Thread by @pLUNADAO

Realised you missed the phenomenal space between @stablekwon and @udiWertheimer discussing the future of $LUNA and the implications of a growing $BTC reserve? 👀

Don't worry, we got you, dear #LUNAtics.

A thread🧵giving you the best out of 1.5h of pure @stablekwon content 🌕

1/ Why do people prefer algorithmic #stablecoins?

Centralized stablecoins would have an edge if not for their main problem: Regulatory risk🏛️

@terra_money's thesis: Decentralized economies need decentralized stablecoins

2/ Lately, regulators are seemingly becoming more and more aggressive with regards to stablecoins.

It seems clear, that regulators are aiming to run centralized stables like a financial institutions (i.e. implementing mandatory KYC, freezing accounts etc.)🏦🏦🏦

3/ “Give me control of a nation's money supply, and I care not who makes its laws.” rings true here 😱

Against this background, there is no point of building a #DeFi stack on centralized stablecoins. #DeFi needs decentralized stablecoins, which is why @terra_money was created.

4/ How is @terra_money different than other algorithmic stablecoins?

It's very "normie-friendly" with anmyriad of seamless payment apps (@alice_finance , CHAI, etc.) and seamless high-yield savings on @anchor_protocol 😎

This leads to lighter load on stablecoin-algorithm...

5/ Speaking of the algorithm: How secure is it?

We've seen major retractions for $UST demand in the past (May 2021, more recently @Wonderland_fi crisis). With each retraction the algo is more & more battle-tested. We can also see retractions getting smaller (in relative terms).

6/ Smaller retractions mean less strain on the algorithm, resulting in easier absorptions of $UST sell-offs (peg = strong!).

Remaining risk lies in big exogenous events, which is why decision was made to strengthen reserve with additional reserve assets, most notably: $BTC 💪💪

7/ Why #Bitcoin as a reserve asset?

- $BTC is the most proven hard-reserve asset out of all #cryptocurrencies
- Even though lots of assets might have a higher beta offset, $BTC is attractive due to its “provably calcified and hard code base”...

8/ That means $BTC's focus on security and “slow-innovation” as a feature(!) has led to cement its position as a viable decentralized #reserve currency, as
1) its value proposition is not reliant on updates and
2) there's thus less risk of updates leading to security risks. 🔒

9/ What about $USDC or other centralized stablecoins as a reserve currency?

Not going to happen, as holding centralized stables as collateral for a decentralized stablecoin would make absolutely no sense and invalidate @terra_money's goal of truly decentralizing #stablecoins👀

10/ What about other #smartcontract platform tokens as a reserve currency?

Generally not unattractive, especially $ETH. However, other SC platforms tend to be much more tribal, in the sense that they are first and foremost interested in SC and stablecoins on their own chain.

11/ This sort of tribalism means these communities are less open to the envisioned cross-chain "collaborations".

The #Bitcoin community does not have this problem, as they do not have native SC or stables on their own chain. This makes $BTC - $LUNA a great fit.🤝

12/ How exactly will $BTC as a reserve currency be used?

Similarly, to $LUNA but with a difference:

- Mint $UST by trading in $1 worth of $BTC
- Redeem $UST for $BTC, however a 1-2 % discount will be applied, i.e. only $0.98-0.99 of BTC would be received

13/ This serves multiple purposes:

1) Making sure $LUNA stays the base reserve currency, by making the $BTC reserve only viable when there are at least slight depegs (of 1-2 %)

...

14/ ....and..

2) Allowing for a naturally growing $BTC reserve over time, as for every BTC traded in, only 0.98-0.99 $BTC will leave the reserve👀

15/ How many $BTC will be bought?

Current clip size is $3 Billion & most $BTC has not been bought yet🤯Further, this amount will be increased in the near future.

Assuming rising $BTC prices in the long-term, terra stables will be increasingly collateralized through the reserve.

16/ How does $BTC and its community benefit from this?

80 % of trading volume stems from trading with #stables as base pairs. In #DeFi stables are even more broadly spread.

What $BTC needs is a stablecoin partner to expands its use case and approach new havens.

17/ The @terra_money community intends to enable this for the $BTC community and reinforce this relationship!

Terra's $BTC reserve allows for $BTC #hodlers to have first citizen-rights in all sorts of #DeFi applications being built on top of it.🤝

18/ How will $LUNA and its community benefit from these $BTC?

$LUNA's price is inherently linked to the demand for and the stability of $UST and other #terra stablecoins.

A strong $UST is the basis for a strong and thriving $LUNA.

The $BTC reserve helps by...

19/ Taking strain away from the algorithm in periods of high retractions and thereby making $UST much harder to break!💪

Further, this measure ties $UST's to $BTC, which itself as an index-like indicator for the whole crypto market.

20/ This helps in diminishing tribalism and truly establishing @terra_money stables as THE #stablecoins for the whole crypto ecosystem🌎🌕

The inflow of demand this creates, will lead to immense buying pressure of $LUNA, securing its long-term success🚀

21/ And that's it - our quick summary to give you the best of 1.5h of @stablekwon 😎

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Also be sure to follow us at @pLUNADAO to stay in the loop for all things $LUNA & #DeFi.🤝