The Luna Foundation Guard (LFG) plans to loan $750 million from Bitcoin BTC/USD to market makers as part of a broader strategy to protect the UST stablecoin peg.
What happened: the Earth LUNA/USD the blockchain stablecoin TerraUSD USD/USD briefly lost its peg to the U.S. dollar on Saturday in what the community described as a “coordinated attack.”
The events of the weekend prompted the LFG Consulting find a way to tackle the problem.
The blockchain said it plans to lend $750 million worth of BTC to OTC trading firms to protect the UST peg and lend $750 million UST to accumulate BTC as conditions normalize.
5/ Traders will exchange capital on both sides of the market to help accomplish both #1 and #2, possibly maintaining LFG reserve pool parity (denominated in BTC) as market conditions gradually stabilize .
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
Market participants interpreted the announcement as a way to save face and justify selling Bitcoin. For context, Terra has been steadily acquiring BTC for its reserves over the past month to turn its UST algorithmic stablecoin into one that is backed by Bitcoin.
Very likely PR. Selling BTC would likely be considered a weak move, this positioning likely psyops the community
—Larry Cermak (@lawmaster) May 9, 2022
Founder of Terra Do Kwon confirmed that the transaction had been sent and said that the blockchain planned to “eventually redeem this whole clip in bitcoin.”
I haven’t sold bitcoin yet – txn just came out. This is a loan to a market maker – if a UST imbalance occurs we will use BTC to rebalance, and if there is excess demand we will buy BTC
We plan to eventually trade this whole clip to bitcoin, let’s see
— Do Kwon 🌕 (@stablekwon) May 9, 2022
Bitcoin will be used to trade simply means Bitcoin will be sold. You have essentially sent 3/4 billion dollars worth of BTC to be sold in the market at low levels while BTC breaks key support, directly contributing to the overall market decline. Not a great situation.
— TradingPlaces (@TradingPlaces18) May 9, 2022
Price action: According to data from BenzingaProBTC was trading down 3.28% at $33,400, while LUNA was trading down 5.6% at $61.50.