet tracker Bitcoin Treasuries.

Later in the interview, Kwon lived up to his reputation as an instigator by proclaiming that Terra is a layer-2 solution for the Bitcoin network. He argued that with Terra, Bitcoin has a bridge that allows it to be used “across a multitude of applications from DAOs to NFTs to DeFi.”

“And in terms of the expressivity, the transaction capabilities, the throughput, all those things can happen on Terra.”

Related: ‘Hold my beer’ — Terra already up $165M from buying Bitcoin as BTC stash nears Tesla’s

Kwon’s comment drew the attention of the crypto community. In a tweet, Ethereum developer Antiprosynthesis responded by asking if all entities that use BTC to back a stablecoin should be considered layer-2 solutions. He said, “Even I don’t believe that Bitcoin’s standards have plummeted to such extent.”

A layer-2 solution helps a layer-1 blockchain to scale up its operations by moving many transactions to an alternate network to reduce congestion.

BTC is trading at $44,463, down 5.61% over the past 24 hours, according to Cointelegraph’s Price Index.

About Sean Patterson

Check Also

Bitcoin network difficulty falls 4.3% to 29.897T, biggest drop in 10 months

The Bitcoin network witnessed a historic event on May 12 when the network difficulty attained its all-time high of 31.251 trillion as miners mined nearly 50,000 BTC of the remaining 2 million tokens. While the Bitcoin community rejoiced the added resilience to the network owing to the rising difficulty in mining a Bitcoin block, the network difficulty recorded a drop of 4.33% — falling from 31.251 trillion to 29.897 trillion on May 26. As Cointelegraph reported on several occasions, Bitcoin’s network difficulty consistently achieved all-time highs over the past ten months as it recovered from a massive drop of 45.4% — from 25.046 trillion on May 29, 2021, to 13.673 trillion on July 22, 2021. Ever since then, Bitcoin’s network difficulty witnessed a total growth of 128.56% as it surged to its all-time high. However, despite the momentary decline of over 4%, the BTC ecosystem is still guarded by the most secure blockchain network. Higher network difficulty demands higher computational ..

Leave a Reply

Your email address will not be published. Required fields are marked *