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Algorithmic Stablecoin UST's Peg is Stressed by Crypto Market Carnage, Terra Supporters Claim Stablecoin Was Victimized by a 'Coordinated Attack'
The value of digital currencies has dropped dramatically in recent weeks, as billions of dollars have left the cyber economy. Traders generally use stablecoins to hedge their capital against turbulent market conditions, which is understandable given the state of the crypto sector. BTC has declined in price in recent days, from $40,000 per unit on May 4 to $32,637 per coin on May 9. The whole crypto economy has followed BTC's downward spiral, with the total number of 13,432 tokens in circulation down 5.5 percent against the US dollar.
Tether (USDT), USDC, and several other stablecoins, including UST, have seen increased trade volumes as a result of this. On May 7, however, the value of UST fell to $0.985 per unit against tether (USDT). While this isn't a huge thing, and many other stablecoins have fallen below $1, Terra's stablecoin has been trending on social media and in forums for the previous two days. In addition, a large sum of UST was taken out of Anchor Protocol and Curve Finance.
A few Terra supporters saw the incident as a "organized attack," with the UST dumps being "intentional." "We are once again seeing a concerted onslaught on UST," one Terra fan said on Sunday morning. A single player dumped $285 million worth of UST on Curve and Binance, followed by large shorts on LUNA and hundreds of Twitter messages. So far, it hasn't been a particularly successful attempt, since the peg is nearly back to one dollar." UST is the tenth-largest crypto asset by market capitalization at the time of writing, trading for $0.995077 per unit.
Luna Foundation Guard Reveals $1.5 Billion in Crypto Asset Lending to Protect UST's Peg
Following all of the conjecture, speculations, and conspiracy theories, the Luna Foundation Guard (LFG) and Terra's co-founder Do Kwon announced on May 9, 2022 that the team was taking steps to guarantee the peg was protected. "Market volatility across crypto assets has been severe over the previous several days," LFG warned on Monday. "The last week's unstable macro conditions across legacy asset classes reflect the market instability." "Proactively safeguard the stability of the UST peg [and] the broader Terra economy," according to LFG.
To ensure the stability of UST's $1 parity, LFG has opted to lend out bitcoin (BTC) and the stablecoin UST. "The LFG Council has decided to carry out the following actions: — Loan 750 million UST to accumulate BTC when market conditions normalize. Do Kwon, Terra's co-founder, updated the public on the lending activity. "LGF is not aiming to exit its bitcoin position," Kwon said. The fundamental purpose, according to Kwon, is to put capital in the hands of skilled market makers.
"Buy UST if price [is less than] peg" and "Buy BTC if price [is greater than or equal to] peg," Kwon explained, "thus considerably enhancing the liquidity surrounding UST peg." Terra's co-founder continued:
"While UST buys and sells are now directional, we felt it was important to have capital available to deploy in the current market. We intend to have the loan redeemed in BTC as markets recover, boosting the size of our entire reserves."
To defend UST's $1 parity, LFG's expert market makers will use the capital to protect both sides of the market. LFG purchased significant sums of bitcoin (BTC) to put in its decentralized FX reserve, prompting current debates over UST's peg. For the same reason, LFG invested $100 million in AVAX. While LFG's BTC wallet has 42,530.82 bitcoin, no funds have been sent. LFG, on the other hand, recently purchased 37,863 bitcoin in two over-the-counter transactions. LFG has most likely used the most recent purchase to lend to market makers, as there have been no withdrawals from the publicly available BTC address.
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