Among the sharp pullback across Bitcoin (BTC) and also the wider crypto market now, the Luna Foundation Guard (LFG) is placed to deploy $1.5 billion price of capital to “help protect” Terra USD’s (UST) peg towards the U . s . States dollar.
The Singapore-based nonprofit LFG belongs to the Terra ecosystem and it is given the job of collateralizing the network’s algorithmic stablecoin UST to help keep its USD peg intact whilst handling the network’s reserves.
While facts are sparse at this time, the LFG outlined on Twitter earlier today that it’ll first lend $750 million price of BTC to in excess of-the-counter (OTC) buying and selling firms to handle and trade the main city.
Following on out of this, when the market has stabilized, the LFG will get yourself a 750 million UST loan — probably from Terraform Labs to re-balance its reserves.
The LFG noted the council dicated to execute the program after observing “significant” market volatility across BTC, UST and Terra (LUNA) in the last a few days.
4/ Consequently, the LFG Council has dicated to execute the next:
– Loan $750M price of BTC to OTC buying and selling firms to assist safeguard the UST peg.
– Loan 750M UST to amass BTC as market conditions normalize.
— LFG Luna Foundation Guard (@LFG_org) May 9, 2022
Supplying further explanation on the go, Terraform Labs founder Do Kwon emphasized on Twitter that “LFG isn’t attempting to exit its Bitcoin position” and it is ultimately deploying the main city for the short term to bolster UST for the short term will upping its BTC holdings lengthy term:
“While buys and sells of UST aren’t meaningfully directional now, we felt it had been valuable to possess capital prepared to be deployed in the present market. As markets recover, we plan to achieve the loan redeemed to all of us in BTC, growing how big our total reserves.”
1/ The LFG Council just dicated to deploy 1.5B in capital (.75B in BTC, .75B in UST) to allay market concerns around UST. More context on why and just how: https://t.co/TfaAPkzgUJ
— Do Kwon (@stablekwon) May 9, 2022
Because the LFG’s $2.91 billion reserves are mainly backed by BTC by 91%, or $2.7 billion during the time of writing, the declining cost of assets is forcing the entity to readjust its balance sheet to keep UST’s peg. During the time of writing, BTC is lower 12.7% in the last 7 days to sit down at roughly $33,600, while UST is slightly off its peg at $.99.
Related: Bitcoin clings to $36K as data suggests BTC cost sell-off originated from short-term holders
Terra’s native asset LUNA, that also leads to maintaining UST’s peg via its burning and minting mechanism, has endured considerably in the last week too, shedding a substantial 24.5% to sit down at $62.15.
