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.
· 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 that 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· Part of the reason why UST briefly broke its peg was the large quantities of UST that were withdrawn from liquidity pools on decentralized exchange Curve, while $192 million of UST was dumped.