In the past few days, a lot of investors have been keeping an eye on Terraform labs after its announcement to kickstart the purchase of $10 billion worth of Bitcoin to back reserves for its stablecoin UST.
On April 5, Luna, Terra’s native cryptocurrency, soared to new highs, tapping $120 as investors took the announcement concerning purchasing BTC as bullish for LUNA. However, the cryptocurrency has nosedived since then and is down about 28%, trading at $85.12 as of writing.
However, that frame isn’t finished yet. Terra added another $1.5 million in BTC to its wallet, bringing its total stash to $1.79 billion or 42,406 BTC.
Bitcoin’s recent declines have continued to pile pressure on Luna, and although it’s notable, the continued buying by terra hasn’t driven Bitcoin’s price higher as expected. BTC has dropped about 12% in the past week, breaking below $40,000 briefly and remains tightly correlated to traditional risk assets facing macroeconomic pressure right now.
Yet, despite the drop, Terralabs CEO Do Kwon is still determined to keep purchasing BTC until their target of $10B is hit. Speaking on Tuesday to CNBC, Kwon expounded the reasons for their choice of BTC over the dollar in backing UST.
Whereas he did not think there was anything wrong with backing stable coins in terms of dollars, Kwon stated that there were “some limits to the things that you can do with the so-called centralised stablecoins.”
“If you’re keeping a dollar in the bank account for every unit of stablecoin that is issued, that stablecoin now has an issuer and an operator.” Kwon, 32, told CNBC’s, Kate Rooney.
“What that means is that you have all the attendance compliance and custodian risk of having an operator and an issuer- because, for instance, what happens when the company for some reason goes bankrupt?” he asked.
He further noted that using the dollar to back stablecoins would likely make firms fall into the government traps of regulations. “Given that bank deposits are so easy to regulate, I think one thing we will start to see with centralised stablecoins is that there is going to be massive compliance creep,” he went on, adding that over time things like KYC and vetting what type of applications that can use the stablecoin, could start emerging stifling innovation.
According to him, Bitcoin offered a solution since a stablecoin backed by the native cryptocurrency eliminated issuers and operators while allowing anybody in the world to trade UST in a dollar’s worth of bitcoin or luna and vice versa.