YEREVAN (CoinChapter.com) — Terra’s Luna Foundation Guard (LFG) announced on May 9 that it plans to protect its native stablecoin, TerraUSD (UST), U.S. dollar peg by temporarily lending off half of the Bitcoin (BTC) that it recently purchased, citing high volatility.
As CoinChapter reported, Terra purchased $1.5 billion to back its UST supply.
1/ Over the past several days, market volatility across crypto assets has been significant.
The market turmoil is also reflected by the past week's uncertain macro conditions across legacy asset classes.
— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
In detail, LFG plans to loan $750 million worth of BTC to over-the-counter (OTC) trading firms “to help protect the UST peg.” Moreover, it will loan 750 million UST to accumulate BTC as “market conditions normalize.”
The traders will trade the capital on both sides of the market to help accomplish both [goals], eventually maintaining parity of the LFG Reserve pool (denominated in BTC) as market conditions progressively stabilize.
However, some followers called the latest situation a “UST fiasco” and added that the circumstances were “fishy.” For example, Mudit Gupta, the chief information security officer at Polygon, pointed out that Terra removed $150 million worth of UST from Curve right before another address “bridged” $84 million in UST to Ethereum. Then, the address dumped the UST, triggering the sell-off.
UST fiasco is very fishy.
– Terraform Labs removed $150m of UST liquidity from Curve yesterday – 1 minute later, a freshly funded address bridged $84m of UST to Ethereum (Initiated bridging before TFL removed liquidity) – 4 min later, it dumped the UST, triggering the sell-off
LUNA’s price spiraled into a freefall, losing 25% since May 6, and traded at $62 in Monday’s Asian Pacific session. As a result, the Terra token came close to a rebound level that could reverse the drawdown or halter the plunge.
In detail, the LUNA/USD exchange rate formed a setup dubbed the Rising Channel. The latter entails two parallel trendlines that enclose the price action and persist through continuous support and resistance retests. Terra’s governance token retested the formation’s upper trendline on Apr. 5, establishing an all-time high of nearly $120.
Terra (LUNA) daily chart featuring a Rising Channel. Source: TradingView.com
Subsequently, the token moved south and could retest the support at approximately $56, another near-10% decline. Should LUNA break below the Channel’s lower trendline, it could retest another support bar at $50 that assisted the token throughout February.
However, the Rising Channel alone cannot predict LUNA’s future price action with certainty. The digital asset remains dependent on broader market conditions, Bitcoin’s price action, and UST supply. Thus, it could fall further in the upcoming sessions, given the digital asset market’s dire drawdown.
Lilit is a Yerevan-based Markets writer, skilled in 3 languages, and interested in writing about the tech world, trading, art, and science. She also has a background in psychology and marketing, which helps deliver the right message to the target audience.
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