- The Luna Foundation Guard (LFG) has announced an elaborate plan to protect UST from depegging
- The plan involves loaning $750 million worth of Bitcoin to OTC trading firms the help protect the UST peg
- LFG will also loan 750 million to accumulate BTC as market conditions stabilize
- The traders that take up the loans will trade on both sides of the market to avoid depegging and protect UST from the ongoing volatility
According to the official announcement by the LFG, the market volatility of the past few days across the crypto markets ‘has been significant’ and characterized by ‘uncertain macro conditions across legacy asset.’
1/ Over the past several days, market volatility across crypto assets has been significant.
The market turmoil is also reflected by the past week’s uncertain macro conditions across legacy asset classes.
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
The LFG to Loan $750M Worth of Bitcoin to Protect the UST Peg
Consequently, ‘UST has experienced notable directional flow over the weekend, accompanied by similar volatility in both LUNA and BTC. While this flow has currently evened out, it is prudent to prepare for potential future volatility.’
The plan to protect TerraUSD (UST) from depegging involves loaning out $750 million worth of Bitcoin to OTC trading firms to help maintain the peg. At the same time, 750 million UST will be loaned out to similar firms to accumulate BTC as market conditions normalize.
The team at the Luna Foundation Guard explained how the funds would be utilized to defend UST’s peg.
The traders will trade the capital on both sides of the market…eventually maintaining parity of the LFG Reserve pool (denominated in BTC) as market conditions progressively stabilize.
The LFG is not Exiting its Bitcoin Position – Terra’s Do Kwon
Terra’s founder, Do Kwon, supplemented the announcement by the Luna Foundation Guard and further elaborated that LFT was not trying to exit its Bitcoin position. The goal is to have its capital in the hands of a professional market maker to maintain the UST peg. He explained:
First, *LFG is not trying to exit its bitcoin position*.
The goal is to have this capital in the hands of a professional market maker such that:
1) Buy UST if price < peg
2) Buy BTC if price >= peg
thus significantly strengthening the liquidity around UST peg
He went on to add the following:
While buys and sells of UST are not meaningfully directional now, we felt it was valuable to have capital ready to be deployed in the current market.
As markets recover, we plan to have the loan redeemed to us in BTC, increasing the size of our total reserves.