The Luna Foundation Guard is looking to raise $1 billion from investors as the dollar-pegged stablecoin plummeted to nearly half its value amidst turmoil in the broader market. According to reports, the cash infusion will help to restore the UST’s Dollar peg.
Luna Foundation Guard Moves To Defend UST
Earlier, The Luna Foundation Guard had earlier announced a series of measures aimed at defending the Terra economy and the UST Dollar peg, including loaning $750 million worth of BTC to over-the-counter trading firms, which would help protect the UST peg, and another loan of $750 million to buy back the sold BTC.
There was also a significant movement of BTC from a wallet associated with the Luna Foundation Guard, prompting intense speculation regarding the ultimate destination of the transfer.
A Recovery Plan?
The Luna Foundation Guard is now attempting to raise $1 billion to shore up the UST stablecoin as its value continues to crumble. Algorithmic stablecoins such as the UST have to stay one-to-one to the price of the underlying fiat currency, in this case, the Dollar. However, the stablecoin dropped to $0.61 on Monday, thanks to a wider sell-off in markets, before recovering to $0.91. However, this recovery was not enough to restore parity with the Dollar.
According to reports, Celsius, Jump, Jane Street, and Alameda are in talks to purchase LUNA, Terra’s token, at a discount of 50%. The tokens would then be subject to a one-year lockup period and vest monthly in the second year. The firms in question have not responded to the speculation, and neither has the Luna Foundation Guard. Earlier, Terra founder, Do Kwon, had tweeted that they were close to announcing a recovery package for the UST, asking investors to show patience.
UST Under Fire
The funding effort is the latest attempt by the Luna Foundation Guard, hoping to return some degree of confidence back into the market. Earlier, the foundation had announced that it had lent $1.5 billion worth of UST and Bitcoin to third-party trading firms. Initially, the foundation had planned to purchase nearly $10 billion in Bitcoin in an attempt to support the stablecoin’s peg.
UST has come under increasing criticism in its attempts to keep parity with the Dollar, which it does so through its relationship with the LUNA token. The price is kept in check through a burning mechanism and the ability to sell $1 worth of LUNA for 1 UST. Critics have pointed out that this operation is dependent on LUNA’s price and also on its DeFi platform, Anchor, producing a yield of up to 20% to incentivize liquidity. However, Anchor has seen a significant drop in deposits, falling from $14 billion to $10 billion.
The Failure Of Arbitrageurs
Usually, Arbitrageurs would step in during price fluctuations, convert $100 worth of $LUNA into $100 of UST, and pocket the price discrepancy as a profit. However, the recent and unprecedented withdrawals of UST across decentralized finance protocols have put significant pressure on the system.
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