Bear market? What bear market? The Terra blockchain’s native token LUNA has received a major boost in the past 24 hours, thanks to a mega fundraise from crypto-focused venture capitalists to the tune of US$1 billion.

Time to wheel out the “one billion dollars” Dr Evil meme GIF again? Nah, we’ll refrain…

The Luna Foundation Guard, which is also a bit memey (it goes by the acronym “LFG” commonly used in crypto circles), has reportedly managed to raise the capital investment – one of the industry’s largest ever – in a private sale of LUNA tokens.

Leading the investment for the Terra-focused non-profit organisation were VC firms Jump Crypto and Three Arrows Capital, with Republic Capital, GSR, Tribe Capital, DeFiance Capital and others also participating.

The funding will reportedly be used to establish what Terra and LFG is calling a “Forex Reserve” denominated in Bitcoin. And that reserve is designed to act as a back-up fund to help keep UST’s price stable in market downturns. Handy timing, then.

UST is what’s known as an “algorithmic stablecoin” which, unlike other major stablecoins such as USDT and USDC, don’t actually use collateral to maintain their US-dollar-pegged price. Stablecoins such as UST instead use a system of market incentives to maintain the peg.


A “release valve” during bearish conditions

The mechanics of algorithmic stablecoins is a complicated but ingenious process, and if interested you can read more on Terra’s website about how they actually work, or in this press release regarding the US$1 billion raise.

But to explain the nature of the newly formed underlying reserve funds a little more, Terra further tweeted: “One common criticism of algorithmic stablecoins is their reflexive nature and the hypothetical risk of a ‘bank run’ scenario where demand to sell the stable outstrips supply in a way that causes compounding price decreases in both native tokens,” adding:

Although the widespread adoption of $UST as a consistently stable asset through market volatility should already refute this, a decentralized Reserve can provide an additional avenue to maintain the peg in contractionary cycles that reduces the reflexivity of the system.”

Those “contradictory cycles” are basically referring to dumpy periods in the market, perhaps similar to what we’ve been seeing just lately.

The Bitcoin-denominated reserve essentially acts as a way of diversifying away from assets purely in the Terra ecosystem. LFG describes it as “a release valve for the redemptions of UST” into LUNA and says it can dip into the Bitcoin to stabilise the market in cases of sell-offs.

And, according to the press release, LFG plans to include other “major non-correlated assets” to the reserve in the future.

Meanwhile, investors in the US$1 billion sale will abide by a four-year vesting period for the LUNA tokens purchased, in order to avoid any immediate open-market dumping.

The Luna Foundation Guard was founded by Terra co-creator Do Kwon and Terraform Labs head of research Nicholas Platias. Its governing council is formed by some big players in the crypto-investment space, including Jump Crypto President Kanav Kariya, Real Vision co-founder Remi Tetot, Levana Protocol communication lead Jonathan Caras, and Delphi Labs leader José Maria Macedo.

At the time of writing, Terra’s LUNA token is the best-performing asset in the top 10 cryptos by market cap in the past 24 hours – up 14 per cent and changing hands for US$60.27. That’s still down more than 40 per cent from its all-time high of US$103 achieved a couple of months ago.