Luna Foundation Guard (LFG) will lend $1.5 billion in Bitcoin (BTC) and TerraUSD (UST) to protect the peg of its algorithmic stablecoin to the U.S. dollar.
- In a tweet thread, Singapore-based LFG said it will lend $750 million worth of BTC to trading firms to protect the peg, and also $750 million in UST to accumulate bitcoin and help normalize the market.
- "Traders will trade the capital on both sides of the market to achieve both #1 and #2 and eventually maintain parity of the LFG reserve pool (in BTC) as market conditions gradually stabilize," LFG wrote in the thread.
- UST relies on another token, LUNA, to maintain its one-dollar price through a series of on-chain mint and burn mechanisms and is one of the largest algorithmic stablecoins.
- In a separate tweet thread, Do Kwon, the project's founder, said the move to lend $750 million of bitcoin should not be seen as an attempt by LFG to exit its BTC position, but rather to increase liquidity around the UST peg. LFG will buy more BTC if the 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 rebounding to $1. At the same time, LUNA fell 10%.
- One reason the UST briefly lost its peg was the large amounts of UST withdrawn from the liquidity pools of the decentralized exchange Curve, while $192 million worth of UST traded at dumping prices.