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Luna Foundation Guard Lends $1.5B in BTC and UST for Stablecoin Peg
The move comes after UST briefly lost its peg to the U.S dollar over the weekend.
By Sam Reynolds
Updated May 11, 2023, 4:44 p.m. Published May 9, 2022, 6:06 a.m.
Luna Foundation Guard (LFG) will lend $1.5 billion in bitcoin (BTC) and terraUSD (UST) to defend the peg of its algorithmic stablecoin to the U.S. dollar.
2/ Relative to Terra, $UST has experienced notable directional flow over the weekend, accompanied by similar volatility in both $LUNA and $BTC. While this flow has currently evened out, it is prudent to prepare for potential future volatility.
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
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- In a tweet thread, the Singapore-based LFG said it would loan $750 million worth of BTC to trading firms to help protect the peg and also loan $750 million in UST to accumulate bitcoin to help normalize the market.
- "The traders will trade the capital on both sides of the market to help accomplish both #1 and #2, eventually maintaining parity of the LFG Reserve pool (denominated in BTC) as market conditions progressively stabilize," LFG wrote in the thread.
- UST relies on another token, LUNA, to keep its price of a dollar via a set of on-chain mint and burn mechanisms and is one of the largest algorithmic stablecoin.
- In a separate tweet thread, Do Kwon, the project's founder, said the move to loan out $750 million of bitcoin shouldn't be seen as LFG trying to exit its BTC position but, rather, increasing the liquidity around the UST peg. LFG will buy more BTC if UST expands from here, which we think is the more likely outcome," Kwon said.
- Over the weekend, the UST briefly lost its peg to the U.S. dollar, falling to $0.987 before climbing back to $1. At the same time, LUNA dropped 10%.
- Part of the reason why UST briefly broke its peg was the large quantities of UST that were withdrawn from liquidity pools on decentralized exchange Curve, while $192 million of UST was dumped.
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