The nonprofit Luna Foundation Guard (LFG) is investing $100 million in Avalanche project AVAX tokens to expand reserves and increase the stability of the algorithmic stablecoin UST.

I’m excited to reveal the evolving collaboration between 1/. @avalancheavax and Terra will also be further consolidated with a $100 million Treasury Swap between TFL and the Avalanche Foundation of the Avalanche. $LUNA <> $AVAX to strategically align ecosystem incentives!https://t.co/z9A86CWZDs

— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) April 7, 2022

LFG will purchase tokens from the Avalanche Foundation with UST in an OTC deal. Unlike the organization’s bitcoin reserves, AVAX will be stored on the asset’s native blockchain.

“LFG has agreed to buy $100 million in AVAX for UST reserve […] It marks the emergence of a diversified and uncorrelated pool of assets supporting the stablecoin stable.

Terra’s support company, Terraform Labs (TFL), will also handle the token swap from LUNA to AVAX. The $100 million swap was announced by the need to “show Avalanche’s commitment.”

The two deals will bring the Avalanche Foundation $100 million in UST and $100 million in LUNA.

According to TFL chairman Do Kwon, AVAX purchased for stablecoins will increase the stability of the UST stable against the US dollar. To do this, use the same model as bitcoin.

6/ This means: $UST adoption is growing on Avalanche, $AVAX it’s getting scarcer – aligning the stablecoin’s growth with L1’s developers and users.

— Do Kwon 🌕 (@stablekwon) April 8, 2022

LFG began buying digital gold at the end of March. Kwon later explained that with the creation of the reserve, the UST will become a “hybrid” stablecoin – if the price of the asset drops below $1, the reserve pool will “immediately” provide the liquidity necessary to maintain a stable price.

This pool works on the chain similar to the UST issuance mechanism. However, instead of burning the LUNA, it’s about supplying and holding the wrapped BTC. In the case of AVAX, only the reserve asset changes.

According to Smart Stake, LFG has 35,768 BTC at the time of writing, worth over $1.55 billion.

The partnership of the two projects will allow users to directly replace AVAX with UST. More Terra-native protocols will also appear in the Avalanche ecosystem. Specifically, Anchor has been operating on the network since March and the Nebula Protocol will be launched in the near future.

8/ TFL will also put boots on the ground to raise Avalanche — @anchor_protocol touched the ground recently and @nebula_protokol Avalanhce will create a cluster of best assets in eco etc.

— Do Kwon 🌕 (@stablekwon) April 8, 2022

“Terraform Capital will cover initial boot costs for selected projects using UST in the AVAX ecosystem. In consortium with our various security partners, the cost of the audit will be covered,” Kwon wrote.

Emin Gün Sirer, founder of Avalanche, described the agreement as “the beginning of bringing the Avalanche and Terra ecosystems together”. According to him, the partnership will create new asset classes and more efficient scenarios for their use.

3/ Terra developed an innovative approach to stablecoin design and Avalanche, $UST To expand its use in DeFi applications.

— Emin Gün Sirer🔺 (@el33th4xor) April 7, 2022

“Terra and Avalanche will create a new gaming subnet. “While I can’t reveal any details, I’m excited about what the future holds for us.”

Recall that in March, the price of LUNA updated its historical maximum against the backdrop of news about the creation of a bitcoin reserve for UST.