The Luna Foundation Guard (LFG) plans to loan $750 million worth of Bitcoin BTC/USD to market makers as part of a wider strategy to protect the UST stablecoin peg.
What Happened: The Terra LUNA/USD blockchain’s stablecoin TerraUSD UST/USD briefly lost its peg to the U.S. dollar on Saturday in what the community described as a “coordinated attack.”
The weekend’s events prompted the LFG Council to come out with a way to tackle the issue.
The blockchain said it plans to loan $750 million worth of BTC to over-the-counter trading firms to protect the UST peg and loan $750 million UST to accumulate BTC as conditions normalize.
5/ 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 | Luna Foundation Guard (@LFG_org) May 9, 2022
Market participants interpreted the announcement as a way to save face and justify the sale of Bitcoin. For context, Terra has been steadily acquiring BTC for its reserves over the last month to make its algorithmic stablecoin UST into one that is backed by Bitcoin.
Very likely PR. Selling BTC would likely be considered as a weak move, this positioning probably psyops the community
— Larry Cermak (@lawmaster) May 9, 2022
Terra founder Do Kwon confirmed that the transaction had been sent out and said that the blockchain plans to “eventually redeem this entire clip in bitcoin.”
Haven’t sold bitcoin yet – the txn just went out. It’s a loan to a market maker – if UST imbalance happens we will use BTC to rebalance, and if demand is surplus we will buy BTC
We plan to eventually redeem this entire clip in bitcoin, let’s see
— Do Kwon 🌕 (@stablekwon) May 9, 2022
The Bitcoin will be used to trade just means the Bitcoin will be sold. You’ve essentially sent 3/4s of a billion dollars worth of BTC out to be sold at market at range lows while BTC is breaking key support, directly contributing to overall market decline. Not a great situation.
— TradingPlaces (@TradingPlaces18) May 9, 2022
Price Action: According to data from Benzinga Pro, BTC was trading down 3.28% at $33,400, while LUNA was trading 5.6% lower at $61.50.