LFG stated that it will initially lend $750 million worth of BTC to over-the-counter trading firms in order to manage capital and “help defend” UST.
The Luna Foundation Guard (LFG) will deploy $1.5 billion worth of capital to “help protect” Terra USD’s peg to the U.S. dollar in the wake of this week’s severe declines in Bitcoin (BTC) and the broader crypto market.
As part of the Terra (LUNA) ecosystem, the Singapore-based organisation LFG is entrusted with collateralizing the network’s algorithmic stablecoin UST to maintain its USD peg, as well as managing the network’s reserves.
The LFG said on Twitter earlier today that it will initially lend $750 million worth of BTC to over-the-counter (OTC) trading firms in order to manage and trade the funds.
In order to rebalance its reserves, the LFG will receive a 750 million UST loan, most likely from Terraform Labs, once the market has calmed.
The LFG added that the council opted to implement the strategy after noticing “substantial” market volatility in BTC, UST, and LUNA over the past few days.
4/ As a result, the LFG Council has voted to execute the following:
– Loan $750M worth of BTC to OTC trading firms to help protect the UST peg.
– Loan 750M UST to accumulate BTC as market conditions normalize.
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
Do Kwon, founder of Terraform Labs, explained on Twitter that “LFG is not attempting to liquidate its Bitcoin position” and is eventually using the capital in the short term to boost UST in the short term in order to increase its BTC holdings in the long run.
“Although purchases and sales of US Treasuries are not significantly directional at the moment, we deemed it advantageous to have funds available for deployment in the current market. As markets recover, we intend to have the loan repaid to us in BTC, thereby expanding our total reserves.”
1/ The LFG Council just voted to deploy 1.5B in capital (0.75B in BTC, 0.75B in UST) to allay market concerns around UST. Some more context on why and how: https://t.co/TfaAPkzgUJ
— Do Kwon 🌕 (@stablekwon) May 9, 2022
As the LFG’s $2.91 billion in reserves are mostly backed by BTC (91 percent or $2.7 billion), the falling value of assets is requiring the organisation to rebalance its finances in order to retain the UST’s peg. At the time of writing, the BTC price has decreased by 12.7% over the past week to approximately $33,600, while the UST price is slightly off at $0.99.
Terra’s native asset LUNA, which contributes to the maintenance of UST’s peg through its burning and minting process, has also suffered severely over the past week, falling a massive 24.5 percent to $62.15.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
