Terra buys $200 million in Avalanche tokens to build UST reserves

The Luna Foundation Guard, a Singapore-based nonprofit building reserves for the stablecoin Terra (UST), announced that it would buy $200 million worth of AVAX tokens from the Avalanche Foundation to augment its UST reserves. This strategic move pushes forward Terra’s cross-chain development and diversification.

The Luna Foundation Guard (LFG) and Terraform Labs (TFL), the two organizations behind the Terra blockchain, announced that they had collectively acquired $200 million worth of AVAX tokens.

A spokesperson from Ava Labs confirmed that LFG had made a purchase of $100 million AVAX tokens in exchange for its UST stablecoin in an over-the-counter (OTC) trade.

TFL struck the other half of the deal by swapping $100 million worth of LUNA tokens for AVAX tokens to ‘strategically align ecosystem incentives’, as per a tweet from Terra. The treasury swap was initiated to mark Terra’s commitment to Avalanche for cross-chain development and further collaboration. Terra and Avalanche are currently working together on a gaming subnet project, the details of which will be released later on.

Do Kwon, the founder of Terraform labs, said that LFG selected Avalanche because they found Avalanche’s robust ecosystem and user loyalty a marker for stronger growth prospects for the layer-1 ecosystem.

“Avalanche is still a growing ecosystem — a lot of it is fueled by loyalty to the AVAX token, and users feel a lot of affinity with an asset that aligns itself with AVAX… whereas for the average Ethereum user, aligning yourself with Ether doesn’t really mean that much,” he said.

Earlier, Terra’s co-founder Do Kwon had pledged that LFG would acquire up to $10 billion worth of Bitcoin to add to Terra’s treasury reserves. Since then, LFG has been actively buying Bitcoins and has added $1.6 billion worth of Bitcoins to its reserves to date. These Bitcoins would be used to back its UST stablecoin.

The Avalanche deal adds a sizable chunk of the second Layer-1 tokens to Terra’s treasury reserves and diversifies it beyond Bitcoin. The Avalanche Foundation now has $100 million worth of LUNA and $100 million worth of UST post the dual-deal.

“AVAX is an excellent reserve asset to complement Bitcoin in the LFG treasury. This is just the beginning for these two communities together,” said Ava Labs’ President Jon Wu. “We’ll see more assets, applications, and novel subnet collaborations flourish out of this new connection.”

Both Avalanche and Terra seem to be optimistic about this partnership. Avalanche’s founder Emin Gun Sirer believes that the present partnership will result in more Terra applications expanding their base to the Avalanche blockchain.

Post this move, the price of the AVAX token went up from $84 to $87.90 at the time of writing, registering a gain of over 4.7% while LUNA, Terra’s native token, had gathered the price of $102.04 as per CoinMarketCap.

As recently reported, Terra has become the second-largest ecosystem in decentralized finance (DeFi) after the latest rise in the price of LUNA, Terra’s native token. According to DeFi Llama, Terra currently boasts total value locked (TVL) of over $23 billion, marking an all-time high in US dollar terms.