Formation of the Luna Foundation Guard (LFG)

The Intern
Terra
Published in
6 min readJan 20, 2022

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The first step towards {REDACTED} is complete.

We’re pleased to announce the formation of the Luna Foundation Guard (LFG) — a non-profit organization established in the Republic of Singapore dedicated to supporting the advancement of open-source technology, facilitating the growth of the Terra ecosystem, and improving the sustainability and stability of Terra’s algorithmic stablecoins.

https://lfg.org/

The Strive for Decentralized Money

If a decentralized economy needs decentralized money, then DeFi requires a scalable, robust, and censorship-resistant form of money at the base layer of its technology stack.

Enter stablecoins.

Where price-volatile assets predominating the industry have failed to fulfill the currency mandate of cryptocurrencies, stablecoins have established themselves as the preferred medium of interacting with DeFi — with network effects bolstered by pre-existing preferences for units of account in fiat currencies.

Stablecoin adoption is exploding. With a ballooning market cap north of $170 billion, the product-market fit of stablecoins as viable Internet-native mediums of value exchange between public blockchains is evident. Stablecoins are significantly more composable, portable, accessible, and cost-effective for counterparties to engage with on the Internet than fiat currencies.

However, the rise of stablecoins is handcuffed by the centralization of incumbent issuers whose models are at odds with the underlying ethos of decentralization permeating the industry. Centralized control of stablecoins underpinning a decentralized financial stack induces risks of holding the upper layers of the DeFi stack hostage to the actions of third-party issuers. Liquidity throughout DeFi is tethered to the prevalence of centralized stablecoins, with alternative recourses to the risk at hand with major stablecoins only materializing recently.

Terra emerged as a decentralized protocol issuing a suite of fiat-pegged stablecoins that are both scalable and censorship-resistant — removing many of the capital inefficiency constraints of decentralized stablecoin alternatives with its unique algorithmic design.

By providing a decentralized issuance mechanism at the base layer of the DeFi stack, Terra’s stablecoins, particularly TerraUSD (UST), have surged into prominence alongside an entourage of other decentralized stablecoins in a thriving cross-chain environment. With a current outstanding market cap of nearly 11 billion, UST is now the leading decentralized stablecoin in the market and 4th overall behind Tether, USDC, and BUSD. For now…

Image Credit — https://messari.io/asset/terrausd

The rise of decentralized stablecoins has not come without criticism, however. As they begin to absorb increasingly larger shares of the stablecoin market from centralized issuers such as Tether and Circle, algorithmic stablecoins have come under fire for the robustness of their peg stability, as they are not over-collateralized or backed 1:1 by cash equivalents in a bank account.

Tilting at the misconception that algo stablecoin designs are unsustainable has been a core focus of Terraform Labs and the broader Terra ecosystem and LUNAtic community. By concentrating almost explicitly on bootstrapping the demand-side of algorithmic stablecoins, UST weathered a massive, reflexive drawdown in the LUNA price in May — learning important lessons and improving upon its design and adoption strategy. Still, questions persist about the sustainability of algorithmic stablecoin pegs, which is something our community doesn’t hide from and tackles head-on.

Manifesting the vision of a decentralized economy based on truly decentralized money is an exacting task. Incremental improvements in mechanism design, education, awareness, and incubating applications that wield algorithmic stablecoins like UST in a meaningful way have proven success in unleashing a new form of money free from the risks of centralized stablecoins.

But, it’s a continual process. Terra is not in its end state — it’s only just beginning.

In order to succeed, we need to continue supplementing the Terra economy with effective resources across multiple dimensions. These include everything from technical developer tooling to capital backing projects, educational materials helping onboard new users and builders, and innovative mechanisms to support algorithmic stablecoin models amid volatility.

Achieving the outcome for Terra that our community evangelizes means penetrating the mainstream — onboarding a global user set and giving them the resources to wield the power of a new, more inclusive financial system. Getting to that point means continually refining, developing, and building an ecosystem around Terra stablecoins that confer credibility in their sustainability and widespread demand.

It means building a cross-chain ecosystem of demand for Terra stablecoins that absorbs the short-term volatility of speculative market cycles and creates a new stablecoin era — one where the underlying decentralized ethos of the industry we all share remains steadfast.

By focusing on bootstrapping demand via a variety of avenues beyond ephemeral liquidity mining incentives, Terra’s ecosystem has exploded into a vibrant economy of cutting-edge financial applications, payments and savings primitives, NFTs, and much more.

Image Credit — https://terra.smartstake.io/eco

A deluge of organizations and projects have formed out of our community’s enterprise to eventually realize the ambitious goals laid forth for Terra. Together, they have propelled Terra to the 2nd largest smart contracts chain by TVL — only behind Ethereum.

Now, they have a powerful new ally — the LFG.

The formation of the LFG is a culmination of the lessons learned from the previous years in the market. It’s a center of excellence focused on cultivating the tendrils of demand pivotal to the success of Terra stablecoins and solidifying the position of decentralized stablecoins in the market as the superior alternative to incumbents.

Defining the LFG Mandate & Structure

LFG’s core mandate is to buttress the stability of the UST peg and foster the growth of the Terra ecosystem. Building reserves that backstop the peg of algorithmic stablecoins amid volatility and funneling resources into research that further advances what’s possible with stablecoins are only just the beginning.

The LFG will also allocate grants for builders, researchers, community members, and anyone else pursuing bold ideas in the interest of the Terra economy categorized into 3 primary groups:

  1. Open-Source Technology Development
  2. Research & Education
  3. Community Growth

Establishing a non-profit organization unlocks a new pathway for the future development of a decentralized economy built on truly decentralized money.

The LFG will be overseen and operated by an independent Governing Council, initially comprised of the following leaders and experts in the industry, which will expand to include leading builders in the Terra ecosystem:

  • Do Kwon (Co-Founder and CEO of Terraform Labs)
  • Nicholas Platias (Founding member of Terraform Labs)
  • Kanav Kariya (President of Jump Crypto)
  • Remi Tetot (Co-Founder of RealVision)
  • Jonathan Caras (Project Lead at Levana Protocol)
  • Jose Maria Delgado (Co-Founder of Delphi Digital)

The LFG will initially be funded with a 50 million LUNA gift from TFL to help bootstrap its stabilizing reserves and grants framework. The planned execution from the TFL wallet is scheduled for 01/22 at 10 AM SGT (2 AM UTC) and the transaction hash will be shared publicly once complete for transparency.

Moving forward, proposals to the LFG for funding will be evaluated on their relevance to LFG’s mission, the technical design of the project, and the overall quality of the team and its members. If you have a great idea for improving or building a decentralized application on Terra, a DeFi project that utilizes algorithmic stablecoins, or if you are otherwise inspired to build something completely different that helps advance the goal of growing a truly decentralized economy, the LFG would love to hear about it!

The LFG is currently putting the final touches on its grants framework, which will be released publicly in the coming weeks. For now, if you have any questions or are interested in learning more, please feel free to contact the LFG at the email address below:

contact@lfg.org

Are you interested in pushing the boundaries of stablecoin innovation? The LFG is currently seeking to hire highly motivated individuals with deep experience in the industry as it ramps up its grants framework this year.

Let’s build decentralized money, together.

jobs@lfg.org

Finally, the formation of LFG sets the stage for {REDACTED}, which will be announced shortly now that the LFG is ready to kickstart its mission.

Stay tuned frens, more to come.

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