The Luna Foundation Guard (LFG), the entity tasked with holding bitcoin (BTC) as part of the reserves backing the TerraUSD (UST) stablecoin, has loaned out USD 750m worth of BTC to a trading firm “to help protect the UST peg.” Confronted with what this really means, Terra (LUNA) founder Do Kwon claimed that the LFG is not seeking to exit its BTC position.
According to a series of tweets from the LFG, the move to loan out BTC was necessary in order to protect the stablecoin’s peg in the face of increased volatility in crypto markets – and a temporary drop in the price of UST – over the weekend.
“Per the LFG’s mandate, the LFG will proactively defend the stability of the UST peg & broader Terra economy, especially under volatility and the uncertainty of macro conditions in legacy markets,” LFG said in a Twitter thread posted on Monday, adding that crypto market volatility recently has been “significant.”
Further, the thread added that the LFG Council – in order to deal with the situation – has voted to:
- loan USD 750m worth of BTC to OTC trading firms to help protect the UST peg;
- loan UST 750m to accumulate BTC as market conditions normalize.
As of Monday at 11:24 UTC, BTC has fallen by 5.4% over the past 24 hours, while Terra’s native token LUNA has fallen by 5.3% over the same time period. Over the past 7 days, the two coins are down by 15% and 27%, respectively.
Meanwhile, the price of UST dipped as low as 0.986 against tether (USDT) on on Saturday, before trimming losses. As of press time, UST remained below its peg, trading at USDT 0.995 on the exchange.
“Not very clear” communication
Perhaps not surprisingly, the LFG’s communication on the issue led to discussions in the community on Twitter, with some criticizing the foundation for what they described as “not very clear” communication.
“Has BTC been sold,” and in that case, “how much,” asked Twitter user Tundra who described himself as a core developer for Nexus Protocol (PSI), a decentralized finance (DeFi) platform for Terra. “What does this ‘loan’ structure entail,” the user followed up by asking.
Other users also chimed in, asking why the LFG chose to loan out its BTC rather than just sell it to defend the UST peg. Others argued that the move is “very likely PR” from the LFG’s side.
LFG “haven’t sold bitcoin yet”
Shortly after, however, Terra founder Do Kwon came out with his own clarification of the situation, claiming that the LFG is “not trying to exit its bitcoin position.” Instead, Do Kwon said that the goal is to have capital ready for market makers so that they can buy UST if the price is below the peg, and buy BTC if the price is above (or equal to) the peg.
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