Do Kwon's Treasury Play Allies LUNA and BTC Maxis in a Pumped Market
A $10B Bitcoin Treasury Has All the Hallmarks of a Game Changer
By: Owen Fernau •Dive
Earlier this month, Terra ecosystem co-founder Do Kwon bet $11M that its token, LUNA, would be higher a year from its March 14 price of $88.
LUNA’s 30-day chart. Source: CoinGecko
The token’s ascent comes at a time when the Terra ecosystem co-founder has made a splash in deFi with his commitment to acquire $10B of BTC to serve as a reserve currency for UST, Terra’s flagship stablecoin.
At a high level, users will be able to redeem their UST for roughly an equivalent amount of BTC, though the details of the system appear to be still up in the air — Terra tweeted a proposal by Jump Crypto, outlined specifics of how the BTC reserves could be used on Mar. 22.
Crypto’s Biggest Names
The upward price action of LUNA, combined with the use of BTC to backstop UST, which was announced last month, has caught the attention of some of crypto’s biggest names. “We’re seeing some of the earliest and most ambitious ideas in crypto starting to unfold,” tweeted Su Zhu, who co-founded Three Arrows Capital, one of web3’s most prominent investment firms.
“Crosschain decentralized stablecoin backed entirely by digitally native assets was the holy grail in 2016,” Zhu added in his tweet, tagging both BTC and LUNA, making it clear that he was referring to the new dynamic between the tokens.
Three Arrows Capital, along with Jump Crypto, was one of the investment firms which bought LUNA from the Luna Foundation Guard (LFG), a Singapore-based nonprofit focused on supporting the Terra Ecosystem.
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The burgeoning reserve for UST creates an alliance between proponents of LUNA and BTC. Bitcoin, being the largest and one of the oldest digital assets, has plenty of “maxi” supporters who believe BTC is the only asset worth holding in the fight for a decentralized financial system.
As Terra buys BTC to back UST, Bitcoin is now being used to prop up another asset’s ecosystem, one which some Bitcoin maximalists may be inclined to dismiss as a valueless distraction.
But the buying support for Bitcoin is undeniable. Frank Chaparro, director of news at digital asset information company, The Block, tweeted that family offices and crypto hedge funds are buying BTC call options based on the knowledge that spot purchases for the digital asset are imminent.
Making a Mistake
Tapping BTC as a backstop for UST has drawn criticism. On March 28, Eric Wall, chief investment officer at Arcane Assets, criticized the origins of the funds used to build LFG’s Bitcoin reserves on Twitter. “Don’t mean to be a party pooper but I think Terra is making a mistake to use LUNA funds that originated from the ICO to build the reserve,” Wall said.
Foobazzler, as the pseudonymous angel investor is known, is skeptical of the centralized treasury’s security and says its vulnerability to an exploit makes it a moral hazard.
“If the peg relies on a centrally controlled treasury, and if the owner[s] of that treasury become bad actors or compromised, the treasury can go to 0, the peg unwinds, and then the project is dead,” the investor told The Defiant.
Much of the market appears unconcerned about the Terra ecosystem’s move. With a 27% gain over the last three months, LUNA is outperforming the top ten smart contract platform tokens in that time period.
And it’s not close — at only 6.99%, NEAR token appreciated the second most among those leading smart contract platform tokens.
LUNA leads all tokens of the top 10 smart contract platforms in the last three months. Source: TradingView
Of course, there’s a long way to go until March 14, 2023, when the LUNA bet is decided. For now though, Kwon is smiling. And with BTC up 12% in the last week, you can bet the Bitcoin community is too.