Luna Foundation Guard (LFG), a Singapore-based non-profit, will lend BTC and UST worth $1.5 billion. It’s part of their plan to keep the UST steady in the face of market turbulence and keep the stablecoin tie to the dollar.
Protection for the UST Stablecoin
LFG revealed on Monday (May 8, 2022) that it would lend $750 million in Bitcoin to over-the-counter (OTC) traders to protect the peg of the algorithmic stablecoin UST in a tweet thread. As market circumstances improve, another 750 million UST will use to accumulate BTC.
LFG also stated that the traders will trade funds on both sides of the market in order to help achieve #1 and #2. As market conditions calm, it eventually maintains parity of the LFG Reserve pool (valued in BTC).
The LFG Council voted unanimously in favor of the action. It includes Do Kwon, the creator of Terraform Labs, and Nicholas Platias, the head of Terraform Labs’ research. Kanav Kariya, president of Jump Crypto, and José Maria Macedo, founding partner of Delphi Ventures and head of Delphi Labs, are also on the list.
Meanwhile, the new development comes after the dollar’s peg to the UST briefly lost over the weekend. The algorithmic stablecoin’s price has dipped below $1, to $0.98, and is currently trading at $0.993.
Terra’s lending market, Anchor Protocol, which pays 18.8% APY to investors who deposit UST, depegged after significant withdrawals. Anchor’s total UST deposits declined to $11.2 billion from $14 billion as a result of the withdrawals.
There was also a large sale of UST on Curve’s decentralized finance (DeFi) platform and Binance’s crypto market. Some users of Crypto Twitter believed the scenario was a planned and coordinated attack on the Terra ecosystem.
UST Reserve Holds $3.5B BTC
Meanwhile, LFG’s decision addressed by Do Kwon in a tweet thread, who stated that the company was not planning to exit its BTC holdings. Instead, the funds allocated to a professional market maker will utilize to purchase more UST. If the stablecoin price continues to fall below its peg, this will happen. If the price of Bitcoin is larger than or equal to its peg, it will happen much more frequently.
The Terraform founder stated that UST buys and sells are now non-directional. However, they believed that having funds ready to deploy in the current market was important. They intend to have the loan redeemed in BTC once markets recover, boosting the size of their entire reserves.
LFG raised $1.5 billion in bitcoin earlier this month to strengthen its UST reserve. An OTC deal with Genesis, a crypto-broken company, netted $1 billion. The remaining $500 million, on the other hand, was purchased from Three Arrows Capital.
In April, LFG purchased bitcoin for $176 million, as well as another 100 million and other BTC acquisitions. The UST reserve now has $3.5 billion in bitcoin after the most recent addition in May. It now ranks among the top ten BTC holders worldwide.