LFG Prepared to Add USD 1.5 Billion to Leverage USD Peg and Grow BTC Reserve

LFG indicated it would start with a USD 750 million loan worth of Bitcoins to different firms over-the-counter to help manage capital and protect UST.

As Bitcoin and most cryptos continue with the bear run, Luna Foundation Guard (LFG) is deploying USD 1.5 billion worth of capital to help in protecting Terra USD’s (USD). 

LFG, a non-profit organization based in Singapore, is part of the Terra ecosystem, which is mandated to collateralize the blockchain’s algorithmic stablecoin, UST, to ensure it remains pegged to the United States Dollar. It is also responsible for managing the network’s reserves. 

LFG Move Aimed at Protecting Reserves, which are Mainly in BTC 

Although the details remain scanty, LFG explained on Twitter that the first loan to be made available would be USD 750 million worth of Bitcoins to over-the-counter companies to trade the capital. Then, LFG will secure another 750 million in UST loan, probably from Terraform Labs, to help rebalance the reserves. 

LFG was quick to note that its council gave it the nod to implement the plan while cognizant of the ongoing market volatility for different cryptos, especially BTC, Terra Luna, and UST. 

According to Do Kwon, the Terraform Labs founder, LFG is looking forward to exiting the Bitcoin position, and the capital is being deployed in the short-term to strengthen UST and up BTC holding in the long-term. 

Here is what Kwon had to say: 

“While buys and sells of UST are not meaningful options now, we felt it was valuable to have capital ready to be deployed in the current market. As the markets recover we plan to have the loan redeemed in BTC …”

Because LFG’s USD 2.9 billion in reserves are backed mainly with BTC, the declining price of BC is forcing the firm to make a quick adjustment to avoid losses. The price of Bitcoin has shot down from a high of USD 68,000 in November 2021 to about USD 33,600 on Monday, 9th May 2022. 

Even LUNA, Terra’s native coin, has not been spared by the current bear market run. LUNA plays a crucial part in maintaining UST’s peg to USD via its minting and burning mechanism. Last week alone saw LUNA’s price drop by up to 24.5%.

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