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May 9, 2022

LFG Implements $1.5 Billion to Protect the UST Peg

The Luna Foundation Guard (LFG), a non-profit organization dedicated to all things Terra, just stated that it will lend $1.5 billion to safeguard the peg of their algorithmic stablecoin UST in the face of current market turbulence.

The group voted to lend $750 million in bitcoin from its reserves to over-the-counter (OTC) trading businesses to defend UST’s peg in a tweet thread on Monday.

The LFG also said that it will lend an additional $750 million in UST to help stabilize the market by accumulating more bitcoin.

Terraform Lab’s co-founder Do Kwon created a new tweet thread to clarify the organization’s latest step and address mounting speculation.

He clarified that the recent events should not be interpreted as the Luna Foundation Guard attempting to sell its bitcoin holdings. Instead, the monies will be loaned to an unnamed “professional market maker” in order to considerably increase liquidity around the UST peg.

As a result, if the stablecoin falls below its peg, the lent capital will be used to buy UST, and if it rises above or equals its peg, the money will be used to buy more bitcoin.

The native UST stablecoin of Terra had had an exciting weekend. During the weekend, the stablecoin fell below its $1 peg due to volatile market conditions.

UST is a one-of-a-kind stablecoin that works differently from typical stablecoins such as USDT and USDC. UST’s $1 peg is maintained using a mint and burn method using Terra’s governance token LUNA, rather than centralized assets.

However, the stablecoin has depegged in recent weeks as it has been slammed by a wave of multi-million dollar selloffs, with traders on Curve and Binance swapping UST for other stablecoins. According to Etherscan statistics, one account traded 85 million UST for USDC on Curve.

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