This is not the first time that the UST has lost its link to the rest of the market. On early Sunday due to intense market conditions, UST lost its peg.
The controversial stablecoin algorithm was announced just days after the Luna Foundation Guard (LFG), the organization that backs it, bought Bitcoin for $1.5 billion to bolster the newly decoupled stablecoin pool.
Seems like now, UST is facing issues keeping its price intact.
Luna’s Solution
Luna Foundation Guard (LFG) announced that it would lend $1.5 billion worth of Bitcoin and stablecoin TerraUSD (UST) to defend its peg during a time of market volatility and uncertainty in macroeconomic conditions in legacy markets. The Singapore-based non-profit organization tweeted:
“Traders will trade capital on both sides of the market to reach both #1 and #2 and ultimately maintain LFG reserve pool parity (denominated in BTC) as market conditions become increasingly stable.”
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
Terraform Labs (TFL) founder Do Kwon also clarified that the Luna Foundation is not attempting to exit its Bitcoin position by donating $750 million to the borrowed cryptocurrency. Instead, the goal is to increase liquidity around the UST peg.
Peg’s weekend
It all started after the UST witnessed mass withdrawals from Terra’s Anchor Protocol. Significantly, UST deposits are currently earning investors 18.8% APY. This reduced Anchor’s total UST filings from $14 billion to $11.2 billion.
According to SplitBrick co-founder Pedro Ojeda, 16,000 addresses interacted with Anchor over the same period, and twice as many withdrew than deposited. The CEO also claimed that the market event did not appear to come from retail players. Terra’s Twitter account claimed that a small percentage of whales accounted for most of the runoff.
However, one example that caught the eye was a freshly funded address that topped $84 million in UST Ethereum. According to Polygon’s Mudit Gupta, the address initiated the bridging before Terraform Labs (TFL) removed the liquidity. Massive amounts of UST have also been raised from liquidity pools on the major decentralized exchange Deduced Curve.
However, Do Kwon confirmed that $150 million in UST was withdrawn from TFL by Curve in preparation for rolling out to 4pool next week. The founder confirmed that they did not make the $84 million release.
