Alliance Between Avalanche AVAX and Terra Money is the Biggest in Web3

Terra is adding $200 million worth of AVAX tokens to its reserves to back Terra USD. This is a strategic move to push forward “cross-chain development” and “diversification of assets” in portfolio.

Cross-chain development, provides for interoperability between different blockchains.

Diversification of assets is a risk management strategy which mixes different types of assets within an investment portfolio to sustain against volatility and price crash of assets.

The Terra blockchain is backed by two major organizations:  1. The Luna Foundation Guard (LFG) and the Terraform Labs (TFL).  These two organizations recently decided to acquire $200 million worth in AVAX tokens.

• LFG has purchased $100 million worth AVAX tokens in exchange for their UST stable coin in an OTC trade.
• TFL purchased $100 million worth AVAX in exchange for LUNA

This swap transaction has been executed to serve as a commitment of “Terra to Avalanche” for future collaborations and cross chain development.

Ryan Watkins:  “UST becoming Avalanche native and being able to be minted and redeemed against AVAX on Avalanche is the largest and tightest cross-chain tokeneconomic relationship we’ve seen to date. The treasury swap was cool, but somewhat cosmetic. But this… this is real economic alignment.

This has large implications for the economic security of Avalanche as well depending on how large UST on Avalanche grows. AVAX is now vulnerable to whatever demand shocks UST undergoes, just as much as it’s a beneficiary of UST’s growth.”

Reportedly, Terra and Avalanche are working together on a “Gaming Subnet Project.”

Noteworthy, Avalanche recently committed $290M in AVAX to attract Gaming, DeFi and NFT ‘Subnets.’

When explaining why Terraform Labs choose AVAX, Do Kwon stated that LFG selected Avalanche’s robust ecosystem because of the “Stronger Growth Prospects of the Layer-1 Ecosystem” and “User Loyalty.” While Avalanche is still a growing ecosystem, a majority of the ecosystem’s growth is set to be backed by the loyalty of the users to the AVAX token.  It is very obvious that the AVAX community members have a lot of affinity for assets which align itself with AVAX.

Previously, LFG acquired $1.6 billion worth in Bitcoins to reserves to date.  These bitcoins are used to back the UST stablecoin. Now, with the AVAX deal, Terra has a decent sized “Layer-1 token” included to its treasury, thus diversifying their treasury beyond Bitcoin.

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