Terra Ecosystem Announces Luna Foundation Guard to Safeguard Its Stablecoins From Volatility

Terraform Labs, the company behind the Terra blockchain has launched a non-profit organisation that the company likes to call Luna Foundation Guard (LFG) to support the Terra ecosystem and safeguard the stability and adoption of its most popular stablecoin — UST. The new non-profit will emphasise a number of major pillars that they see as core in advancing the ecosystem and its creation is also the reason why Terra's LUNA token has been able to minimise losses in the current bearish crypto market.

The newly formed foundation will serve as a mechanism to continue driving engagement and adoption of Terraform Lab's growing stablecoin, UST. Adoption of UST has continued to grow as the token, seen broadly as one of the most decentralised yet mainstream stablecoin options currently available, approaches a market capitalisation of $11 billion (roughly Rs. 81,800 crore).

Founder and CEO of Terraform Labs, Do Kwon, will lead the charge for the Luna Foundation Guard, alongside founding member Nicholas Platias and several governing council members. The team will deploy foundation grants, starting at the end of the month, to blockchain projects in the ecosystem that address open-source development, research and education, and community growth within the Terra network.

How does the Terra blockchain absorb volatility?

The Terra blockchain features an array of stablecoins, cryptocurrencies designed to track the price of fiat currencies. For instance, TerraUSD tokens are tied to the price of the US dollar, and TerraEUR tokens are tied to the price of the Euro. All these stablecoins, and more, are able to maintain their value because of LUNA, a token on the Terra blockchain that is specifically designed to absorb volatility.

Like any asset, the price of each stablecoin fluctuates based on supply and demand. That means a spike in demand for TerraUSD could push its price above $1 (roughly Rs. 75). To solve that problem, the protocol incentivises LUNA token holders to convert LUNA to TerraUSD, thereby increasing the supply (and lowering the price) of TerraUSD. That works because $1 (roughly Rs. 75) worth of LUNA can always be used to purchase one TerraUSD token, even if that token is currently worth $1.01 (roughly Rs. 75).