Terra makes ‘fishy’ attempts to maintain UST’s dollar peg as LUNA dips 25%

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.

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.”

Also read: Terra (LUNA) dumps 10% to become the worst-performing token among major cryptos. 

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.

further explained LFG.

‘Fishy’ hedge for UST?

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.

Also read: Cryptocurrency Prices Today: Binance (BNB), Solana (SOL), Dogecoin (DOGE), Kyber Network (KNC), Terra (LUNA), Zcash (ZEC), Algorand (ALGO)

LUNA price dips 25%

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.

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.

Also read: Terra eyes a 35% rally ahead despite the halt in LUNA uptrend. 

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.