Terra buys $200M in AVAX for reserves as rival stablecoins emerge

Terraform Labs (TFL) and the Luna Foundation Guard (LFG) have announced they have purchased a combined $200 million worth of Avalanche (AVAX) tokens from the Avalanche Foundation. 

TFL, the company responsible for the development of the Terra blockchain, swapped $100 million worth of Terra (LUNA) for AVAX in order to “strategically align ecosystem incentives,” according to Terra’s Twitter.

LFG, a nonprofit organization mandated to build reserves for Terra’s algorithmic stablecoin TerraUSD (UST), used its own holdings of UST to purchase an additional $100 million worth of AVAX from the Avalanche Foundation.

These purchases are meant to reinforce the stability of Terra’s native stablecoin, which currently has a market cap of $16.7 billion.

Do Kwon, the founder of Terraform Labs, told Bloomberg that LFG selected AVAX for its UST reserves because of solid growth in the blockchain’s ecosystem as well as the stark loyalty of its users.

“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.”

As Terra continues to strengthen the position of UST, competitors are looking for new ways to dethrone the stablecoin. Near Protocol, a layer-1 blockchain and competitor to both Ethereum and Terra, is rumored to be releasing a stablecoin called USN which will reportedly also offer a decentralized finance (DeFi) protocol capable of providing users with a 20% annual percentage yield (APY) on their USN deposits.

This is similar to the Terra ecosystem’s Anchor protocol, which currently offers users a 19.49% APY on UST deposits.

In a Substack post detailing what he understands of the plans, Crypto Insiders Telegram group founder Zoran Kole argued that Near Protocol was superior to both Ethereum and Terra, offering data from Electric Capital that outlined Near Protocol’s substantial growth in terms of development.

Kole concluded that Near Protocol’s network growth combined with its soon-to-be-released USN stablecoin and subsequent DeFi protocols could eventually allow an $11.7 billion market capitalization to catch up to and eventually eclipse Terra, which has a market cap of $37.2 billion.

“This will lead to a comparison of Near to Terra ($LUNA) as the narrative for attractive stablecoin yields proliferates.”