What is Terra (UST) Going to do With the BTC Purchased? Lock in Protocol Reserves

• Terra (UST) Locks BTC for Protocol Reserves
• BTC hailed to be the most liquid in cryptocurrency space
• UST and LUNA to algorithmically sustain peg to USD

Terra is a well-known blockchain particularly due to UST, stable coin. A big buy of Bitcoin by anyone will give a reason for BTC to rally citing reasons of demand.

With the huge buy made by Terra, with an assumption that 200,000 BTC has been purchased at $50,000 each – the $125 million Worth Bitcoin Buy of Terra is locking a considerable portion of BTC liquidity in its wallet.

“Previously, Glassnode reported that 76 percent of Bitcoin’s circulating supply is currently illiquid, which means it is moved into wallets that have no history of spending. So, Terra’s BTC buys will also join the list.”

So, what is Terra (UST) going to do with the BTC purchased? Previously, Do Kwon, Terra founder stated that the Bitcoin is meant to bolster the Terra protocol’s reserves.

For clarity, a reserve fund is a savings account or other highly liquid asset set aside by an individual or business to meet any future costs or financial obligations, especially those arising unexpectedly.

So, BTC being added to “Bolster Terra Protocol’s Reserves” means Do Kwon believes Bitcoin is a highly liquid asset.  So, in the future will everything be looked at in terms of BTC? Is BTC moving in that direction?

Is Bitcoin Considered a Liquid Asset? In the cryptocurrency market, reportedly, there is no asset more liquid than Bitcoin. BTC is considered liquid because it is traded on majority exchanges. High liquidity is important, because it consists of fair asset prices, market stability, technical analysis accuracy and quicker transactions.

There is no denying that Bitcoin Whales with their big buys are still able to move the price of the crypto asset with buy and sell orders.

After the BTC purchase by Terra, LUNA and UST the native tokens of the Terra network have been attracting a lot of attention.

For those who are new, Terra Blockchain is built on Cosmos SDK.  Terra allows developers to build several Dapps and custom blockchains for different use cases. Terra Network was developed by Terra Labs in South Korea. Terra blockchain has several hundreds of NFT collections, DeFi platforms, and Web3 applications.

The goal of Terra as set in its White Paper is to fulfill what Bitcoin was originally set out to be. To make that workable Terra deploys a set of stable coins.  The value of each stable coin is linked to different commodities or fiat currencies.

The most popular of all the Terra stable coins is UST as it tracks the price of USD.  UST achieves its peg to the dollar by making use of LUNA another ecosystem token. LUNA does the job of sustaining the price of Terra Stable Coins.

UST does not use the reserve of assets to maintain their peg, but makes use of a smart contract-based algorithm to burn LUNA tokens which in turn will sustain the price of UST tokens.

The Terra community members have the advantage of being able to exchange 1 UST for 1 LUNA regardless of the market price of the token at that point in time. So, when the price of UST rises, LUNA holders make a risk-free profit by swapping LUNA for UST – technically due to demand has a value more than $1. During the swapping process, a percentage of LUNA is burned and the rest is deposited in the treasury. The funds in the treasury are further used to invest in apps and services which improve the utility of the ecosystem.

Similarly, when the demand for UST is low, users can swap it for LUNA – as the worth of LUNA is more due to scarcity and this is another risk-free profit.