The Luna Foundation Guard’s (LFG) projected cryptocurrency reserve to protect against the UST stablecoin’s collapse arrived too late to prevent last week’s market chaos.
The lack of a formal mechanism in place for the project’s currency reserve – supposed to prevent a crisis of confidence in UST’s dollar peg – left the stablecoin exposed to a market meltdown as digital assets dropped alongside traditional markets.
Instead, officials were forced to improvise solutions, giving $1.5 billion in bitcoin loans to keep the peg and then apparently trying to get new funding for the project.
LFG amassed a total of 70,736 bitcoins (worth over $2 billion) as an FX reserve for Terra’s algorithmic stablecoin UST, which recently suffered a catastrophic depeg and caused mayhem in the crypto market.
Although LFG tried to save UST using those bitcoins, it was unsuccessful. As a stablecoin, UST is meant to be worth $1 at all times, yet it lost nearly all of its value.
A Bitcoin account affiliated with LFG transmitted around $750 million worth of Bitcoin to a new address on Monday, according to blockchain analytics firm Elliptic, only hours after LFG announced the $1.5 billion loan.
Later that evening, a total of $930 million in Bitcoin was transmitted to the same new address from numerous LFG-affiliated accounts. This total of 52,189 Bitcoin, valued over $1.6 billion, was subsequently transferred to a single Gemini account.
LFG has also withheld information about the $750 million loan, including the names of the debtors, the rate of interest, and the lender’s present state. In the midst of the UST upheaval, LFG was rumored to be seeking even more money, totaling over $1 billion, to protect the stablecoin’s peg, but then those efforts appear to have halted, since LFG has made no comments in that respect.
The testnet deployment is a few weeks away, according to Do Kwon, co-founder of Terra development firm Terraform Labs. Recently, there’s been a lot of discussion concerning algorithmic stablecoin chokepoints, with detractors claiming that they are intrinsically volatile in a market drop and prone to market players exploiting design flaws.
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Jai Hamid
CoinCu News
London, united kingdom, 22nd November 2024, Chainwire
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