LFG To Acquire $100 Million in Avax To Build Reserves

Industry members say the Avalanche community played a role in LFG choosing AVAX over another DeFi token


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key takeaways

  • “The stablecoin landscape is less developed in Avalanche, and so this is a way to further position UST as the stablecoin of choice,” Santiago Santos said
  • On Wednesday, Terraform CEO Do Kwon confirmed LFG purchased an additional $231 million bitcoin

The Luna Foundation Guard (LFG) has acquired $100 million of the Avalanche Foundation’s native token AVAX to build the reserves of its stablecoin UST.

LFG, the nonprofit organization built to support Terra, has a long-term goal of acquiring $10 billion in bitcoin for UST reserves. On Wednesday, Terraform Labs CEO Do Kwon confirmed that LFG had purchased an additional $231 million bitcoin, bringing its total holdings to more than $2 billion. 

LFG’s decision to hold reserves in AVAX versus ethereum or another DeFi token may sound surprising, but industry members say the Avalanche community is a major draw. 

“I think they choose AVAX because that token exchange makes a dent into that ecosystem and can win over the native AVAX users,” Jordi Alexander, chief investment officer at Selini Capital, said. “AVAX market cap is 18 times smaller than Eth, so it is a meaningful partnership.” 

A $100 million swap is close to 0.5% of AVAX’s market cap, whereas an ethereum purchase of the same amount would hardly make a dent, Alexander said, making it a good opportunity to bring new fans and users to UST.

“The stablecoin landscape is less developed in Avalanche, and so this is a way to further position UST as the stablecoin of choice,” said Santiago Santos, angel investor and co-host of Blockworks’ Empire podcast. “Ethereum is a more saturated ecosystem.”

“They are already on AVAX with Anchor, so it is a logical next step to solidify that support from a place of strength,” Alexander added, referring to the Anchor Protocol, which is native to Terra and will be launching a native version on Avalanche as part of the partnership. 

Kwon agreed that the community aspect of Avalanche and users’ loyalty to AVAX played a role in the decision, he told Bloomberg.

Luna’s acquisition of $100 million in AVAX is only the beginning of UST’s adoption among Avalanche DeFi applications, Ava Labs CEO Emin Gun Sirer said in a statement.

In March, Ava Labs, the team behind the Avalanche blockchain, announced a partnership with Aave, GoldenTree Asset Management, Valkyrie Funds, Wintermute, Jump Crypto and Securitize to build the first KYC-compliant, horizontally-integrated blockchain engineered for institutional DeFi. 

The team also unveiled the Avalanche Multiverse, an up-to-$290 million program to encourage growth of its subnet capabilities, which serves to validate blockchains and enable scalable, app-specific networks. 

“With Ava Labs’ recent partnership…UST stands to benefit from this venture,” Spencer Hughes, research analyst at Blockworks, said. “Sirer also mentioned that Luna and Ava Labs will collaborate to launch a gaming subnet, which provides an independent, scalable application network for users.”

There is speculation that AVAX, although widely supported by its community, may not be as safe as a reserve currency choice as ethereum. 

“I would be concerned if AVAX became a very big percentage of reserves, but my view is that diversifying the reserve base is marginally beneficial,” Santos said. “That said, everything in crypto is still very correlated. The problem is you can’t go to seizable assets, which limits the possibilities.” 

Santos said he wouldn’t be surprised if LFG opts to add ether and other assets to reserves in the future.

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