During the sharp decrease witnessed throughout BTC (Bitcoin) and the broad market of cryptocurrency this week, the LFG (Luna Foundation Guard) is prepared to allocate $1.5B in capital to assist in the protection of the UST’s (Terra USD) peg to the USD (United States dollar). The LFG (the Singapore-based nonprofit organization) is included in the ecosystem of Terra and its task is to collateralize the UST (the algorithmic stablecoin of the network) to keep the USD peg thereof intact whereas additionally administering the reserves of the network.
Though the details are least at the current phase, the LFG turned to its official Twitter account to share that it will initially loan out up to $750M in Bitcoin to OTC (over-the-counter) trading companies to trade and manage the capital. After this, as the market once becomes stable, a loan of nearly 750M in UST would be acquired by the LFG, most probably from Terraform Labs for the rebalancing of its reserves.
It was noted by LFG that a poll was conducted by the foundation to vote for the execution of the strategy following it observed substantial volatility throughout the LUNA (Terra), UST, and BTC during some of the previous days. While providing additional details regarding the step, Do Kwon (the founder f Terraform Labs) asserted in a Twitter post that no attempt is being made by LFG to quit its BTC position and it is finally allocating the capital shortly to fortify the position of UST that will elevate its Bitcoin holdings for long term.
Also read:He added that while UST trades and purchases are not considerably directional at present, they considered it to be profitable to have a ready capital to be allocated in today’s market. With the recovery of markets, their strategy is to obtain a loan in Bitcoin, inflating the magnitude of their cumulative reserves. As the reserves of LFG (that comprise almost $2.91B) are fundamentally supported by Bitcoin by 91%, the assets’ decreasing price is pushing the organization to rearrange the balance sheet thereof for the sustenance of UST’s peg.
As of now, a plunge of more than 12.7% has been witnessed in Bitcoin during the previous week placing it at nearly $33,600, whereas UST is at $0.99 (somehow below its peg). The local asset of Terra, LUNA –which additionally plays a significant role in the maintenance of UST’s peg through its minting and burning mechanism – has undergone a decrease of 24.5% (placing it at $62.15) in the recent week.
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