- The LFG has signified that it would lend out BTC and UST to protect the stablecoin’s peg to the dollar.
- Recently the UST saw an attack that led to the de-pegging for a brief duration.
- You cannot swap 1 UST for $1 LUNA on-chain, and this is what you call de-peg, highlighted Eric Wall.
The Luna Foundation Guard (LFG) recently highlighted that it would lend out $1.5 Billion worth of Bitcoin (BTC) and UST to defend the algorithmic stablecoin’s peg to the US Dollar.
Terra’s UST witnessed a seemingly coordinated attack on May 8 which resulted in the de-pegging from the mark of $1 to below $0.992. Although this was short-lived, it created a huge fear, uncertainty, and doubt regarding the Terra ecosystem, and yet again, it was addressed as a fraud scheme.
Though to avoid such occurrences in the future, the Luna Foundation Guard (LFG) has taken a move to protect the algorithmic stablecoin. The LFG disclosed that it would be working to proactively defend the $UST peg’s stability and the Terra economy.
The Foundation expressed its views in a lengthy Twitter thread; it highlighted that it would loan $750 Million worth of BTC and 750 Million UST to over-the-counter (OTC) trading firms in order to protect the stablecoin’s peg to the US dollar. The UST loan would focus on accumulating more BTC for the market’s stability.
Earlier, the Foundation has purchased more than $1 Billion worth of Bitcoin as it plans to utilize the crowned cryptocurrency as a reserve for the UST.
Though the decision did raise concerns that LFG was starting to sell its Bitcoin holdings, a move that was firmly denied by the co-founder of Terra, Do Kwon. He signified that the buys and sells of UST are not meaningfully directional now; they felt that it was valuable to have capital ready to be deployed in the present market.
Furthermore, as markets recover, they plan to have the loan redeemed in BTC, surging the size of their total reserves.
Has The Peg Collapsed?
At the same time, Eric Wall, the Chief Investment Officer at Arcane Assets, who is also a crypto enthusiast, also expressed his views via Twitter.
He highlighted that no matter what Terra says, you cannot currently swap 1 UST for $1 LUNA on-chain. And that this is a depegging event, not an exchange wallet hickup as folks claim. It does not matter if you call it a spread fee or anything else. The 1:1 or peg is broken, and this is what depeg means.
Source: https://www.thecoinrepublic.com/2022/05/10/terras-lfg-to-provide-1-5b-in-btc-and-ust-to-otc-traders-to-protect-stablecoins-peg/