This isn’t the first time UST has lost its bond. But the controversial algorithmic stablecoin was de-pegged again just days after the Luna Foundation Guard (LFG), the organization that supports it, bought $1.5 billion worth of bitcoin to bolster the stablecoin reserve.
Luna’s solution
Luna Foundation Guard (LFG) has announced it will lend out $1.5 billion worth of Bitcoin and stablecoin TerraUSD (UST) to defend its peg at a time of market volatility and uncertainty in macro conditions in legacy markets. The Singapore-based non-profit organization tweeted:
5/ Traders will trade capital on both sides of the market to reach both #1 and #2 and eventually maintain parity of the LFG reserve pool (denominated in BTC) as market conditions become increasingly stable.
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
Terraform Labs (TFL) founder Do Kwon also clarified that the Luna Foundation is not attempting to exit its Bitcoin position by lending $750 million of the cryptocurrency. Rather, the goal is to boost liquidity around the UST peg, he added.
The weekend de peg
It all started after UST witnessed high-volume withdrawals from Terra’s anchor protocol. It is important to note that UST deposits currently earn investors 18.8% APY. This reduced Anchor’s total UST deposits from $14 billion to $11.2 billion.
According to SplitBrick co-founder Pedro Ojeda, 16,000 addresses interacted with Anchor over the same period, and twice as many withdrew as they deposited. The CEO also claimed that the market event did not appear to have come from the retail players. Terra’s Twitter handle claimed that a small percentage of whales accounted for the bulk of the runoff.
One example that caught attention, however, was a freshly funded address that bridged $84 million in UST to Ethereum. According to Polygon’s Mudit Gupta, the address initiated the bridging before Terraform Labs (TFL) removed the liquidity. Massive amounts of UST were also withdrawn from liquidity pools on prominent decentralized exchange Curve.
However, Do Kwon confirmed that $150 million in UST was removed from TFL by Curve in preparation for deployment in 4pool next week. The founder confirmed that the $84 million dump was not made by them.
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