As crypto markets continue to slide in value, concerns about the algorithmic stablecoin terrausd (UST) losing its $1 parity have swelled in recent times. Two days ago on May 7, 2022, UST dipped down to $0.985 per unit against tether (USDT), and the stablecoin’s price drop invoked a great deal of speculation concerning UST losing its dollar peg. Following the drop on Saturday, the Luna Foundation Guard (LFG) revealed it was lending out millions of dollars worth of bitcoin and UST in order to protect the peg until market conditions normalize.
Crypto Market Carnage Strain Algorithmic Stablecoin UST’s Peg, Terra Supporters Say Stablecoin Was Victim of a ‘Coordinated Attack’
The digital currency markets have suffered a lot lately, with billions of dollars leaving the crypto-economy in the past few weeks. Of course, the chaos of the crypto market usually drives traders to leverage stablecoins to protect their wealth from volatile market conditions. Over the past few days, BTC has gone from $40,000 per unit on May 4 to $32,637 per coin on May 9. the US dollar.
This has fueled trade volumes for tether (USDT), usd coin (USDC), and many other stablecoins including UST. However, UST had dropped in value on May 7, slipping to $0.985 per unit against tether (USDT). While this is not the biggest deal and many other stablecoins have slipped below the $1 parity, the topic of Terra’s stablecoin has been trending on social media and forums over the past two days. Furthermore, a significant amount of UST was withdrawn from Anchor Protocol and Curve Finance.
Some Terra supporters called the incident “coordinated attackand said the UST dumps were “deliberate.” On Sunday morning, a Terra wrote“We are again witnessing a coordinated attack against the UST. Discharge of $285 million UST on Curve and Binance by a single player, followed by massive shorts on LUNA and hundreds of posts on Twitter. So far not a really successful attempt as the peg is almost back to $1. At the time of writing, UST is the tenth largest crypto asset by market valuation and is changing hands at $0.995077 per unit.
Luna Foundation Guard Reveals Lending of $1.5 Billion in Crypto Assets to Defend UST’s Peg
After all the speculation, rumors, and conspiracy theories, on May 9, 2022, the Luna Foundation Guard (LFG) and Terra’s co-founder Do Kwon explained the team was taking steps to ensure the peg remains defended. “Over the past several days, market volatility across crypto assets has been significant,” LFG said on Monday. “The market turmoil is also reflected by the past week’s uncertain macro conditions across legacy asset classes.” LFG says that it is mandated to “proactively defend the stability of the UST peg [and] the broader Terra economy.”
LFG has decided lend bitcoin (BTC) and UST stablecoin to protect the stability of the UST $1 parity. “The LFG Board has voted to execute the following: – Loan of $750 million from BTC to [over-the-counter] trading companies to help protect the attachment to the UST. – Lend 750 million UST to accumulate BTC as market conditions normalize,” the organization said on Monday. Terra co-founder Do Kwon then updated the public on the loan action. Kwon stress that “LGF is not trying to get out of its bitcoin position.” Kwon added that the main goal was to get the capital into the hands of professional market makers.
The liquidity provided has two purposes; “Buy UST if price [is less than] peg” and “Buy BTC if price [is greater than or equal to] peg,” Kwon said, “thus significantly strengthening the liquidity around UST peg.” The Terra co-founder added:
While UST buying and selling are not significantly directional now, we felt it was valuable to have capital ready to deploy in today’s market. As the markets recover, we plan to redeem the loan in BTC, increasing the size of our total reserves.
Essentially, LFG’s professional market makers will leverage the capital to protect both sides of the market to defend UST’s $1 parity. The recent discussions revolving around UST’s peg follow LFG buying up massive amounts of bitcoin (BTC) to keep in its decentralized forex reserve. LFG also acquired $100 million in AVAX for the same purpose. While LFG’s BTC wallet holds 42,530.82 bitcoin, it has not sent any funds. However, LFG recently acquired 37,863 bitcoin from two over-the-counter deals. With no withdrawals stemming from the publicly known BTC address, LFG has likely leveraged the most recent purchase to lend to the market makers.
