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Whales want to buy back 1 billion USD LUNA from Luna Foundation Guard to save UST

According to The Block, LFG will use the cash to help restore the US dollar rate of the UST. On Monday (May 9, 2022), Algorithmic Stablecoin UST plummeted to as low as $0.6 amid a sharp correction in the entire crypto market. Very quickly, UST recovered back to around $0.9 the next day.

Algorithmic Stablecoin UST plummeted to as low as $0.6 amid a sharp correction
Algorithmic Stablecoin UST plummeted to as low as $0.6 amid a sharp correction

Cryptocurrency companies and funds such as Jump, Celsius, Jane Street, and Alameda are reportedly negotiating with LFG for a deal that would allow them to buy back $1 billion to $1.5 billion of LUNA at a discount. 50% discount. According to The Block, this amount of LUNA will be locked for a year before being distributed monthly. LFG has not yet commented on the funding round.

Earlier on Tuesday, Do Kwon, founder of Terra, Terraform Labs, posted a tweet intended to reassure investors in Terra.

When the UST price dropped to as low as $0.6, it sent shockwaves through the entire decentralized finance (DeFi) industry. The event even sparked comments from US Treasury Secretary Janet Yellen about the risks of banks operating using crypto stablecoins as well as the crypto market.

Limitations of the UST reserve fund

Many experts say that using Bitcoin as a reserve has created a vicious circle as well as a double-edged sword for the UST coin. Market correction, BTC value and LUNA both going down will cause UST to fall from its stable level. At that time, the other reserve will be forced to sell to restore stability to the UST. With its huge capitalization, recovering to the US$1 level for UST will require the reserve fund to release a lot of BTC. This action inadvertently increased the sell-off level of the market even more.

LFG has amassed over US$3 billion in Bitcoin in its reserves and has become one of the largest Bitcoin holders in the market. A new mechanism to use Bitcoin to maintain the stability of the UST like LUNA has also been proposed. However, the UST’s “crisis” came earlier than expected, before the mechanism was launched in the next few weeks.

When UST reached the $0.6 mark and the LUNA price dropped by nearly 50%, LFG deployed more than $1.5 billion in Bitcoin in its fund to keep the price on UST. This action seems to have succeeded as it lifted the price of UST back to $0.92. However, at the time of writing, UST has continued to decline to fluctuate around 0.73 USD. While the price of LUNA stood at $15, down 66% in value in 24 hours.