LFG Is Deploying $1.5 Billion To Protect Terra USD’s (UST)

The Singapore-based nonprofit LFG is part of the Terra ecosystem. It is assigned with collateralizing the network’s algorithmic stablecoin UST to keep its USD peg intact while also managing the network’s reserves.

LFG, a nonprofit based in Singapore, is part of the Terra ecosystem and is tasked with collateralizing UST, the algorithmic stablecoin of the network, for keeping the USD peg intact while also managing the reserves of the network.

The details are not revealed as of now; the LFG, however, early today, announced that it would first give BTC worth $750 million OTC or over-the-counter trading firms for managing and trading the capital.

Continuing from this, after the market has stabilized, the LFG will acquire a 750 million UST loan, likely from Terraform Labs, for re-balancing its reserves.

The LFG indicates that the council voted to implement the plan after experiencing “significant” market volatility across UST, BTC, and Terra (LUNA) in the last several days.

3/ Per the LFG’s mandate, the LFG will proactively defend the stability of the $UST peg & broader Terra economy, especially under volatility and the uncertainty of macro conditions in legacy markets.
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022

Further explaining the step, the founder of Terraform, Do Kwon, cleared that “LFG is not trying to exit its Bitcoin position” and will eventually be deploying the capital in the short-term to make UST strong in the short-term will boost its BTC holdings long term:

The founder said it was valuable to have capital prepared to be deployed in the current market even though buys and sells of UST are not meaningfully directional now. Kwon further reveals that they intend to redeem the loan in BTC, expanding the total reserves as markets recover.

1/ The LFG Council just voted to deploy 1.5B in capital (0.75B in BTC, 0.75B in UST) to allay market concerns around UST. Some more context on why and how: https://t.co/TfaAPkzgUJ
— Do Kwon ? (@stablekwon) May 9, 2022

At the time of writing, the LFG’s reserves are worth $2.91 billion, backed by BTC by 91% or $2.7 billion, the declining price of assets is pushing the entity to readjust its balance sheet for maintaining UST’s peg. BTC has dropped 12.7% in the last seven days and was trading at $32,934.68 at the time of writing.

LUNA, a native asset of Terra, also has a role in maintaining UST’s peg through its burning and minting mechanism; it has dropped notably in the past week as well, plummeting by 24.5% to $62.15.