It isn’t the first time UST has been unable to maintain its peg. The Luna Foundation Guard (LFG), backer of UST, purchased $1.5 billion in Bitcoin to shore up the stablecoin reserve a few days back. However, the controversial algorithmic stablecoin was de-pegged again.
Luna’s Solution
Luna Foundation Guard (LFG) has announced that it will lend $1.5 billion in Bitcoin and TerraUSD (UST). This protects the latter’s peg during market volatility and macroeconomic uncertainty in legacy markets.
The non-profit organization based in Singapore tweeted:
1/ The LFG has acquired an additional 37,863 Bitcoins totaling ~$1.5 billion in OTC swaps with @GenesisTrading and 3AC. https://t.co/Ezzfwl7VFn
— LFG | Luna Foundation Guard (@LFG_org) May 5, 2022
Do Kwon, the founder of Terraform Labs (TFL), stated that the Luna Foundation is not aiming to sell its Bitcoin holdings with the $750 million loans. The goal is to improve liquidity around the UST peg, stressed Kwon.
Weekend De-pegging
It all started when UST noticed a spike in Terra’s Anchor Protocol withdrawals. It’s worth noting that UST deposits currently pay 18.8% as APY. As a result, Anchor’s total UST deposits fell from $14 billion to $11.2 billion.
During the same period, 16,000 addresses engaged with Anchor. This time, twice as many were withdrawing compared to depositors, according to Pedro Ojeda, co-founder of SplitBrick. The executive stated that the market event appeared to be unrelated to retail players.
Terra’s Twitter account also suggested that a small percentage of whales were responsible for most of these outflows.
One example that drew attention was a newly funded address that converted $84 million in UST into Ethereum. The address began bridging before Terraform Labs (TFL) eliminated liquidity, according to Mudit Gupta of Polygon.
Curve, a popular decentralized exchange, also saw the removal of massive amounts of UST from its liquidity pools.
TFL pulled $150 million in UST from Curve, according to Do Kwon, in preparation for the deployment into 4pool next week. According to the founder, the $84 million dumps were not done by them.
Putting Together a Reliable Stablecoin Reserve
In February, LFG raised $1 billion to establish a Bitcoin-based reserve that would backstop UST’s peg. As a consequence of its ongoing efforts, the organization’s stablecoin dethroned the Binance USD (BUSD) to become the third-largest stablecoin.
The Luna Foundation is well-known for its Bitcoin optimism. It purchased 37,863 bitcoins for $1.5 billion last week. As of earlier this week, LFG has more than $3 billion in bitcoin in its reserve. This move puts it on track to have $10 billion in stablecoin holdings by Q3 2022.
Terraform Labs, Terra’s development business, established LFG in January 2022 to serve the Terra ecosystem. The goal was to “continuously support the peg stability of Terra’s stablecoins” and other improvements within the Terra ecosystem, said Kwon.
After the foundation promised to acquire Bitcoin and other crypto-assets such as AVAX to construct a reserve fund for its USD-pegged stablecoin UST, Kwon and his entities have garnered a lot of crypto news coverage in recent months.
Despite its strong buying, LFG’s recent actions have done little to improve market sentiment. Bitcoin fell again Thursday, wiping out Wednesday’s gains following the Federal Reserve’s 50-point interest rate hike.
BTC is currently trading at $33,364, down 2.53 percent on the daily chart.
