Guard Loans $1.5 Bln In Bitcoin And UST To Protect Stablecoin.

2022-05-10 | Selina Mathew

Guard Loans $1.5 Bln In Bitcoin And UST To Protect Stablecoin.

In the midst of significant market volatility, the non-profit group dedicated to all things Terra has voted to spend $1.5 billion to protect the dollar peg of UST.

In difficult circumstances, harsh measures are required. And now, the Luna Foundation Guard (LFG), a non-profit dedicated to all things Terra (LUNA), elected to lend $1.5 billion in cryptocurrency to safeguard the local stablecoin.

The organization's council decided to lend $750 million in Bitcoin and $750 million in TerraUSD (UST) from its reserves in order to maintain the latter asset linked at $1.

According to Do Kwon, the founder and CEO of Terraform Labs, the firm issued the loan to an anonymous "professional market maker."

The loan was issued in light of the UST momentarily dropping below its dollar peg amid significant crypto market volatility.

The stablecoin hit a low of $0.985 on Saturday. It is now selling at $0.995. These aren't huge swings, but they're hardly ideal for a stablecoin.

Thus, if the asset continues to fall below its peg, the borrowed money would be utilized to purchase UST and sell UST (and buy BTC) if the asset is larger than or equal to its peg.

The subsequent UST purchasing pressure is projected to bring the stablecoin back near $1. If the token is trading over $1, the following sell pressure would have the reverse impact.

UST and Luna Unpacking

Terra's native UST stablecoin is a one-of-a-kind product.

UST is decentralized and algorithmic, unlike more typical stablecoins like Tether's USDT or Circle's USDC.

It's decentralized in the sense that the token isn't managed or backed by centralized assets (be it cash, bonds, equities, or otherwise).


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