LFG allocates $1.5bn to back the UST peg

The Luna Foundation Guard (LFG) Council will provide a $1.5 billion loan to OTC traders to back the algorithmic stablecoin TerraUSD (UST) to the dollar amid market volatility.

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 past few days have seen significant volatility in the cryptocurrency markets. Market turmoil is also reflected in the uncertain macroeconomic conditions across legacy asset classes,” the organisation said.

Over the past weekend UST briefly lost its peg to the dollar. This occurred amid a large outflow from the Anchor protocol.

“UST experienced a noticeable directional flow over the weekend, accompanied by volatility in both LUNA and Bitcoin. While this movement has since levelled, it is prudent to prepare for potential future volatility,” the LFG said.

To protect the “stability of the UST and the Terra ecosystem in general,” the LFG Council decided to allocate loans to OTC firms totaling $750 million in BTC and $750 million in the stablecoin.

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

“Traders will be trading capital on both sides of the market, helping to achieve both the first and second objectives, ultimately supporting the parity of the reserve pool LFG (denominated in BTC) as market conditions stabilise,” the organisation said.

Delphi Ventures partner Jose Maria Macedo noted that the LFG decision will make UST more robust, but also more centralised.

Haters will criticise this for centralisation and they’re right, for now. @LFG_Reserve made $UST more robust, but also temporarily more centralised

Fully decentralised reserve mechanism described by @jump_ is being worked on by the @astroport_fi team as we speak https://t.co/0REaVl47Ng

— José Maria Macedo (@ZeMariaMacedo) May 9, 2022

One user said that it’s impossible to talk about decentralisation when a small group of people makes a decision to allocate substantial funds.

“You’re right, the market tanked before systems were ready. So this should be an intervention,” Do Kwon responded.

https://t.co/GSKJYU2ODx

Your right — market tanked before systems were ready, so this would be intervention

— Do Kwon 🌕 (@stablekwon) May 9, 2022

Some argued that the funds allocated were not enough to guarantee the stability of the UST peg.

In May, the LFG also purchased 37,863 BTC for a total of about $1.5 billion and raised its balance to 80,394 BTC (~$2.98 billion).

Earlier, Do Kwon said that to sustainably back UST a reserve Bitcoin fund of $10 billion is needed.