Rescue for UST! After a crisis, the LFG Foundation will lend $750 million worth of Bitcoin to stabilize.

Terra stablecoin UST decoupled in price over the weekend, leading to a significant drop in the price of LUNA. The official organization of Terra, LFG, which maintains the stability of UST value, has introduced new currency policies to uphold the stability of UST.

LFG stated that in the past few days, there has been significant volatility in the entire cryptocurrency market, including traditional assets, due to uncertain macroeconomic conditions causing turbulence.

They stated that UST faced considerable one-way flow over the weekend, indicating a large amount of selling, leading to the decoupling event in price, which also caused fluctuations in LUNA and BTC. The phenomenon of such fund flows has now ended, and they are preparing for future volatility.

Advertisement - Please scroll down for more content

LFG's UST Protection Policy

According to LFG, its council has passed the following resolutions:

• Lending $750 million worth of Bitcoin to OTC companies for off-exchange trading to maintain UST stability
• When market conditions stabilize, lending $750 million in UST to accumulate BTC

LFG stated that traders will be trading on both sides with the funds to achieve the above two objectives. Eventually, as market conditions gradually stabilize, the parity in LFG's reserve fund pool will be maintained.

The transfer of Bitcoin will soon be updated in the reserve detail table.

Terra founder Do Kwon explained: "LFG is not looking to sell their Bitcoin."

Instead, they plan to use a total of $750 million worth of BTC and $750 million worth of UST to "mitigate" the uncertainty around UST. Their strategy involves buying UST with this fund when the price is below the anchor price, and buying BTC when it is above the anchor price; thus enhancing the liquidity of UST. He mentioned that although trading UST now doesn't make much sense, this fund is ready to enter the market.

Review of Weekend Price Decoupling

UST experienced a price decoupling of 0.9857 in the early hours of May 8th. According to observations by netizens, the Terra official first withdrew 150 million UST from Curve, followed by another transaction transferring 84 million UST to Ethereum. Four minutes later, a large-scale sell-off occurred.

The Terra official then withdrew 100 million UST from Curve. After that, UST started to decouple, and an address began selling a large amount of ETH to buy over $100 million worth of UST. This address profited and avoided scrutiny for selling ETH while UST was decoupling.

Terra founder Do Kwon then stated: "I have made sure that this will not happen again for the next seven days, 24 hours a day. Those waiting for UST to become unstable probably won't see it until human extinction."

UST saw a massive sell-off of up to 285 million UST on stablecoin exchange protocols Curve and Binance. Curve announced: "Curve War has new updates, as someone sold a large amount of UST, causing it to decouple. However, there is significant resistance, so the price anchoring has recovered. To maintain the price, a large amount of ETH and stETH pledged on Lido have been sold. This has significantly increased Curve's trading volume."

Following the incident, the Anchor Protocol, the largest UST usage protocol, still maintains an 18% annualized interest rate:

However, the deposit amount has decreased by 20% in UST, and the loan amount has also decreased by 24%:

Alameda: It Wasn't Us

Every time there is a sell-off incident in the crypto market, many communities point fingers at the trading institution Alameda. Its CEO Trabucco clarified: "It wasn't us, and we have no plans to do so."

Larry Cermak, Research Director at media outlet The Block, sarcastically commented that while you may not have sold UST, you may have around 90% of the UST open interest on the FTX exchange for hedging purposes, implying that there may be hedging activities going on.