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Concerns about the algorithmic stablecoin terrausd (UST) losing its $1 parity have intensified recently as the value of the cryptocurrency market continues to slide. Two days ago on May 7, 2022, UST fell to $0.985 per unit against Tether (USDT), and the price drop of the stablecoin sparked a lot of speculation about UST losing its peg to the U.S. dollar. After Saturday’s drop, the Luna Foundation Guard (LFG) revealed that it is lending millions of dollars worth of Bitcoin and UST to protect the peg until market conditions normalize.
Crypto Market Carnage Strain Algorithmic Stablecoin UST Peg
The digital currency market has suffered huge losses in recent weeks as billions of dollars have left the crypto economy. Of course, the turmoil in crypto markets often drives traders to use stablecoins to hedge their wealth against volatile market conditions. In the past few days, BTC fell from $40,000 per unit on May 4 to a low of $32,637 per coin on May 9. The entire crypto-economy followed BTC’s free fall, with the existing 13,432 tokens down $5.5%.
This has driven volume in Tether (USDT), USD Coin (USDC) and many other stablecoins including UST. However, UST fell on May 7, falling to $0.985 per unit against Tether (USDT).While this is not the biggest trade and many other stablecoins have fallen below $1 parity, topic Terra’s stablecoin trends on social media and forums for the past two days.Furthermore, a major Amount of UST withdrawn from Anchor Protocol and Curve Finance.
Some Terra supporters called the event “coordinated attack,” and said UST’s dumping was “intentional.” On Sunday morning, a Terra supporter wrote: “We’re seeing a coordinated attack on UST again. One player dumped $285 million in UST on Curve and Binance, followed by massive shorts on LUNA and hundreds of tweets. Not once so far Really successful attempt as the peg is almost back to $1.” At the time of writing, UST is the tenth largest crypto asset in terms of market valuation, changing hands at $0.995077 per unit.
Luna Foundation Guard Reveals Lending $1.5 Billion in Crypto Assets to Defend UST Peg
After all the speculation, rumors, and conspiracy theories, on May 9, 2022, Do Kwon, co-founder of the Luna Foundation Guard (LFG) and Terra explained that the team is taking steps to ensure the pegs are still protected. “The market for crypto assets has been volatile over the past few days,” LFG said on Monday. “Uncertain macro conditions in legacy asset classes over the past week have also reflected market volatility.” LFG said it was tasked with “actively defending the stability of the UST peg. [and] The wider Terra economy. “
LFG has Decide Lend Bitcoin (BTC) and the stablecoin UST to protect the stability of UST’s $1 parity. “The LFG committee has voted to implement the following measures: – Lending $750 million worth of BTC to [over-the-counter] Trading companies help protect UST hooks. – Loan 750 million UST to accumulate BTC as market conditions normalize,” the group said Monday. Terra co-founder Do Kwon further briefed the public on the lending action. Emphasize “LGF is not trying to exit its bitcoin position.” Kwon added that the main goal is to keep the funds in the hands of professional market makers.
The liquidity provided serves two purposes; “If the price buys UST [is less than] peg” and “if the price buys BTC [is greater than or equal to] pegs,” Kwon said, “thereby significantly enhancing the liquidity around the UST pegs. The Terra co-founder added:
While there is no apparent directionality in buying or selling UST right now, we believe there is value in being prepared to deploy capital in the current market. As the market recovers, we plan to redeem the loan to us in BTC, increasing our total reserve size.
Essentially, LFG’s professional market makers will defend UST’s $1 parity with funds protecting both sides of the market. The recent discussion around the UST peg comes after LFG purchased a large amount of Bitcoin (BTC) to preserve its decentralized foreign exchange reserves. LFG also acquired AVAX worth $100 million for the same purpose. Although LFG’s BTC wallet held 42,530.82 bitcoins, it did not send any funds. However, LFG recently picked up 37,863 BTC from two OTC transactions. With no withdrawals from public BTC addresses, LFG likely used recent purchases to lend to market makers.
What do you think of Terra’s co-founder and LFG’s decision to lend BTC and UST to market makers to defend the stablecoin’s $1 parity? Let us know what you think about this topic in the comments section below.
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