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Concerns Around Loss of Bitcoin Peg to UST Addressed

Bitcoin will provide an additional layer of security during a UST sell-off.

Terra founder Do Kwon has been on a Bitcoin acquisition spree. He even said that he wants to become the second-largest Bitcoin holder after Satoshi Nakamoto.

Recently, UST created a bitcoin-denominated reserve as an additional layer of security for UST. Unlike tether and other centralized stablecoins, UST isn’t backed by dollars and its peg is maintained by allowing users to alter UST and LUNA supplies algorithmically.

The bitcoin reserve will provide further strength to this mechanism.

Some people have raised concerns that concerns over future liquidity amid this heavy accumulation by a single entity. Addressing these concerns, Do Kwon said that Bitcoin is “liquid” enough to handle any potential de-pegging of its UST stablecoin.

“People need to have a little bit more faith in crypto,” the South Korean entrepreneur said during an interview Monday on Bloomberg. “If you look at Bitcoin, it turns over more than $20 billion per day and I think with time, it’s going to be even more liquid.”

“Even if a stablecoin were to de-peg over time and those reserves would be used to defend that peg. I think [the Bitcoin market] would more than easily be able to absorb the Bitcoin that enters the market.”

Do Kwon

“The important thing to remember about Terra is that is a decentralized stablecoin in the sense that it has no issuer,” Kwon explained. “If you were holding some sort of centralized collateral…bonds, Tether stablecoin, or [Circle’s USDC], in that case, whoever is holding the largest amount of these reserves would be subject to censorship, and would defeat the entire purpose of having decentralized stablecoin in the first place.”

Terra (LUNA) is among the top-performing blockchains at the moment. It ranks 2nd in the Total Value Locked (TVL) at $20.94 billion worth of assets only behind Ethereum.

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